Facing the Death Penalty—the Medical Insurance Industry
Things are heating up in the battle for health care reform. It looked for a while that things would go all civilized on us—President Obama had a meeting with health care stake holders including the medical insurance industry. These folks folded in public like a cheap deck chair and agreed voluntarily to trim health care costs by $2 trillion in the few years. Great fanfare and warm words were exchanged and, indeed, it was obvious to everyone especially those insightful reporters from the main stream media that peace in our time was at hand. Then Hitler invaded Czechoslovakia (sorry about the Nazi metaphor, but it actually makes sense in this context).
Since then, of course, the insurance and health care industry have backpedaled at 100 miles per hour and have publicly reneged on anything that they said in that very public meeting. I think we are seeing an example of the limits of Presidential power when dealing with large, powerful interests with lots of money.
Obama tried to publicly strong arm them and like the bankers before them they said yes until they could get out of the room. We are also seeing the limits to Obama’s sometimes startling naiveté and his cooperative, collegial approach. This one is gong to get ugly folks. The medical insurance industry is looking at the death penalty.
To understand why they’re facing the death penalty you have to have some understanding of what the two options they fear most mean. The two options the medical insurance industry fears most are in order of lethality 1) single payer; 2) public insurance option. They are really very similar in many regards, but there are some fundamental differences that I’ll get to in a bit.Single Payer
Single payer is very simple and would cause the immediate death of the medical insurance industry as we know it today. Corporations would cease to have to offer any kind of health plans. Individuals would stop having to pay for company benefits. Instead, we would all start paying a much larger Medicare tax.
Single payer is Medicare without the age or disability requirement. Single payer is not free and no one has ever contended that it would be free.
However, single payer turns health care into a type of public utility. The profit motive is removed from at least the insurance portion of the equation.
Hospitals and doctors would not be going to work for the government or constrained from seeking profit. But single payer is an insurance program that the current insurers cannot possibly compete with and, trust me, they know this. Insurance companies have armies of actuaries who understand actuarial risk pools.
Single payer would result in a national risk pool. Without going into mind numbing specifics—the larger the risk pool the less impact the very ill have on the costs associated with the risk pool.
A multi-hundred million member risk pool would dwarf any risk pool that even the largest insurer represents. The net of this is that you can drop any underwriting and insure everyone without the overall impact of the sick and elderly creating an unsustainable financial model. That is because the vast majority of the risk pool is very healthy, but they too will be paying the taxes to fund single payer.
The medical insurance industry cannot compete with single payer for a lot of reasons but the size of the risk pool is probably the most significant.
The other reasons that medical insurers couldn’t compete with single payer are (in no particular order):