Why IS health insurance so expensive? - Democratic Underground

The White Rose

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Tue Nov-18-03 03:24 PM
Original message

Why IS health insurance so expensive?

Someone asked, on another thread, the above question. Here's my take:

Fraud: Healthcare is one of the three biggest areas of fraud along with worker's comp and auto insurance, and it's fraud committed by the healthcare industry rather than patients that's the main problem.

Waste: Healthcare is expensive, partly, because there's a large amount of waste inherent in the process. Fixing efficiency is hard. Fixing prices, easy.

Price Fixing: Principally by pharmaceutical companies with the assent of paid-for enablers in Congress and Administration. They'll tell you it's because of the massive costs of R&D...it's a lie. Much of the necessary research is done by universities, often at the public expense. Drug companies spend about four times LESS than they say they do on R&D, but spend TWICE as much on advertising, issue ads, and campaign contributions.

The Uninsured: Hospital administrators feel perfectly justified in passing the cost of those who can't pay (43 million and rising) onto those who can (the ever-shrinking insured).

Corporate Inefficiency: The average for-profit HMO spends FIVE TIMES MORE on "administration" than does the supposedly inefficient Medicare program.

Executive Overcompensation: Multi-million dollar rewards going to CEOs and other execs despite blatant mismanagement and neglect.

Corporate Rip-offs: Medicare HMOs are an educational example. Since HMOs are essentially insurers with medical staff, like insurers they make money by saving money. It seemed counter-intuitive, then, that for-profit HMOs would want to spend millions to encourage the least healthy, and therefore most expensive, members of society (seniors) to join their Medicare-alternative plans. They did so because Medicare paid them to.

The idea was that Medicare would pay the HMO 95% of the average cost per patient, and if the HMO spent less to provide services to that patient they got to keep the difference as profit. The caveat was that, like Medicare itself, the HMO was not allowed to select risks; they had to take the good and the bad. Of course that didn't stop many HMOs from trying to subvert the system in both legal and illegal ways.

The biggest problem, however, was that the legislation enabling HMOs (and now other types of plans) to become Medicare providers, made no effort to ensure that the HMO couldn't opt out of their contracts once the relatively healthy 65 year olds they were enrolling became unhealthy 75 and 85 year olds. Which is exactly what many have done.

The upshot of all this is that these medical corporations were allowed to make large, short-term, profits from a previously unreachable market because of massive subsidies from the federal purse. When the profits started to evaporate, our federal watchdogs let them renege on their obligations, leaving millions of seniors, once again, at the mercy of predatory drug companies at the worst possible time. It is of no small importance to note that the new Medicare drug plan is, essentially, a re-run of this successful scam; they are simply going to pay the "medi-corps" even more tax dollars to make the fraud profitable once more.

And last but not least:

Crappy Insurers: Insurance companies across the board have faced heavy losses over the last 20 or so years, largely through poor management of risks. Rather than make the effort to fix their loss ratios, many companies (including the "big names") used profits from their investments to mask their shortcomings and keep their stockholders happy. As the stock bubble burst the insurers reacted by sharply raising premiums. In other words, they've decided to let the public pay for their management and investment mistakes.