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What are health insurers afraid of?

As the options on the table become somewhat more clear, it appears all but inevitable that any national health reform program will include a public insurance option, sometimes labled as “Medicare for All”. The plans offered by Pres. Elect Obama plan, Sen Baucus, Sen Kennedy and others all include a governmental option. The Medicare for All is also consistent with the views of key House and Senate leaders, including Pete Stark (D CA).
The wailing and whining has already started. Private insurers are aghast at the prospect of competing for members with a government health program. You know, the much-derided Medicare program, the one that private insurers volunteered to fix with their Medicare Advantage programs (yep, the Medicare that was so lousy that private insurers only needed a small subsidy to compete effectively with, and perhaps a little creative marketing as well).
What exactly do they fear? Specifically, three things.
1. A governmental program will get so large that it will crush private insurers.
2. Government plans have unfair advantages over private plans: they don’t need to maintain reserves, earn profits to attract capital, or pay premium taxes.
3. Governments, through their use of monopsony power, can aribitrarily set prices, reimbursement policy, and make coverage determinations
Fear one – if private industry is successful, governmental programs won’t compete effectively, and private options will come to dominate the market at the expense of the public offering. So unless private industry fails, issue one is moot.
Fear two -fair point. Then again, many healthplans are not for profit (e.g. Blues plans and Kaiser Permanente) and therefore don’t need to earn profits either. Premium taxes are rather minimal in most states, amounting to a couple of points. The reserve issue is a significant one, especially as the rating agencies are starting to toughen up their reserve adequacy standards.
Fear three – there has been so much market consolidation among health plans that most markets have two or at most three major health plans ‘competing’ for share. These plans, such as Independence and Aetna in Philly; the Blues in Boston, Blue Cross, Wellpoint and Kaiser in parts of California; the Blues and United Health in several Florida cities; Empire, GHI, and UHC/Oxford in NYC, all have significant market power over providers and employers today, power that would not likely diminish if a Medicare option came on the scene. These health plans set reimbursement policy and rates, have their own P&T committees and appeals processes, and enforce their market power whenever and wherever they can. They already have monopsony power themselves.
I have been and continue to be a supporter of private insurers and health plans. After working in this industry for twenty-five years, I know there are very smart, capable, and talented people in the business. We have our share of knuckleheads, but that’s no different from any other business. The problem we have is most of those smart folks are not working on care management and outcomes assessment, they are in underwriting. Once the industry stops trying to compete on the basis of risk selection and focuses its brains on care management, I’m confident some of the nation’s largest insurers will find themselves able to compete with Medicare quite comfortably.

2 thoughts on “What are health insurers afraid of?”

  1. The basic truth is that we don’t want health insurance, we want health care. It should not be a function of private insurance companies but one of medical care delivered by medical professionals. The health insurance industry has been exploiting both the medical profession (through bill repricing and the flawed notion of ‘usual & customary’ and their cherry picking of PPO contracts, and the uninsured who don’t have private insurance or qualify under government provisions are the only ones paying full fee – and they can afford it the least! The multi-tiered, unjustified and discriminatory practivces of health insurers is akin to the head-in-the-sand attitude of the big 3 car makers. We need shake them out so medical professionals benefit, consumers get unfettered care and the CEOs of the private payers don’t get their daily bags of gold at everyone else’s expense.

  2. Whoa, those comments by Alan are really from left field…
    My comment has to do with the monopsony issue (#3) you raise above. I realize there is variability around the country, but in my state, Medicare (not Medicare Advantage) and Medicaid reimbursements are abysmally low compared to what private plans pay providers. In fact, there is not a hospital in this state that could survive if 100% of its revenues derived from government payers. Private plans, even those with significant purchasing power, end up paying much more than the government pays. This “cost-shift” problem is real and has been getting steadily worse for eight years now. If the new administration is successful in establishing a new governemnt plan to compete with private plans, and the current playing field is not otherwise altered, you have a perfect path to an eventual single-payer scenario evolving although eventually the government (read, we taxpayers) will have to pony up a lot more money to keep the providers in business.

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Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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