21 February 2010

We See The Problem. Where Is The Solution?

The other week, men and women across California opened up their mailboxes to find a letter from Anthem Blue Cross. The news inside was jaw-dropping. Anthem was alerting almost a million of its customers that it would be raising premiums by an average of 25 percent, with about a quarter of folks likely to see their rates go up by anywhere from 35 to 39 percent.
That was Obama's opening salvo in his weekly address on 20 February 2010.  Unfortunately, he followed that disturbing statistic with a blatant mis-statement:
The bottom line is that the status quo is good for the insurance industry and bad for America. Over the past year, as families and small business owners have struggled to pay soaring health care costs, and as millions of Americans lost their coverage, the five largest insurers made record profits of over $12 billion.
Consider, however, the financial results health insurance companies report:
At the same time, drug manufacturers enjoyed a profit margin of around 18 percent.  Bristol-Myers Squibb reported a 2009 profit margin of 56.42 percent.

These are the numbers that make up the "status quo" in health care costs in this country.  Health insurance companies are, as a group, less profitable than most utility companies, with gas and electricity utility companies enjoying profit margins of  6.9 percent and 6.6 percent, respectively).

The status quo is decidedly not good for insurance companies.  A 3.4 percent profit margin is just barely above the current prime interest rate of 3.25 percent as published in the Wall Street Journal (rate is as of 17 February 2010); a health insurance company could do just as well investing in bonds and securities and not sell insurance at all.   Health insurance profit margins are roughly in line with long term inflation rates in this country.  Those "record profits" insurance companies enjoy today do nothing more than ensure that tomorrow's bills will be paid.

Moreover, the status quo is what the Patient Protection And Affordable Care Act reinforces.  The Congressional Budget Office estimates that non-group insurance premiums in 2016 would be 10 to 13 percent higher under the Act than under current law.   Among large group insurance plans, the Act's impact on premiums is negligible:
By CBO and JCT’s estimate, the average premium per policy in the small group market would be in the vicinity of $7,800 for single policies and $19,200 for family policies under the proposal, compared with about $7,800 and $19,300 under current law. In the large group market, average premiums would be roughly $7,300 for single policies and $20,100 for family policies under the proposal, compared with about $7,400 and $20,300 under current law.
If Obama were indeed interested in reforming and strengthening health insurance markets in this country, and improving insurance coverage among Americans, he would not defend the bloated legislation Congress has produced on this subject.  If Obama were indeed interested in improving health insurance in this country, he would demand the Patient Protection and Affordable Care Act be scrapped in its entirety, and encourage Congress to assemble a bill that does more than institutionalize the status quo he finds so outrageous.

If Obama truly wished the problem solved, he would propose a true solution.  So far, this he has not done.


  1. Facts & evidence require citations from scholastic sources. Also for the drug companies the US drug companies do the expensive research, & trials that supply the world with their cheaper versions. Here in the US, if anyone has an untoward side effect, the drug companies will pay in the class action lawsuits that the attorneys begin to market the consumers to join as soon as they learn of the side effects. Drugs have side effects, period. Tort reform may be the better answer to lowering drug costs, but we will still need to pay for the research & attract qualified people to continue conducting it. As for insurance, remove it from employer control, allow people to purchase it & keep it no matter where they live & work & competition will drive down the premium rates.

  2. Tort reform is definitely a good idea; "defensive medicine" needs to be understood as a contradiction in terms and the perceived need for it eradicated throughout the healthcare industry.

    However, the need for protection and exorbitant research costs do not explain a 56% profit margin--by definition they cannot, because profits come on top of costs. Such profit margins indicate an inordinate amount of market power coalescing around drug companies and are yet another indicator of an imbalanced set of market dynamics.

    Definitely removing the tax loophole for employer-provided health insurance should happen. There is no practical social nor economic justification for that provision, and it is an artifact of now-ancient WWII price control regimes.

    However, what is most noteworthy of the ideas you present is that, though they are substantive and have a place in a debate over health care reform, they are NOT in the pending legislation. Whatever else the healthcare legislation may be, what it is not is "reform."

  3. Tort reform is a must. As a health care worker myself & my colleagues spend way too much time documenting in accordance with the the fear of lawsuit because we know if it is not documented it wasn't done, didn't happen, etc. Additionally, pay sources from government controlled & private insurances use the same document review to determine whether to pay for services. Doctors have been forced to lower fees & hire additional staff that do nothing by deal with pay sources. The problem I foresee in the near future is a decreased interest of the most compassionate & brightest to invest 8-15 years of their young adult years necessary to become practitioners only to have to start out as someones employee while spending far too many years paying off those 6 digit loans that enabled them to attend med school. As for nursing, the majority are now middle-aged & find it difficult to continue in bedside nursing, ie, hospital staffing, with the norm now being 12-hour shifts with no more than a 3o minute meal break, if even that. The hospital nurse completes 10-20 pages of paperwork for each patient he or she admits to satisfy the pay sources, accreditation agencies, & the institutions attempt to prevent lawsuits.

    As for pharmaceuticals, I agree, it is an exorbitant profit margin, but scientists are expensive & that profit margin decreases with every lawsuit that is lost or settled & is paid off. Also, the Drug compound must be disclosed to the FDA as a means to obtain approval for the trials. This discovery leads to patenting the product. Upon that time, the disclosure results in the clock start ticking down on the 10 year patent. trials may last 4-5 years, so the initial company that incurred all the expenses loses if they don't jack up the prices. Perhaps allowing for extended patent times due to the inability to profit during the patents early years will help lower the initial outrageous profits & make these name brand more affordable for the average Joe.


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