Was Hillary Care a corporate power grab?

Wendell Potter did an interesting interview several weeks ago – he is the former CIGNA insurance PR executive who quit the business and now works for insurance reform. The interview is wide-ranging and can be downloaded as a Word document. (Click here and scroll down to September 6.)

The part that interested me most is this:

Potter: Back in the 90’s, the largest number of people, more people, were enrolled in non-profit Blue Cross Blue Shield plans back then. CIGNA was certainly around, and Humana was around, and they were big companies, as was Aetna, but by and large the Blues dominated. Those Blues at that time were largely non-profit.

So long as the market was dominated by non-profits, the problems we have now were not so apparent. There were uninsured, but nothing like now. There was an administrative overhead burden, but nothing like now.

Since that time a lot of the Blues have converted to for-profit status. Many of them have been bought up by Wellpoint. Wellpoint is now one of two very large health insurance companies. Its largest rival is United Health Care. They both, between them, insure about sixty million people. After that, you’ve got Aetna and CIGNA, and then you drop down and you’ve got Humana and Conventry and Health Net. So you’ve got these very large insurance companies to the point that now there are about seven insurance companies, all for-profit, that dominates the industry. One out of every four Americans is now enrolled in a plan that – excuse me – one out of every three Americans – is now enrolled in a plan that is managed by one of those seven companies. So you’ve got, essentially, a cartel of very big companies that are publicly traded – they’re owned by investors.

Now, the free market people will tell you that the domination of the market by for-profit insurance companies will introduce efficiencies. The market will do its magic. Not so. In fact, in deliverance of basic health care, market forces work against the goal of delivering health care to people.

The consequence of that – I don’t think people realize the consequences – what that means. Every three months a pubic company has to report earnings to investors. And investors look, certainly, at earnings per share – that’s a number they look at for any company – but in the health insurance industry they look for something they call the “medical loss ratio”.

In 1993, the medical loss ratio was about 95%. What I’m talking about here – that means that ninety-five cents out of every premium dollar that insurance companies took in it paid out in claims from people who went to the doctor, went to the hospital, or picked up their medicines. Now it is down to about eighty cents. And it fluctuates sometimes above eighty and sometimes below eighty on the average for these big companies.

And that means that now just eighty cents of every dollar that we send to these insurance companies are paid out in claims. The remainder goes toward what they all “administrative” expenses, to pay for advertising, sales, marketing underwriting, executive compensation. Also, profit. A large percentage of the dollar now goes to reward shareholders.

The result of introduction of for-profit domination of the market was the diversion of fifteen cents of every health care dollar from actual health care to administration, executive salaries, and profit. This does not count the administrative burden that private insurance puts on hospitals and doctors.

So that is a big change and it continues. There is constant pressure on these companies to make sure that every time they announce earnings, every quarter, that that medical loss ratio does not inch up. Investors want it to go the other direction. They want the insurance companies to pay less and less every quarter on medical claims.

No current proposal for reform affects the basic problem we face: The pressure on for-profit insurance companies to divert premium dollars away from heath care and to investors. The answer is simple: Eliminate the profit motive, as every other industrial country has done. It’s not rocket science.

Footnote: I was surprised to hear Potter say that the health care system in this country was so much more efficient in the early 1990’s than now. That was the time when the Clinton’s proposed Hillary Care.

Her plan, as I understand it, would have turned the country into one giant HMO run by Aetna, Travelers, and Humana, all on a for-profit basis.

The insurance industry supposedly killed Hillary Care with a devilish ad campaign centered around Harry and Louise. While it was indeed insurance companies that sponsored the ad campaign, I doubt that Aetna, Travelers, or Humana were behind it. They had far too much to gain. The ad campaign was most likely a product of smaller companies that were dealt out of Hillary’s game.

That would make Hillary Care look more like a corporate power grab than health care reform. Failing there, they took another route to domination, buying up the Blues, and forcing all companies, for and not-for profit, to compete on the same tilted playing field.

In Montana, for example, Blue Cross is technically non-profit, and has about 70% of the market. It behaves just like a for-profit company. It’s Gresham’s Law applied to health care – bad business practices force out good ones. Non-profits either behave like for-profits, or they wind up with all of the for-profit rejects, forcing them out of business.