Insurance Companies: By the Numbers
A major reason why a sensible health system has been throttled for decades: insurance companies, which thrive best when they deny care; insurance companies, which unlike hospitals, doctors, nurses, and other health workers, contribute nothing of value to national health; insurance companies, which line the pockets of the people's legislators.
Here are some numbers to bear in mind, and inscribe on signs, and pass out on flyers, and send to your friends, doctors, uncertains, Blue Dogs, Black Cats, whatever, during this fall's home stretch:
Total expenditure by private insurance companies, 2007: $680 billion*
Total expenditure on administrative costs + profits, 2007: $95 billion
Percentage of total expenditure spent on administrative costs + profits = 14%.
In other words, one in seven dollars Americans pay insurance companies stays with them.
By contrast, here are 2007 figures for Social Security and Medicare administrative costs:
Social Security = 0.9%
Medicare = 3%*
The people who run these companies may not be "bad people," but their institutional interest is not the public's interest. Not. The. Public's. Interest.
* The $680 billion does not include our co-pays and other out-of-pocket expenses.
** The Right disputes the Medicare figure. But nobody, nobody, claims that Medicare's true administrative costs are anything like 14%.
Update 12:51 pm. I apologize for earlier figures--my haste and sloppiness were to blame. Thanks to Harold Pollack of the University of Chicago for helping to set me straight.
And now the Supreme Court seems poised to enable these insurance companies to go out and target every Democrat who has ever had anything good to say about the Public Option or suggested that the gratuitous subsidies paid to Medicare Advantage plans be rescinded.
September 11, 2009 9:52 AM | Reply | Permalink
That's right and that's exactly what they're going to do. Even though AHIA and the industry loved Pres. Obama's speech ( http://www.nytimes.com/2009/09/11/health/policy/11insure.html?_r=1&ref=us ), they of course aren't being complacent. Read the article, it's an eye-opener.
September 11, 2009 2:07 PM | Reply | Permalink
It is. Everyone, it seems, has been had.
September 12, 2009 9:33 AM | Reply | Permalink
Yes, these are good numbers to have handy. Not clear to me what the conditions and understandings were re the WH's efforts to get the insurance industry actively in support, and therefore whether it will be actively supporting, or working hard to kill, the legislation as it takes something closer to what the full House and Senate chambers will end up voting on.
September 11, 2009 9:57 AM | Reply | Permalink
"But nobody, nobody, claims that Medicare's true administrative costs are anything like 29%."
- YOU LIE!
"Though one has to dig for the truth... competition in a private health insurance market saves tens of billions each year that government agencies would waste on administrative cost"
http://www.ahia.net/advocacy/documents/Comparing_HealthCare_Admin_Costs.pdf
September 11, 2009 9:57 AM | Reply | Permalink
"Medicare’s administrative cost is 78% less than that of other government health programs (5.7% compared to 26%).
A key reason is that private companies externally administer Medicare, while other government programs are internally administrated, by government agencies."
In other words - because of outsourcing, Medicare is paying the administrative costs of its suppliers. That's why they are not counted as Medicare's own administrative costs.
September 11, 2009 10:10 AM | Reply | Permalink
These administrative spending numbers have been challenged on the grounds that they exclude some aspects of Medicare’s administrative costs, such as the expenses of collecting Medicare premiums and payroll taxes, and because Medicare’s larger average claims because of its older enrollees make its administrative costs look smaller relative to private plan costs than they really are. However, the Congressional Budget Office (CBO) has found that administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under Medicare Advantage.16 This is a near perfect “apples to apples” comparison of administrative costs, because the public Medicare plan and Medicare Advantage plans are operating under similar rules and treating the same population.
(And even these numbers may unduly favor private plans: A recent General Accounting Office report found that in 2006 Medicare Advantage plans spent 83.3 percent of their revenue on medical expenses, with 10.1 percent going to non-medical expenses and 6.6 percent to profits—a 16.7 percent administrative share.)17
September 11, 2009 11:33 AM | Reply | Permalink
TRANSLATION: The Right disputes the Medicare figure. But nobody, nobody, claims that Medicare's true administrative costs are anything like 29%.
