The Health Insurance Industry – Another Scapegoat For Political Gain?

Unless you have been on “Lost” for the past 12 to 18 months, you have undoubtedly heard some commotion about Health Care Reform.  Wait!  It started as “Health Care Reform”, then moved to “Health Insurance Reform” (check out an earlier post entitled “Health Care Reform vs. Health Insurance Reform“).  As an Insurance Professional, some may think that my views are motivated by greed (aka money).  In all candor, commissions from health insurance make up probably 1% of my agency’s revenue, so if I lost those commissions, no big deal.

My issue is not that I think that the status quo is all that great.  In fact, I think that there are some serious problems with Health Care in the United States.  My problem is that the political debate has taken what could be a good cause, and turned it down a path that will do no good for the average American.  Now, I don’t care to, nor am I qualified to, talk about the actual constitutional validity of what is taking place in Washington right now.  I simply want to spell out some issues I see with the debate.

In the movie, The American President, Michael Douglas (playing the role of President) makes a speech where he talks about how his adversary (and pretty much all politicians) operates.  He states (I am paraphrasing) Bob doesn’t come up with solutions that can help the country, instead, he talks about better times and evokes memories of a better day.  Then Bob tells you who is to blame for your lot in life.  Wow!  I don’t think there is a much better way to sum up what has taken place in Washington.

When our President took office, a primary objective was to “transform, or fix, health care” (this has been a Democratic mantra for decades).  There is nothing wrong with that (to be “transparent” I am a registered Republican but my views are probably “Independent”).  If I were to go out and take a random survey of people and asked the questions “Are you happy with the premium(s) you pay for Insurance?”, or asked “Would you like to pay less for Insurance?”, my guess is that 99.99% of the time people would answer in a fashion that they would like to pay less for Insurance.  Notice, I didn’t say health insurance.  People want to pay less (actually $0) for Insurance.  I bet you could substitute just about any common good or service in the place of “Insurance” and get the same response.  However, it is the political vogue thing to blame the big bad insurance companies for everyone’s financial problems.  Let’s face it.  Most people have some form of insurance!  Then there are the stories of some insurance companies not paying a claim (not very much talk when the carrier goes above and beyond to find ways around the policy language to pay a claim).  Add all that together, blend in a need to blame someone for people’s problems, and politicians have their villain.

Let’s Look At The Definition Of Insurance

Wikipedia’s Definition of Insurance “Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss.”

OR

Chris Rock’s view of insurance…”It shouldn’t be called insurance, it should be called in case stuff happens”!

Insurance is not something that you are required to have (not as of now at least, unless you live in a state that requires you to carry auto liability insurance, or you have an asset (auto or home) that insurance is required as part of the loan obligation).  So, why do people carry health insurance?  They have health insurance so if something “major” happens, they will not suffer a catastrophic loss.  The problem with health insurance today is that people don’t view their policy as something to prevent “major” loss, they look at health insurance as a “co-pay” for every time they get a sniffle!  Given this “co-pay” mentality, there has been over-utilization within the Health Insurance Industry.

Think of it this way.  We all get sick.  That “sickness” is usually something like a “cold” or a little “flu”.  If you know that you can go to the doctor and pay just $15 or $25, each time you get a little cold, you think nothing of going to the doctor to have them check it out.  Now, work the math backward.

(Assumptions:  Doctor’s Normal Charge for an office visit $200, Health Insurance Company’s negotiated doctor’s rate $150, Insured’s Co-Pay $25 )

• Your Cost (if you were uninsured) – $200 / Health Insurance Company’s Cost – $0
• Your Cost (insured under co-pay plan) – $25 / Health Insurance Company’s Cost – $125

Now multiply the Health Insurance Company’s Cost for this visit due to a “sniffle” by the number of customers they have (let’s use Blue Cross & Blue Shield of NC) if each customer made just one of these trips a year.

3.7 Million X $125 = $462,500,000

Do you want to know why your health insurance premiums keep going up?  That calculation above generates over $450 MILLION a year in needless cost to the Insurance Company.

To further back up my theory, let’s take a look at one Insurance Company’s ACTUAL 2009 Financial Results (Blue Cross & Blue Shield Of NC 2009 Financial Results).

• Revenue – $5.2 Billion
• Total Medical Cost (TCM) – approx. $4.52 Billion (87% of Revenue)
• Taxes – approx. $134 Million
• Executive Compensation – approx. $17 Million
• Net Profit – $107.3 Million (2.1% Profit Margin)

This is an actual example!  As you can see the insurance companies are not making an “above average” return!  Compare BCBS of NC’s Profit Margin of 2.1% to a company like Google.

Finally, I think that the proof is in the pudding when you try to determine the true culprits in our “Health Care” Debacle.  Let’s look at statements made by Blue Cross & Blue Shield of NC.  When asked about premium increases, BCBS of NC shared the following information:

Premium Increases In Major Health Insurance Plans

• Employer Group Plans – approx 15%
• Individual Co-Pay Plans (Blue Advantage) – approx 12%
• Health Savings Account – approx 3%

Why would High Deductible HSA’s see the smallest increase?  Think back to what the largest driver of Health Insurance Premiums is…Cost of Medical Care!  HSA’s have lower utilization of services, thus their costs stay low.  You want to know who is to blame for high health care premiums…all you have to do is look in the mirror.  In addition, if more people used this type of plan, you as the consumer would be more diligent about looking into what the Health Care Providers are actually charging you.  Gone would be the days of $1,000 Tooth Brushes & $140 Tylenol Pills.  You would pay attention to those types of overcharging infractions.

The President and Congress decided that they could garner more votes playing on the emotions of “average” Americans.  They decided that instead of trying to tackle the wasteful practices within the Health Care Arena, they would try and blame the cost of Health Care on insurance.  In fact, during the recent “Health Care Summit”, President Obama stated there were two types of Health Care Insurance: Good Insurance & Bad Insurance.  To show how far the President and his Congressional allies are being, the “bad insurance” he talks about is the High Deductible HSA.  The very plans that could in fact start to reduce Health Care Costs (lower utilization + more fiscal accountability) and lower health insurance premiums (that is to say reduce your health insurance premiums)!  After all, isn’t that what the Health Care Bill is supposed to accomplish?  Or is the Health Care Bill a means to increase the government’s role in our lives?

There are far more qualified places to find information about the economics and political views about the health care debate.  I encourage you to read William “Bill” Heasley’s BLOG The Last Embassy.