Tag Archives: for-profit health care

#ThanksObamacare for ineffective authoritarian health plan rate review

Progress Now and the Colorado Consumer Health Initiative “thank Obamacare” for allowing “states to require insurance companies to justify premium increases.

Many states have what are called premium rate review laws that empowering government authorities to forbid insurers from increasing premiums if the reasons do not sound justified. This may sound good, but for those who care about liberty and the right to free exchange, this clearly violates insurers’ rights to sell products at a price they see fit.

For those who support rate review laws regardless of rights issues, they should consider whether such laws are effective.  John Graham of the Pacific Research Institute compared insurance premiums in the 20 states with premium review laws, and with the 19 states that have “file and use” laws the require only that companies file rate increases with the state’s insurance commissioner, who has no authority to reject them.  Graham finds that

There does not appear to be any connection between prior approval and a lower change in rates from 2006 to 2008, nor the absolute value of rates in 2008. The average increase over the period was 8 percent for both file & use states and states requiring prior approval.

Rate review laws are not only ineffective, but also damaging.  Like other types of price controls, they require firms to sell products for less than they otherwise would. Just as rent control of apartments encourages landlords to become slumlords, insurance price controls will likely do the same to health plans. For examples, insurers would reduce costs by cutting back on customer service.

As Sally Pipes has written:

Last year, Massachusetts officials tried to crack down on health insurance rates, rejecting 253 of 274 proposed rate hikes across the state. Chaos ensued. The small-group health insurance market, which served 800,000 of the state’s residents, briefly shut down. Later in the year, all four of the state’s biggest health insurers reported that they’d lost money as the price caps were implemented. Three explicitly attributed their losses to the state’s rate rejections.

Insurers can’t endure state-mandated losses forever. Eventually, they’ll have to shed jobs or exit the market entirely. Consumers would be left with fewer choices. …”

Pipes continues:

ObamaCare’s rate review regulations are premised on the notion that rising health insurance premiums are somehow caused by excess profits and wasteful spending. But insurer profits are actually quite small. The Congressional Research Service reports that in 2009, health insurers’ average profit margin was just 2.6%.

At Forbes.com, Robert Book elaborates on health insurers’ profits:

According to this report from the left-wing organization Health Care for America Now, the five largest for-profit health insurance companies “pocket huge profits” totaling $11.7 billion in 2010. The same report also says they had a total of 86.3 million enrolled members, which works out to a total of $136 in profit per member per year.

The Feds also have also extended their authority into rate review. As Book writes:

The Affordable Care Act does not define what it means for a premium increase to be unreasonable,” but the administration defined it in a regulation issued in May. An increase is defined as“unreasonable” if it is “more than 10%.” (76 FR 29964).

So, if a health insurer increases rates by more than 10%, that’s “unreasonable.” What if costs of the underlying health services they pay for increase by more than 10%? Still unreasonable. What if their patients got sicker, and required more than a 10% increase in services? Still unreasonable. What if they need the money because regulators made additions the list of preventive services – that must now be covered without copays? Still unreasonable. What if they need the money to pay their share of the new $8 billion tax on health insurers? Well of course that’s unreasonable. What if they use the rate increase to pay for golf tournaments for executives? Well, that’s not treated any differently – it’s reasonable if the increase is 9.8% and unreasonable if it’s 10.2%.

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How politicians destroy entreneurship & beneficial profit-seeking

John Goodman writes:

One reason why entrepreneurs do what they do is that they want to become rich. I don’t think that getting rich is the main motivation. The possibility of innovating in order to change the world may be an even stronger desire for most of them.

But you can almost guarantee there will be no entrepreneurship if you do two things: (a) eliminate all possibility of getting rich, and (b) make it impossible to change anything without the approval of an intractable bureaucracy.

That in a nutshell is my explanation for why our two most visibly dysfunctional social systems — health care and public education — remain so dysfunctional.

via Why Profit Is Our Best Friend | John Goodman’s Health Policy Blog | NCPA.org.

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Medicare Loses Nearly 4 Times as Much Money as Health Insurers Make

Next time someone decries insurance company profits, remind him that fraud and waste in Medicare and Medicaid far exceed these dollar amounts. Check out Jeffrey Anderson’s article in the Weekly Standard: Medicare Loses Nearly Four Times as Much Money as Health Insurers Make.

See also: Medicare & Medicaid fraud far exceeds insurance company profits.

via Cato-at-Liberty.

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Why to condemn insurance companies

Is the for-profit insurance industry a “predator” that “prevent[s] us from having a decent health care system”?  Letter writer Bruce Robinson says so (Daily Camera, December 1). He’s partially right. The real predators are politicians who inhibit needed health policy reform.  But insurers are guilty for concealing how they benefit from Congress’s predatory practices, which shield them from competition and accountability to patients.

Predators gain value by using force or threats of force. Politicians prey upon patients who prefer to finance their own medical care in “politically incorrect” ways. As a result, insurers need not compete for your business. Politicians punch you with a tax penalty for buying insurance directly from an insurer instead of through your employer. They prohibit you from buying affordable policies available in other states. They tax you more for paying cash for routine medical expenses rather than buying an expensive health plan with tax-deductible premiums.

Like a true predator, politicians support legislation that backs you into a corner — where as the patient, you are the consumer but not the customer. Hence, neither insurers nor doctors aim to please you. They cater to who pays them. Employers pay the insurers and insurers pay the doctors.

So don’t condemn for-profit insurance.  The profits are “anemic,” reports the AP.  Condemn insurers for supporting an un-free market, where profit is disconnected from pleasing consumers. Only in a free market insurers’ profits would depend on satisfying you, the patient, rather than satisfying employers and politicians.

