I attended the Wisconsin Manufacturers & Commerce (WMC) Business Day in Madison this week. The afternoon session included a panel discussion on health care which was recorded (about 65 minutes). It will be archived on Wisconsin Eye in a few days.
John Torinus talked about how he is controlling health care costs at his company and how those same principals can be applied to other businesses and the public sector. It was a compelling presentation; one everyone should watch.
Also on the panel was the Secretary of the Department of Health Services Karen Timberlake. She talked about steps the state is taking to control costs. Again, I hope you will seek out this presentation and listen to her remarks as there are some very positive steps being taken. Regrettably, she had a few comments on health insurers that showed her great bias against “my” industry.
A Power Point slide focused on how in 2009 health insurers profits increased by 56 percent while over the same period they were "dropping" 2 million people. I don't have access to the industry-wide P & L results for 2008 and 2009, but I happen to know 2008 was a terrible year for health insurers.
In addition to the usual underwriting losses, their investment portfolios (like everyone's) were hammered by the stock market crash. (Investment returns often offset unexpected claims.) So if insurers collectively had earnings in 2008 of about 1.8 percent of revenues but in 2009 earnings recovered to about 2.8 percent (these are estimates but pretty darn close, I'd wager), that would be a 56-percent increase. By reporting only the percent increase, it sounds pretty bad doesn't it? (Now I ask you, what business owner in his/her right mind would be content with earnings of only 3 percent of revenues?)
As for "dropping" 2 million members, do you suppose the economy had something to do with that? Hmmm, haven't I been reading something about unemployment over recent months and don't the majority of Americans get their health insurance through their employer?
At least in this case, Secretary Timberlake - like so many politicians on both sides of the aisle - seems to be distorting the facts to her end; i.e., if you portray health insurers as scheming to drop 2 million (just the sick, of course) customers to pad profits, does a gullible public conclude government might do better?
Well, we're not as gullible as “they” think. And by distorting the truth so badly, “their” overall credibility is even lower than the insurers they vilify.
And while I'm thinking of insurers, I'm sure you're hearing a lot from the same political class about recent premium increases. While I'm hardly a lackey for those insurers I represent - and clearly some of their increases seem unnecessarily high - regulators have a lot to do with premiums. Insurers are required to remain solvent. If we applied the same rules to Medicare, the tax increases would make premium hikes seem small! My suggestion is that Medicare's “Board of Directors” (that would be Congress) get their own house in order before they presume to second-guess insurers!
Jon Rauser is president of The Rauser Agency Inc., Milwaukee. He writes an ongoing blog about the health care industry at www.rauserhealthreview.com.
13 Comments
Wow! What are these guys smoking? Oh wait, I see he sells insurance. Now I get it. In the real world, insurance companies add NO value to the health care equation. They are leeches that suck billions out of the system, at the expense of businesses, people and the government. It's a shameful, corrupt and inefficient system. No wonder it is bankrupting this country!
Mr. Rauser, thank you for your insightful comments, (not like those of Mr. Banek) the insurance companies are entitled to make a profit like any other business. If I want to know something about a business I will ask someone who is in the business. Certainly not a politician.
Yea, Brian, the insurance industry is draining off 20% of our healthcare dollars as a needless middleman. Best to ask an insurance man if this is a good deal or not (for the record: yes for his industry, no for the public). So are you also an industry Rep?
Why is it that when questions are asked about an industry that is obviously making a whole lot of money (you can argue percentages, but facts are facts) while at the same time we face a national problem of uninsured millions...that the questions are referred to as "smears"? If someone has questions, they are immediately said to show "great bias?" Banks, insurance companies, investment firms and others are facing some serious changes. So face them. Accept the fact that we can't live with millions of people being dropped from coverage - especially when the economy turns bad. Be a part of the solution. You are indeed part of the problem.
Hey Mike and others who find his commentary "on target", put the following in your pipe and smoke it;
The five largest insurers had $12.2B in net income and $232.5B in revenue. That comes out to a margin of 5.2%.
An even more relevant context for the profit number is this: the US spent roughly $2.3 trillion in 2009 on health care, according to CMS. The $12.2 billion profit in this context now appears so small as to be almost a rounding error: 0.5%.
Regardless of whether you believe the profit is too high, you cannot argue that reducing this profit will make a serious dent in health care costs. All private health insurance profit combined (all 1,000 insurers) only amounts to 1% of total health care expenditures. All private health insurance administration combined only amounts to around 4% of health care expenditures. This is because only about 1/3 of health care expenditures are paid through private insurance. Roughly half is from government sources and the rest is out of pocket.
