Tuesday, October 13, 2009

How free a market?

There are a bunch of elements in the health care/insurance reform story. Just the latest piece from a health insurance company association, a report prepared by Price Waterhouse Coopers that says that health insurance premiums will go up by more than they would have anyway if reform is passed. I saw the woman who is the association spokesman or maybe a/the boss on the PBS News Hour last night, and she was claiming that reform did not go far enough, so the health insurance companies that are members of her organization would be forced to raise rates (for example, not everyone would be forced to join, so the health insurance companies wouldn’t have access to young health people to gouge for insurance). Apparently there are holes in the report, which were reported on by the White House and admitted by Price Waterhouse.

Meanwhile, though, just to be clear, health insurance companies right now are benefitting from the current situation. So are pharmaceutical companies and to a lesser extent some doctors, but I am not going to address their situations right now. Health insurance companies are reported to only return 80% of premiums paid in as claims, on average. In Europe/Japan, in those places where they have private health insurance the rates are more like 95%.I don’t know what the levels are here in Pittsburgh, where the two biggest health insurance companies are “not for profit” (UPMC and Highmaek). But I assume we have all heard of “excess revenue”, the money beyond pay outs in claims that both these companies have. Some of that money likely goes into reserves (insurance companies are inventive at creating reasons to have larger reserves), some likely goes into additional purchases of land, buildings and quite frankly probably more lavish of offices. And some probably goes into executive compensation, bonuses for creating the very excess revenues used to pay the bonuses (a nice sort of symmetry).

Now given this sort of situation, Republicans are saying that our problems would be over if people and companies could buy health insurance across state lines. Currently there are state rules that prevent or at least limit that sort of thing. I know that there are other health insurance companies in the Pittsburgh area besides Highmark and UPMC; Aetna provides insurance for Rite Aid employees here. I don’t know if Aetna provides insurance for individuals, but given the lousy service they seem to provide Rite Aid employees, no one might want it. Still, from the point of view of the health insurance companies, right now everything is pretty hunky dory. I assume if the Republicans did mange to tear down state rules for health insurance companies, they might oblige by slowing the rate of increase of the growth in health insurance premiums, to show their gratitude.

Now, there may be some Blue Cross/Blue Shields or other health insurance companies dotted around the landscape that do hold to their original mission of providing health insurance without taking a substantial profit. Everyone might flock to them across state lines for individual and/or corporate health insurance, if permitted. But I have two, really three concerns about that.

First of all, they are not going to know all the physicians all over the country. Health insurance companies work now by negotiating with some physicians to be part of a network, and giving those doctors a lower but guaranteed payment. Maybe that won’t matter because my mythical BC/BS has a lower profit rate, but it makes me wonder.

Second, someone will have a problem sometime with a claim (it is inevitable), and when they go to complain, how difficult will it be to reach across state lines and contact this mythical BC/BS. Often, when you are dealing with a health insurance problem, you are yourself not 100% and may have trouble pursuing this. Of course, with UPMC or Highmark, you can visit offices, and talk to a person. Plus you can contact the state insurance commissioner and/or KDKA, WTAE or WIIC to put pressure on the insurance company. That will be more difficult if the BC/BS is out of state.

Finally, I wonder if lower cost health insurance companies taking business from all across the country might become victims of their own success. First, they would have to hire more staff and expand operations. There is always a danger of finding excuses to increase rates because of that expansion. And also there is a danger the health insurance company might go from being a local oligopy to being a regional or national oligopy, and find it attractive to raise rates in different parts of the country to levels just below the local health insurance companies.

I can’t say for sure these things would happen. But I will say that by capitalist standards health insurance companies are very successful now. They should be able to maintain that level of success even if deregulated, although it is possible that we might see health insurance firms trying to push other firms out of business, and an emergence of only a few national firms (a la oil companies). I am not sure that would be an improvement in our situation.

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