It seemed like a reasonable plan.
I was having trouble keeping track of my chickens – they kept somehow escaping from their coop. So I figured that I would set guards to make sure none of them got out any more. I got some rabid wolves and put them outside of the coop, figuring that they would scare the chickens enough to stay in their place.
But here\’s the problem: these rabid wolves are eating my chickens! Can you believe it?? You would think they\’d have the moral decency to respect the fact that I hired them to guard my chickens, but now they try to bite me whenever I go out there! It\’s amazing to me that these wolves would act in such a way. What\’s the world coming to when you can\’t trust rabid wolves to guard your chickens??
What? You think I\’m crazy? Take a look at our healthcare system! This is exactly what we are doing with our healthcare dollars.
In a recent article, Ezra Klein (coincidentally mentioned in two consecutive posts) discussed Wendell Potter, a disillusioned insurance executive who shared why he left the industry. Potter explained that the for-profit insurance industry (Cigna in this case) uses the following tactics to maximize profits:
The industry, Potter says, is driven by \”two key figures: earnings per share and the medical-loss ratio, or medical-benefit ratio, as the industry now terms it. That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits.\”
So it seems that a for-profit company is in it for the profit. Disgusting. Klein goes on:
The best way to drive down \”medical-loss,\” explains Potter, is to stop insuring unhealthy people. You won\’t, after all, have to spend very much of a healthy person\’s dollar on medical care because he or she won\’t need much medical care. And the insurance industry accomplishes this through two main policies. \”One is policy rescission,\” says Potter. \”They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment.\”
So the insurance industry is \”cherry-picking\” healthy people to insure – people they won\’t have to pay much on – and dumping unhealthy people. How can this happen? How can the insurance industry be taking money from the system and using it for their own profits?
But who is actually the problem here? Are the Wolves evil for eating my chickens? No, they are just acting like wolves. I am the fool for trusting them to watch my chickens without getting taking advantage of their position. Putting for-profit insurance companies in charge of huge sums of money is just as foolish. As Klein states:
The issue isn\’t that insurance companies are evil. It\’s that they need to be profitable. They have a fiduciary responsibility to maximize profit for shareholders. And as Potter explains, he\’s watched an insurer\’s stock price fall by more than 20 percent in a single day because the first-quarter medical-loss ratio had increased from 77.9 percent to 79.4 percent.
Actually, I think Mr. Klein understates it a touch. It isn\’t that the insurance companies need to be profitable; they are under huge pressures from shareholders to maximize their profits. They are being pressured to milk as much money from the system as possible. Maggie Mahar underlines this fact:
Potter is right. Disappointed shareholders can be brutal. And it doesn’t take much to disappoint them. In this case investors sent the share price plummeting because the insurer had the poor judgment to increase the amount that it paid out to doctors, hospitals and patients by 1.5 percent.
Even if an intelligent CEO wanted to do the right thing, take the long-term view, and provide labor intensive chronic disease management so that, over the long term, customers would be healthier—the CEO of a large publicly-traded insurance company probably wouldn’t keep his job long enough to find out whether or not his ideas worked. This helps explain why for-profit insurers have not followed the example of non-profit insurers and created “accountable care organizations” like Geisinger or InterMountain.
Those who have followed this blog have heard me say it before: the system won\’t change until we stop trusting for-profit insurance companies to guard the money. Those who are morally indignant over the fact that these companies would milk the system as they do are blustering in the wrong direction. You don\’t blame wolves for acting like wolves, and you don\’t blame for-profit publicly-held companies for trying to maximize profit. They are just being themselves. We are the idiots – assuming they could be trusted in this position.
Obviously, the best solution is to put the politicians and lobbyists in charge. Surely they are trustworthy.