It is not a big stretch to figure out that no one likes insurance companies and there are some valid reasons not to, but what they "suck out of the system" is not one of them. If you would like to redirect your frustration where it may actually do some good then call your Congressman or U.S. State Senator and tell them to have the government reimburse providers fairly (not at 30-40 cents on the dollar as they currently do), offer up some real tort reform legislation, and MAKE providers show what their costs are at time of service (gee, what a novel idea, have them show prices like the the way every other business operates and the way you and me expect things to work). Then we may actually get somewhere.
Simple question. What value do health insurance companies add to the health care delivery system?
All I know is that the countries that are doing a far better job of delivering health care than ours (We're Number 37 as the great YouTube song goes) without health insurance companies in the mix or having them tightly regulated like utilities. Further, nobody is going broke in these other countries paying for health insurance.
I mean really. Think of any other service that you dutifully pay for where you don't have to worry about it not being there when you need it. Those stories rip you heart out as well they should for anyone who is not a sociopath.
As for the remark about Congress, at least we get to elect them. It would be nice however if we didn't have health insurance company money in the political system.
Self-insured employers have a huge incentive to lower the cost of health care and many of them are, as are other savvy employers who understand that the cost of their health care insurance and premium increases are directly linked to the health of their insured workforce. Here's the glitch in why our system does not create this incentive across the board: If you are a small employer with an aging work force, or some very sick covered lives, your premiums will rise far faster than you can improve health. Or, if you are an individual with pre-existing conditions and you are shopping for insurance on your own, you often cannot get health care at an acceptable price if at all.
The root cause problem with our health system is that insurers make their profits by assessing risk and then pricing in light of this risk. With very limited competition, and many small customers with little buying power, the insurers can easily pass medical cost increases onto its customers. As a result, insurers exercise limited pressure on providers to become more efficient and effective. They pay providers on volume, not value. Health care costs continue to rise with an end result of employers, individuals and taxpayers paying way too much for the population health we end up with.
Very little will change without more competition across insurers and changes in insurance regulation that force community rating over risk rating. With community rating, insurers price policies based on very large population groups (e.g., all SE Wisconsin or all Wisconsin), not small workforces or individuals. With community rating (and mandated participation), the insurance business model would change overnight as insurers would have a high incentive to make people healthier and lower the cost of care. Insurers would start to apply pressure on providers to improve quality and lower price, and insurers would offer a lot more individual and employer incentives to encourage value-based choice of providers and more healthy life styles.
Our health care system works the way it works because of the incentives built into it. We need to recognize that only government can change the incentives. If the two political sides would come together in the middle we might finally get a market that works like others---improving quality while lowering cost.
Todd, get real. "Profits" of only 5% is not the issue. It's all of the other costs that are forced upon the privately insured patient that is the problem. The companies first deduct their high CEO salaries, bonuses, shareholder profits, broker commissions, actuarial costs, and even their lobbying and campaign contributions that are passed on to the patient. AND THEN they they calculate their profits at 5%. It is estimated by the experts at Harvard that the insurance bureaucracy drains 31% of healthcare costs without ever laying hands on the patient. It is wasted dollars.
And our tort system -- though it should be converted to a three man judge system -- represents less than 1/2 of 1 percent of total cost, though CYA medicine raises that to 5%.
According to many comments to today's and yesterday's business blogs, there is no shortage of avarice and greed on the part of corporations. According to these same comments, health insurance companies have a veritable license to steal and the certain ability to make obscene profits. Why is there not a tremendous rush by noninsurance firms to get in on this incredibly lucrative racket? Wouldn't such an influx of new competitors have lead to downward pressure on premiums and the reversion of profits to "normal" levels?
Perhaps some of those commenters are of the tinfoil hat persuasion and would contend that there is some sort of vast secret conspiratorial cabal that enables the insurance companies to ward off competition and reap extraordinary profits. But are there other plausible explanations for this perception of high profits?
Could it be that our perceptions suffer from confirmation bias—-we suspect(and perhaps are persuaded by polemics) that insurers enjoy high profits, so we note and remember years when profits are reported to be high and neglect to note years when profits are low or nonexistent? But regardless of the profit issue, I agree in general with commenter Kay Plantes. The health insurance industry does not really operate in an efficient competitive free market environment and this results in health care costs being higher than they ought to be.