September 11, 2009 11:35 AM | Reply | Permalink
Exactly!
Lalo lies.
-- ARG
September 11, 2009 11:38 AM | Reply | Permalink
You must be very stupid not to understand the difference between outsourcing claims processing to private contractors and collection of taxes and premiums by other government agencies (whose share of administrative costs servicing Medicare is actually not allocated to Medicare).
September 11, 2009 11:45 AM | Reply | Permalink
We could argue forever about admin costs but the real difference is the profit motive and having to answer to shareholders.
These insurers used to be mutual companies, owned by policyholders.
Now they have to weigh the provision of health care against 'beating the Street's consensus EPS estimate' every quarter.
The Fed could offer the mgmts of these companies low interest loans to finance an MBO (mgmt buyout) of shareholders at a 50% premium to current share prices for THE WHOLE INDUSTRY for less than $200billion!
They would still be privately-mamged companied without the current built-in conflict (policyholders vs. shareholders)
September 11, 2009 3:30 PM | Reply | Permalink
I'm inclined to take what the organization whose website this analysis was posted at--the Association of Health Insurance Advisors, part of the National Association of Insurance and Financial Advisors--with more than one grain of salt on this issue. The livelihood of their members depends on there being lots of confusing private health insurance options around, the better so that they can, for what I would guess is a fairly nice fee, "guide" those confused consumers of health insurance who can afford their services.
That doesn't mean the analysis is false. It could be accurate. The source, however, is hardly credible to me, or I suspect many others who find the ways in which the private insurance industry operates colossally wasteful, inequitable and devastating in its consequences for our society when compared to any number of entirely viable and practical alternative ways of providing health care security for Americans.
September 11, 2009 11:49 AM | Reply | Permalink
See below, on genetic fallacy.
In any event, there are plenty of great (and honest) arguments for the need of the reform.
It's when people are hung up on the public option as a matter of principle, no matter what, that they clutch desperately at any snippet that looks like a statistic.
September 11, 2009 11:55 AM | Reply | Permalink
I think the request is to find someone without a vested interest in making the numbers look as favorable as possible to one side confirm what they claim. He even said they might be right, but there is a reason people with conflicts of interest are usually excluded from objective considerations.
September 11, 2009 12:17 PM | Reply | Permalink
Would you consider the current goverment (or Todd Gitlin, or Democratic Party) as someone with conflict of interest in this case?
I would, because they have a vested interest in making the numbers look as favorable to their cause as possible.
September 11, 2009 12:27 PM | Reply | Permalink
That not an answer. Present your evidence.
My position is it hardly matters.
September 11, 2009 2:11 PM | Reply | Permalink
I'm not "hung up" on the public option. I do think there is something seriously wrong with a system where, in order to get anything done, our political leaders have to bribe the private insurance industry with lavish taxpayer subsidies as the price of their support for, or at least lack of opposition to, such reform as is being attempted. I am not remotely interested in paying insurance companies to implement their market segmentation strategies. And I am not at all sure they perform any essential service which cannot more effectively and efficiently and with more accountability be performed by, yes, you heard this right, the federal government, building on what it already does for seniors.
Maybe you can explain to me in simple terms what the value-added of private insurance is (for people other than those employed by them and politicians seeking an uncluttered path to re-election, that is)?
September 11, 2009 12:17 PM | Reply | Permalink
"I am not remotely interested in paying insurance companies to implement their market segmentation strategies."
- But you do, with your auto insurance, home insurance and life insurance.
In fact, you pay for it when you buy any product or servce from any company that employes more than handful of people.
You also pay anywhere between 3 to 10% to the people who deliver, stock and display the product, but you're not advocating for a public option in distribution.