The above was published in the Daily Camera (Boulder, CO) on December 5, 2009.

I should thank Ari Armstrong for this observation that influenced this article:

In a free market, profit means that customers happily pay for some good or service. It is only outside of that market context that profit is bad. For example, a Mafia boss might “profit” by killing people, or a politician might “profit” by doing favors for special interests.

Also, the title of a recent article by Jacob Sullum’s is an excellent phrase that we should become a meme: The Consumer Is Not the Customer.  It’s a great distinction, as we often use “consumer” and “customer” interchangeably.

See also “Down with the health insurers,” by Tim Carney (author of the just released book Obamanomics)and my blog post from a couple days earlier, How insurance companies can gain credibility

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Filed under insurance, tax code, HSAs, myths & fallacies

Medicare & Medicaid fraud far exceeds insurance company profits

A wonderful post by John Goodman:

Competition from a “Public Plan”: What to Expect

These figures per Medicare recipient:

Number of Medicare recipients: 44.8 million … For $60 billion in annual fraud, that’s $1339 in annual fraud per Medicare recipient.

Number of Medicaid recipients: 58.7 million … For $33 billion in annual fraud, that’s $562 in annual fraud per Medicaid recipient.

Number of insured: 300.5 million. Estimate $10 billion in annual profits, that’s $33 in profit per insured person.

Note that not all insurance companies are for-profit, and 57% of those with employer-based plans are self-funded, so it’s not clear who gets the profit.  Still, even if subtracting these two figured decreased the number of insured by profit-making insurers by one-third, the profit per insured person would be just $100 per year.

And remember, profit is good!  In a free-market at least. It’s reward for selling what people want while keeping costs low.  Yet, insurance company profits would be lower if politicians did not shield them from competition.

See also:Government Health Care Awash in Waste and this post on insurance company profits.

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Want health care like the U.S. Postal Service?

Just in case that sounds appearling, William Shughart II of the Independent Institute (CA) makes some good points in a recent op-ed in the Minneapolis Star Tribune. An excerpt:

When President Obama told the people attending a town hall meeting on health care that “UPS and FedEx are doing just fine, right? . . . It’s the post office that’s always having problems,” he was right on the facts, but drew the wrong conclusion from them. …

… Despite having an exclusive monopoly on first-class and bulk mail, the post office chronically loses money—about $7 billion this year, with another $7 billion anticipated next year.

But why should its managers and employees worry? They know they can rely on their operating losses being covered by a combination of congressional subsidies (financed by taxpayers) and rate increases, which will be rubber-stamped by the so-called Postal Rate Commission.

Stamp prices have risen much faster than the rate of inflation. In 1950 a first-class stamp cost just 2 cents. According to the American Institute for Economic Research online inflation calculator, if the cost of a first-class stamp had merely kept up with inflation it would cost 18 cents today—nine times what it cost in 1950—not 44 cents.

Generous salaries for Postal Service employees, restrictive work rules negotiated by the labor unions that represent them, the continued operation of thousands of obsolete, small-town post offices and failure to adapt to a world in which people communicate by e-mail rather than by first-class mail and pay their bills online all help explain why the Postal Service does not—and possibly cannot—operate profitably.

The solution to the cost-control problem offered by Postal Service Chief Executive John Potter is to stop delivering mail on Saturdays, thereby offering worse service at 44 cents than customers once got for 2 cents.

Get that? It’s rationing our mail!  Shughart also makes a good point about profit:

Supporters of publicly financed health insurance contend that its administrative costs would be lower than those of private insurers, in part because a public plan would “not have to make a profit,” as if “profit” is a cost of doing business rather than a reward to owners who provide a desirable product or service at an attractive price.

This post by Rory Cooper at the Heritage Foundation has more critiques of the United States Postal Service. Continue reading

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Non-profit health insurance already dominates market

John Lott makes excellent points (emphasis added):

Given all the attacks on profit-making insurance companies, what is possibly more surprising is that by far the dominant players in the “full” insurance market are non-profits. Indeed, one of the motives of the government insurance option is to take profits out of the picture. “But having a public plan out there that also shows that maybe if you take some of the profit motive out, maybe if you are reducing some of the administrative costs, that you can get an even better deal, that’s going to incentivize the private sector to do even better. And that’s a good thing,” President Obama told the nation during his July 22nd press conference.

Yet, in 29 of the 43 states that data are available for in the American Medical Association report mentioned earlier, the dominant company in the “full” insurance market is a non-profit company. In state after state, Blue Cross and Blue Shield hold the largest market share. On average, the largest non-profit hold over half of the “full” market share in those 29 states. Why add another non-profit operation to the mix?

Getting rid of profits wouldn’t make costs go down – they would go up, because without profits there would no longer be the same incentive to hold down costs. Profits are the reward that firms get for figuring out what customers want. Earl Grinols, Distinguished Professor of Economics at Baylor University and author of a new book from Cambridge University Press entitled “Health Care for Us All,” argues that “profit maximization combined with competition is the only reliable way that we know to keep costs low.”

Non-profits obtain the success they do largely because of tax and regulatory advantages offered to them by the government (e.g., somewhat higher federal taxes on for-profit corporations).

So much of the debate focuses on the supposed heavy concentration in the insurance industry and the supposed greed, costs, and inefficiencies of for-profit companies. Private insurance medical insurance is neither very concentrated nor largely for-profit.

Read the whole article: Obama’s Top 2 Most Outrageous Health Care Myths. Lott also discusses how companies that self-insure. Good to know.

(via John Goodman, NCPA)

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