There are many reasons why health care costs and health insurance are not subject to the dicipline of uninhibited market forces. Most of the distortons are related to the high degree of regulation in the insurance industry and to perverse economic incentives. Perhaps the the best example of impediments to competition is the inability to offer insurance products across state lines.
There are those who would remedy the insurance cost problem by further regulating the health care delivery system and those who would prefer to enhance free market forces (interstate competition, health savings accounts, vouchers for low income people, tort reform, etc.) to get a grip on costs. But those who blame the problem on insurance company profits are simplistic and wrong.
The defenders of the insurance companies and the status quo are wrong economically and morally. The system must be reformed, and it must be reformed now. We need a public option to make the for-profit insurance companies compete at a reasonable price point. Until we get one, you're going to continue to see astronomical increases in health care. It's not sustainable.
Dear Jack,
I think you need to take step back and get off your high horse. You comment in all these online forums and come across like you have absolutely no bias and are just a good guy trying to save everyone from the evils of private enterprise. If I am correct you made your money off the same system that you now decry, and worse yet off the health care system. People who live in glass houses.... It is easy to sit and throw stones when you have now effectively "checked out" an find comfort in the Medicare system that is scheduled to go broke in 7 years but which you hold out as a model of what we should be doing. You should be a politician as you subscribe to the same sense of false reality that they do. If you weren't so blatantly biased towards a single payor system you may actually have something to add to the discussion.
Your comment about health insurance companies adding 30% to health care system is patently ridiculous. Are there costs added to the system because of health insurance companies? Of course there are. Who do you think is going to administrate everything if they go away? Do you think the health care faeries are? No the government will and you can't tell me there is "no cost" to having the government administer something. Between the huge amount of fraud they let slip through the cracks and the pensions and health care the government provides I think you can make the argument that would more then equal what a private company "sucks out the system" as private companies offer no where near those types of benefits. Worse yet, you have killed off hundreds upon thousands of tax paying jobs.
Now if you would like to step back into reality for a moment and admit that government control is not the answer (I'll change my mind if you can tell me that Medicare isn't going broke while having the huge advantage of just arbitrarily paying roughly half the cost of services that are actually charged) then I will listen. I know you think I am just an insurance industry stooge but trust me when I say that all the answers certainly aren't there. That is obvious. However I am not going to kill off the entire health care industry and turn it over to the government. The answer lies somewhere in between. I have a feeling you won't admit though which just confirms what I stated previously about your biases.
Tim...no one is defending the insurance companies, nor can we stay with the status quo. However this misguided perception that if we just make the insurance companies go away and then everything will magically get better is just false. Of the $2.3 trillion (yes, that's TRILLION with a T) that was spent on health care last year, the insurance companies took out $12.2 billion in profit. Big deal. Lets make that $20 billion for "other expenses" just to satisfy Jack Lohman and that crowd, that still amounts to a spit in the ocean of health care.
The problem is not with the cost of health insurance, it is with the cost of HEALTH CARE. Health insurance is expensive because health care is expensive. If you don't want to think critically about the issue then go ahead and jump on the "kill the insurance companies" bus. They can take their medicine in whatever the future landscape looks like, but just blaming them is the easy way out.
Todd, you are correct that my background is health care (40 years of it) and I am biased. As a disclosure I took a salary less than $50K per year and had several employees making more money than I did. No where near the $14.5 million Aetna paid, but what the hell. I loved what I was doing. I owned an independent diagnostic laboratory (at the bottom of the food chain), but if your heart tells you that my ideas are anti-society, please don't read my posts.
Yes, Bush and his Republicans "scheduled [Medicare] to go broke in 7 years," or whenever, but it needs not to. It is the most efficient system of all. And yea, we'd pay for it via our national infrastructure (taxes) rather than wages, which drives jobs out of the country (if that matters to you). And the taxes on the wealthy will like have to increase, but the CEOs can handle it. I think.
Don't believe the 30%? See this Harvard report. And who is going to administer Medicare? The same people who are now doing it for 3.5% of the total. But be that as it may, there is no sense trying to tell someone from the insurance industry that they are the problem and must be eliminated. And jobs? For every insurance job lost, two higher-paying medical jobs will be created. Not bad in my book.
Like the Post Office must give way to the newer Internet technology, the "insurance racket" must give way to new and better ways of distributing healthcare.
And what is this "$20 billion for other expenses?" The wasteful insurance bureaucracy is draining $400 billion from the system today. If it were only $20 billion they'd have walked long ago.