I know where you're coming from, your argument is based on an assumption (government efficiency) and misunderstanding (nature of insurance and value-add).
September 11, 2009 2:04 PM | Reply | Permalink
Well, at least the private insurance consortia don't 'waste' money on administrative costs. However, they have managed to increase their profits by 428% over the last seven years.
Neither of which answers the big question - how to stop the major screwing we're taking when it comes to the exorbitant costs of our health care.
September 11, 2009 2:09 PM | Reply | Permalink
The "administrative" things are what make them money, of course. I doubt private insurers tolerate their employees wasting money any more than any other employer. Some of what they do makes us better off. Insurance is a good thing. But too much of what they do hurts some people and adds value for their shareholders but not their customers.
September 11, 2009 2:19 PM | Reply | Permalink
Economides said: "there is a reason people with conflicts of interest are usually excluded from objective considerations."
The claim of 428% increase in profits is provided in a study by "Health Care for America NOW!", an organization advocating for the reform as proposed by the Democrats.
"Health Care for America Now and its principles for reform are supported by President Obama, Vice President Biden, and more than 190 Members of Congress. "
http://healthcareforamericanow.org/site/content/about_us/
September 11, 2009 2:30 PM | Reply | Permalink
Why is that in response to what I said? Go act like a baby elsewhere.
The correct response is to simply provide objective data not whine about someone else's non-objectivity.
September 11, 2009 2:38 PM | Reply | Permalink
This domain ahia.net is registered to:
The Association of Health Insurance Advisors
1922 F Street, NW
Washington, DC 20006
US
Administrative Contact :
Dobbin, Vicky
vdobbin@naifa.org
2901 Telestar Court
Falls Church, VA 22042
US
Phone: 703-770-8113
Fax: 703-770-8107
Technical Contact :
The Association of Health Insurance Advisors
ahia@naifa.org
1922 F Street, NW
Washington, DC 20006
US
NAIFA is
National Association of Insurance and Financial Advisors
Stick this in your ear Lalo.
September 11, 2009 10:15 AM | Reply | Permalink
Are you disputing the numbers or analysis?
"The genetic fallacy is a fallacy of irrelevance where a conclusion is suggested based solely on something or someone's origin rather than its current meaning or context. "
http://en.wikipedia.org/wiki/Genetic_fallacy
September 11, 2009 10:18 AM | Reply | Permalink
Pathos, ethos, logos.
In evaluating complex arguments the Greeks said that we must often rely upon the reputation of the proponent (ethos) modified where appropriate by our view of his interest and bias.
I'm with the Greeks.
September 11, 2009 3:03 PM | Reply | Permalink
"I'm with the Greeks"
- Rhetoric is one of the ARTS OF USING LANGUAGE as a means to persuade.
So we're both with the Greeks.
September 11, 2009 3:13 PM | Reply | Permalink
Thanks for saving me the trouble of tracking that info down tpc. Always consider the source. ;)
September 11, 2009 10:20 AM | Reply | Permalink
Got your back Miguel.
September 11, 2009 10:22 AM | Reply | Permalink
Insurance companies are vehicles for the generation of investment capital. To believe that "coverage" is in any way their primary mission is to fool yourself. "Coverage" is part of their cost of doing business.
So is doling out campaign contributions, through trade associations such as AHIA and NAIFA, PACs, and the like. That, however, yields a return (the votes of corrupted elected officials) where "coverage" does not.
So is the generation and dissemination of misinformation ("lies", as my President named them) about the true mission of insurers. That too yields a return.
September 11, 2009 12:03 PM | Reply | Permalink
To add one more point: the argument in favor of the public option because of the "low" administrative cost rests entirely on the profit motive.
It is a desperate and misguided socialist argument that does nothing at all to advance the goals of reform, because it is a completely generic ideological argument - you will arrive at exactly the same conclusion by advocating for the public option in anything that's produced by any private industry, including manufacturing, construction, publishing, clothing, computers, loans, and food.
