It is not very difficult to understand health insurance and how it works if you have ever been to Las Vegas. Think of health insurers like the big casinos. They are like the “house” and you are like an individual “bet”. The house is betting that you are not going to “win”, at least not “win” repeatedly. In fact, most people know that when they go to Vegas the odds are stacked against them. The house has calculated the odds and knows precisely what they can expect to win based on a predetermined volume of activity. They may lose occasionally or even have a short losing streak to a lucky winner but the long-term odds are in favor of the house.
In fact, most of us know that in the long term the house CANNOT lose. The long-term odds are enormously stacked in their favor. That’s why Casino’s can afford to hand out free drinks and why they own all the big tall shiny buildings.
While most people understand the odds when they go to Vegas, and know that the odds are stacked against them, they play anyway for the fun and excitement of it. They are playing for the “potential” win. And, some people do win. And for most people that don’t lose too much, its fun. Overall, however, the odds are in favor of the casino and everyone knows it. That’s why casinos are so enormous and why most people leave Vegas with less money then they had when they arrived.
What most people don’t realize is that in some ways Health Insurance operates in the same way. Many people think that it is some kind of a pay as you go system. They pay in all their life and at some point in the future if and when they need it, it will be there for them, but it does not work that way at all. When you can pay to the insurance companies all your life, and once you stop paying, you’re out. In fact, there are a lot of situations that can happen that can put you “out” of the insurance game.
Health Insurance companies, like the big casinos, have the long-term advantage. The odds are stacked in their favor and they do a lot to make sure it stays that way. Insurers calculate the statistical probabilities of paying out claims. In fact, insurance companies have large staffs of actuaries and underwriters. The underwriters assess the risk of each insurance policy written and the actuaries are continually recalculating future payment trends and payouts. They do everything in their power to keep the healthy people and shift those that are the sickest to someone else.
Health insurers are in the business of collecting premiums, not paying out claims. Health insurance companies, in order to stay in business and make a profit, must take more revenue in (premiums) then they pay out (in claims). Any good business person understands that concept. You have to take more money in (in the form of revenue) then you pay out (in the form of expenses).
What some people don’t understand is that in the case of health insurance companies, their largest expenses are the “cost of care”. It means that to the extent a Health Insurance company can pick healthier people and select lower risk insurance groups and minimize the payouts by shift the sickest to someone else, they can make more money. All of these cost-shifting maneuvers increase the profitability of the health insurance companies. In our casino comparison, it would be like the house stacking the odds in their favor. It would be like having the casino prescreen you in order to play. They would look at your winning history, the amount of money you play and the odds of you losing before letting you in the game. If you happened to be a consistently lucky winner they wouldn’t let you play.
Insurance companies reduce their risk of paying out high health care claim dollars by “cherry picking”, “cream skimming” and “cost shifting” to US taxpayers. By picking the best hands and by shifting the sickest populations, health insurance companies decreases the likelihood that they will pay out more than they took in on the premiums paid. They are stacking the odds in their favor and by doing this. They are maximizing their profits by eliminating the sickest of the population. It’s a great way to make a lot of money but a horrible system for a nation that wants to protect everyone and provide for their population when they become ill.
“We the people” the ultimate stakeholders in our national health care policy, need to understand how Health Insurance companies are doing this so we can stop paying, paying and paying again for health care. Health Insurance companies “cherry pick”, “skim the cream” and “shift the sickest” in order to maximize their profits. Make no mistake, the profits insurance companies make on the backs of anyone that has every paid a premium dollar are theirs not yours. Actually, they are the shareholders that own these mega corporations and those shareholders are singularly focused on profit and shareholder value. It’s a horrible way to run a health care system for a nation, especially a democracy of the people.
Cherry Picking
Cherry picking is when a health insurance company picks out the most profitable customers leaving the more expensive customers for someone else. Health Insurance companies blatantly participate in cherry picking by insuring healthy people and refusing to insure those that are less healthy. They use a number of different tactics to pick through the population of people seeking insurance and weed out the people with a higher risk of potential claims. The most common practice is through disqualifying people that have any kind of a pre-existing health condition. Insurance companies also use lengthy questionnaires that applicants are required to fill out and disclose not only health issues they have been treated for but also any personal habits they have that may be unhealthy. Cherry picking is designed to make insurance companies more profitable by insuring the healthy and denying the sick. Nothing precludes an insurance company from eliminating the sick from their insurance pools, in fact it is encouraged, all insurance companies participate in the practice and shift the sickest to the public (taxpayers). That’s right, taxpayers already pay for the sickest populations in our society, no insurance company will touch them.
Cream Skimming
Cream skimming occurs when an insurer knows more about a customer’s potential costs than the consumer themselves know. The insurance company uses marketing or plan design to enroll attract and enroll a healthier than usual population. One example would be if a plan offered excellent obstetric care but offered poor oncology care. They would probably attract a healthier population than if the opposite were true. Lower cost health plans often keep their costs low by enrolling healthier people (or encouraging unhealthy people to leave the plan) rather than by providing better care to their enrollees.
