Health Insurers Institutionalized Inefficiency

America can be presumed the world leader in health care inefficiency simply by the fact that our health care outcomes, while mainly quite good, are not at all better than those attained in the rest of the world, but our costs are 1.5 to 2 times as much.

Why? In other parts of the world insurance coverage is streamlined, fewer more efficient insurers lead to less costly health care. The U.S. for example spends about three times as much as Canada on administrative expenses in our respective health care systems.

A major reason why it is so difficult to reduce costs is that every dollar of health care spending is a dollar of income to someone involved in providing health insurance or health care. Administrative costs are undoubtedly too high, and insurance companies taking excess profits and executives with high salaries are frequently blamed. But they are only a small part of the story. The biggest part consists of payments to tens of thousands of telephone and computer operators, claim payers, insurance salespersons, actuaries, benefit managers, consultants, and other low- and middle-income workers. Overutilization of care is another problem that is not easily solved, partly because unnecessary or marginally useful tests, prescriptions, operations, and visits generate income for providers.

One would think the industry would recognize the unsustainability of the current system and be working to improve efficiency to assure their future. However in America long term sustainability is not a priority or particular virtue compared with short term profit. We are short timers. Gaming the system is the rule if it will yield a few bucks as noted here. To refresh your memory health care reform requires expenditure of at least 80% of premiums on actual health care. A modest requirement given that Medicare spends between 5 and 10% of on administration but:

But state regulators are only now deciding what precisely that means, as they draft the rules to enact the law. WellPoint, which operates Blue Cross plans in more than a dozen states, wants to include the cost of verifying the credentials of doctors in its networks. Insurance companies like Aetna argue that ferreting out fraud by identifying doctors performing unnecessary operations should count the same way as programs that keep people who have diabetes out of emergency rooms.

Some insurers even insist that typical business expenses — like sales commissions for insurance agents and taxes paid on investments — should not be considered part of insurance premiums, which would make it easier for them to meet the 80-cent minimum.

Medicynical note: Gaming the system is the rule in the U.S. whether you are trying to corner the market on energy, mislabeling junk investments as high quality, denying global warming or digging a deep water oil well. It is part of the reason our economy has soured and has few prospects for recovery.


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One response to “Health Insurers Institutionalized Inefficiency

  1. I happen to be one of those low-income insurance sales people. If you have ever tried to run the rat maze of individual and family health insurance choices, you would realize the very valuable service that insurance agents provide. It’s our job to guide you to the best choices for your family. Now with the Medical Ratio in place, it’s not the fat cats at insurance companies who are taking the hit. They have informed us that they are cutting our commissions by 75% or in some cases, we get to work for FREE. I’d like to see the fat cats taking a 75% salary cut and forced into pro bono work and still pay their bills. Insurance agents offer a very valuable service and we deserve to be paid a fair wage for the work we do.

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