September 11, 2009 12:24 PM | Reply | Permalink
OK, then, Lola, what are your suggestions for getting the medical insurance industry under control and making sure that every American is protected from a catastrophic illness forcing a family into bankruptcy?
Be specific.
September 11, 2009 12:50 PM | Reply | Permalink
Every American is responsible for protecting themselves and their family from catastrophic illness or bankruptcy derived there from to the best of their ability.
Every American is NOT responsible for protecting some jerk from Cleveland from catastrophic illness or bankruptcy derived there from to the best of their ability.
[Cleveland chosen only because it's an easy target.]
September 11, 2009 1:30 PM | Reply | Permalink
I'm suggesting to go ahead with the reform without the public option and best practice "politburos": universal mandate, ban on patient dumping for any reason, ability to buy insurance across state lines, creation of the national insurance exchange, subsidies for those at or below poverty. I could throw in a few things that are NOT in the current proposals, such as limits on patent duration and defensive medicine.
September 11, 2009 1:37 PM | Reply | Permalink
The sign of someone who has no real idea what they are talking about is that they are dead against best practices "politburos" but deeply concerned about "defensive medicine."
September 11, 2009 2:35 PM | Reply | Permalink
Best practice deals with cost/benefit analysis in determining eligibility of treatment for claim coverage (remember Obama's own example: pill vs surgery, doctors ripping out your child's tonsils for money).
Defensive medicine deals with the threat of tort the size of the US.
September 11, 2009 2:45 PM | Reply | Permalink
Like I said, you have no idea what you are talking about.
What share of what doctors currently do to their patients comports with what the empirical evidence says is the appropriate from of care? How would you know if medicine is "defensive" or simply makes them more money? Wouldn't defensive medicine actually be better medicine, as in based on the best evidence of what to do in this situation? What is better for patients: bypass surgery or medication. Should hospitals allow elective inductions for births before 39 weeks?
How many hospitals use checklists to avoid central line infections? What makes the Mayo Clinic, Intermountain hHealthcare, and the Geisinger clinic different from most the rest of the hospitals in America?
Dude, trust me. Put it down and walk away.
September 11, 2009 3:33 PM | Reply | Permalink
Defensive medicine:
http://www.medterms.com/script/main/art.asp?articlekey=33262
Best practice:
http://en.wikipedia.org/wiki/Evidence-based_medicine
September 11, 2009 4:04 PM | Reply | Permalink
I warned you.
1) If you think physicians being forced to practice medicine defensively to ward off malpractice lawsuits is bad, then surely you would care that employing recognized best practices is usually an absolute defense against such suits. And of course the only way to develop those "best practices" is to do the research and figure it out. Trying to prevent defensive medicine and being against research into best practices is about as stupid as it gets.
Of course most claims of defensive medicine are bogus. They are rationalizations for wasteful medicine. Doctors get paid for each additional test. MAybe you should read Gawande's "The Cost Condundrum"in the New Yorker for a classic example: the docs in McAllen, TX claim they order so many additional tests because of the threat of lawsuits even though they operate under exactly the same tort regime as the docs in El Paso who don't order nearly so many unnecesary tests.
NOw you didn;t answer a single one of my questions, primarily because you are not interested in learning the answers.
A widely cited RAND study found that doctors deliver the recommended care only about half the time. Either they dont know what the best practices are, or they don't care. In either case, it's bad for their patients. Maybe you should read the Institute of Medicine's report Crossing The Quality Chasm.
Evidence of best practices is what led researchers at Johns Hopkins to figure out that a 5 point checklist (as in the kind of checklist airline pilots use) applied every time a central line is put in basically drives the risk of infection down to zero potentially saving billions of dollars and of course making life better for their patients.
Places like the Mayo Clinic and Intermountain Healthcare and Geisinger Clinic and others recognize that you cannot provide the best possible care to your patients unless you continuously collect data and figure out what best practices should be. And it turns out that improving quality also lowers cost which makes sense if it avoids complications and worse outcomes.