Shifting the Sick
So, where do the “uninsurable” go when they need health care and who pays for them? People without insurance are more likely to get sick more often and die sooner than the insured. Those experiencing even a short interruption in coverage tend to have a decline in their health. Those that lack health insurance coverage have a greater probability of having poor health status and a greater chance of dying early and a poorer quality of life because of their poor health care. We may not see people dying in the streets so we assume the uninsured somehow manage to get the care they need. Evidence refutes that assumption. In 2000, it was estimated that there were over 18,000 deaths among the uninsured in the United States relating to lack of health care. People with some very critical conditions like hypertenstion, high cholesterol or diabetes if they are not continuously monitored and treated with medication, their health deteriorates very rapidly. 38.7 million Americans went without health coverage for all of 2000 according to the Census Bureau. They are more likely to be treated only once they become chronically ill and are shifted into the public system.
I wanted to add a note, many insurance companies have been consolidating at a rapid rate. They have been allowed to create health care monopolies, the results have been incredible profits and vast market consolidations.
The following health care companies are in the Fortune 100:
Aetna
United Health Group - they paid over $1 Billion in compensation and stock options to their former CEO Dr. McGuire during one calendar year. McGuire and other directors of the corporation were forced to resign due to "back dating" of stock options to maximize "personal" financial returns [aka insider trading]. They are being investigated. McGuire was forced to resign.
Wellpoint - consists of many states Blue Cross Blue Shield companies and Unicare to name a few. For orchestrating the merger between Anthem and Wellpoint, Leonard Schaffer was paid out over $167 million in stock options in a single year. The State of California, as a consolation prize for agreeing to the merger received $35 million for health clinics for the entire state.
And this is the health care system that the major progressive candidates want to leave functioning.
by
August Adams (10 articles, 0 quicklinks, 1 diaries, 508 comments)
on Wednesday, March 5, 2008 at 7:46:36 PM
I worked for a printshop in the 90s that printed a monthly health industry newsletter, so I saw first hand what the industry was up to as they expanded their empire.
One thing that was striking was the lack of competitiveness - as an industry, they were very tight and focused on targeting Congressional candidates. The newsletter instructed members to contribute to a "war chest" to help finance "friendlies" or the opponents of "unfriendlies" in an era where far fewer people were paying attention to this issue.
But the types of plans offered represent the worst in collusion. For example, before middleman health providers were marking up every medical transaction, we used to pay our doctors directly for most care. In the 70s, my dad's union plan was $29 per year for any hospitalization.
The companies banded together to kill this type of policy, a low-cost catastrophic-only plan. Remember when life insurance policies used to offer coverage for the loss of a limb or debilitating accident? No more.
Because there are no more low-cost "catastrophic" insurance plans offered anymore, we only have policies for "comprehensive" health care, meaning they mark up every transaction, no matter how small. Not only does this add to the cost, it affects our care - limiting doctor choice or treatment options.
The lack of a simple emergencies-only policy leaves us without a choice, we have to buy a marked-up, privatized plan or go without coverage. This strikes fear into our hearts - if something happens, not only are we hurt, but we will be financially ruined.
So August's casino metaphor may not be quite right. Perhaps we should picture it like a supermarket with a roulette wheel instead of a cash register?
In the end, this system is not so much like gambling as it is extortion. But to improve it, we need to do away with an entire industry, so it again points back first to campaign reform.
by
Gustav Wynn (70 articles, 49 quicklinks, 5 diaries, 337 comments)
on Friday, March 7, 2008 at 10:02:43 AM
Thanks for the added information. The health care system is broken in so many ways. In this article, I was trying to focus on how health care companies evaluate an individual, shift costs to the taxpayer, and underwrite policies.
You're comment, "meaning they mark up every transaction, no matter how small. Not only does this add to the cost, it affects our care - limiting doctor choice or treatment options". Relates to the individual "bet" of the health insurer. They insure that they will "win" by stacking the odds in their favor.
That said, your points about fear and collusion are well founded. Health Insurance companies are becoming "Blue Monopolies", the participate in price fixing, gauging and controlling the market through any means necessary.
They work our legislative processes 24/7/365 at the local, state and Federal levels.
They are "superhuman" and corrupt our political processes.
Thanks for the added information.
by
August Adams (10 articles, 0 quicklinks, 1 diaries, 508 comments)
on Friday, March 7, 2008 at 12:42:25 PM
3 comments
How would you rate this?
You must be logged in (if signed up) to do ratings.
It's free to signup! And easy. And takes just a minute or two....
Must Read (
Well Said (
News (
Touching (
Funny (
Supported (
Interesting (
Inspiring (
Valuable (
