Public Option: The House Always Wins

It all sounds great but just look at auto insurance if you want to see what a system of private insurance being forced on citizens with government oversight. Our premiums were supposed to go down but with no real incentive to control or reduce costs they have continued upward. Our deductibles have risen, companies don't care if you are not satisfied you can only change to another arrogant company,auto repair is very profitable with little control and insurance companies pass the cost to us through increases approved by oversight panels appointed by politicians getting paid off by lobbyists. A public option run like VA hospitals with cost control by people resisting tax increases and service provided by a system that must satisfy the patients has to be better than the mess we now endure. No wonder the insurance industry is scared out of their wits.

Hi - First of all you are still missing my point. Is not that isurance companies want too much profit. That would be bad enough. It's that they want to lower their MLR. For example, not paying benefits which they are supposed to might be bad for profit because you would have to hire too many people to fight with physicians and patients demanding payment. But hiring these people (which they have by the thousands) is good for their MLR because it increases the denominator while not increasing the numerator, i.e. it is money spent, but not on medical benefits.

"Medicare is administered by private insurance companies and they are paid for that service."

Huh? Medicare has hired some private insurance companies to handle billing, but largely it is a federal operation. Look, even if you count the contractors, Medicare's overhead is about 5% which is much less than the 20% - 30% of the overhead (= 1 - MLR) of the private insurers. Frankly I would like to get rid of the contractors so we could get the 2% overhead of the Federal part of Medicare for the whole operation.

Let's see, did I hear you say we have to ban cars because too many people are invested in buggy whip manufacturing? The goal of a health care system should be to provide health care, not to increase anyone's stock portfolio.

Look, other countries with government run system get better health care as measured by all 16 of the bottom line public health statisics and they do it at half the cost per patient. Do you realize that half of our health care cost is $1.2 Trillion each and every year? Furthermore nobody dies or suffers or goes bankrupt in other wealthy countries because they lack health insurance.

Okay, so Lensch has identified a significant problem with the profit motivation of insurance companies. Does this necessarily mean that the utility type approach, which I also favor, cannot constrain the profits allowed to a level consistent with what a public option would cost? Medicare is administered by private insurance companies and they are paid for that service. That cost is on top of cost of the federal bureaucrats that sit on top. Many pension plans are heavily invested in insurance companies. Is Lensch prepared to let everyone's 401k take another major hit? I guess the next step is to expand the Public Option of Social Security to take in all the 401k plans and put the related investment companies out of business. There seems to be no end to the mischief government can do when it puts its mind to it.

This is clearly a good attempt to think outside the box, but I an afraid that it is misguided. The important parameter in health insurance is not profit, but Medical Loss Ratio (MLR) which is the percentage of premiums that are paid out in medical benefits.

The goal of a well run corporation is to make money for shareholders. In the case of health insurance companies this is in conflict with providing good efficient health care to the country.

The for profit insurers have learned that the way to get a high stock price is to have a low MLR. Notice that they consider medical benefits as "losses."

They do this in two ways. They make the numerator smaller by making it difficult for doctors and patients to collect. They make the denominator larger by obscene executive compensation, high profits, billions spent processing complicated forms they require of physicians and patients, and still more billions spent on fighting with doctors and patients over coverage and payments.

Clearly as long as we have for profit insurers with their perverse incentive to lower their MLR, we cannot have an efficient system.