Of course tools like you pretend that the point of such research is to tell grandma that giving her expensive medicine is not worth it and she has to die. That's an intentional, intellectually dishonest distortion meant to score a political point. In fact, it a justification for ignorance and the harm that ignorance does to patients and the health and well-being, as well as the wasted resources.
September 11, 2009 8:49 PM | Reply | Permalink
One major reason healthcare insurers and malpractice insurers are so adamant about 'tort reform' and 'junk lawsuits' and 'defensive medicine'(see previous post) is that focussing on these as the blame for their poor earnings performance of late gives them cover for their dismal investment performance.
Most insurers invest premium income either internally or on a contract basis with a money manager, ostensibly to 'maximize returns to shareholders.' The combination of financial dereg under Clinton/Bush II and persistently low yields on Treasury Bonds led insurers to the siren song of 'AAA' mortgage-backed securities (CDOs) and derivatives thereon (CDSs).
I imagine many of these losses have yet to be 'realized' in the open market or 'written down' on financial statements but sure as hell are keeping CEOs awake at night.
This is a huge motivator to keep the emphasis on small potato issues like 'junk lawsuits.'
September 12, 2009 2:53 PM | Reply | Permalink
If there is a national exchange, how could insurers be restricted by state borders?
September 11, 2009 2:41 PM | Reply | Permalink
I'll take the word "national" out, so as not to confuse you. And now?
September 11, 2009 2:47 PM | Reply | Permalink
Dude, I am not the one who is confused.
September 11, 2009 3:34 PM | Reply | Permalink
You are against public provision of a service that by design avoids all the profit-driven worst practices, but you are OK with using the coercive power of government to force those private companies to stop doing those things and act more like... the public health insurance program?
September 11, 2009 2:49 PM | Reply | Permalink
You're mixing two different things here: government regulation versus direct provision of service using taxpayer's money. In my view, the ideal scenario would be where the entire insurance industry (not only health insurance) would be regulated with the same principles.
September 11, 2009 2:55 PM | Reply | Permalink
If you insist.
September 11, 2009 3:44 PM | Reply | Permalink
You think socialized medicine is misguided?
September 11, 2009 2:31 PM | Reply | Permalink
Define socialized medicine?
September 11, 2009 2:57 PM | Reply | Permalink
Now, you are just wasting our time.
September 11, 2009 3:44 PM | Reply | Permalink
You're obviously running out of gas, my friend.
September 11, 2009 4:05 PM | Reply | Permalink
It is stupid to get into a debate about exact numbers. To pretend that by eliminating whatever differential there may be in administrative costs between public and private providers will result in a major change in health care costs is foolish.
The truly underlying issue is how much of our health care spending contributes to better health. The amount that is spent by all actors on things that do not make us better off is much much larger then the amount insurance companies siphon off. That former amount is relevant to the design of both any future public and private insurance system.
Insurance companies do a lot of despicable things--denying coverage, dropping people, rescinding coverage-- because as Grouch (above)has stated above their business is to generate capital not make people for healthy.
The reform proposals that significantly restrict how they can go about business largely outlaw the most despicable things, and perhaps the very same things that consume most of the mostly administrative costs.
September 11, 2009 2:10 PM | Reply | Permalink
Question to Todd: since you corrected your numbers in your post, (thanks to Harold Pollack), does that mean that the second footnote should also be corrected, ie.:
** The Right disputes the Medicare figure. But nobody, nobody, claims that Medicare's true administrative costs are anything like 14%.
And is it still true? Does anyone except ahia.net claim that Medicare's figures are anything like 14%?
September 11, 2009 2:10 PM | Reply | Permalink
Thanks. Correction made.
I can't find anyone plausible claiming Medicare expenses are of the order of 14%.
September 11, 2009 4:23 PM | Reply | Permalink