Time for Single Payer: How Insurers Pass Risks and Costs to You
The chief executive officer of Aetna, Ronald Williams, recently told a U.S. Senate committee that a government-run health-insurance program for all Americans would shift the cost of medical care to private insurers rather than save money. Most Americans probably don't understand that cost-shifting - or risk-shifting - is the most important process in the health-insurance shell game that has crippled American health care in the past 50 years. Some call it a "hidden tax."
Insurance is about risk. Insurance is supposed to lessen the economic impact of relatively rare events - floods, tornadoes, fires and auto accidents. Health insurance blunts the financial impact of sickness and disease, which are not rare events. Insurance companies make money by avoiding risk.
Health-insurance companies like Aetna make more money by selectively avoiding risky enrollees. Law Prof. Andre Hampton, of St. Mary's University School of Law, and I showed in a 2003 law-review paper how Aetna increased its profitability in the 1990s by decreasing the number of people it insured. There's nothing illegal about avoiding risk, as long as a company complies with federal and state statutes.
Private insurance can shift risk/costs legally - through higher deductibles and co-pays - or can do so less scrupulously by avoiding adverse selection (sick people) or by low-balling usual and customary fees for out-of-network doctors, as New York Atty. Gen. Andrew Cuomo recently showed. Whatever the means, the shell game involves determining who has the risk - insurance companies, doctors, hospitals, the government or patients.
Insurance companies have many ways to avoid "risky" (expensive) patients. In the early days of Medicare HMOs, some companies made seniors climb stairs to a second floor office to enroll, thereby selecting the most fit. Cost-shifting occurs by defining (or disputing) what is "medically necessary" care. If your care is not "medically necessary," insurance companies don't pay for it and you might have to. Cost-shifting can occur when administrative hassles delay or prevent payment of claims. Cost-shifting occurs when lump-sum payments for an illness or medical procedure fall short of true costs and a doctor or hospital has to eat the difference.
In the last 30 years, employers have shifted the risk of health care costs to health maintenance organizations, which have, in turn, shifted the risks to doctors and hospitals. Georgetown University law Prof. Nan Hunter defined "actuarial medicine," where doctors are conditioned to make care decisions based on both your needs and those of the insurance company.
The latest version of risk shifting is called consumer-driven health care. That's where companies impose large deductibles and co-pays on patients who supposedly are empowered to bargain harder with doctors and hospitals because they're using their own money.
Six years ago, Professor Hampton and I predicted that this strategy would fail as the debt-ridden American patient/consumer would soon be on the ropes economically, poorly informed and with virtually no bargaining power when sick.
Along with the failure to oversee Wall Street in the market-driven economy in the past 30 years, state and federal governments have failed to moderate risk shifts by insurance companies, with resulting higher out-of- pocket health-care costs to the average American. In 2009 that amount is forecast to be $1,880.
It's ironic that Aetna, long a master of risk-shifting to consumers, told the Senate that government underpayments caused private insurance premiums to be higher than necessary.
This from a CEO whose total compensation was over $23 million in 2007, down from $30 million in 2006. In 2007, Cigna's CEO got over $25 million, and Humana's over $10 million, including almost $200,000 in rides on the company's corporate jet.
Medicare and Medicaid may pay too little to doctors and hospitals, but not to Aetna's Medicare Advantage HMO programs, one of a breed of profitable managed-care products that the Government Accounting Office says are paid about 13 percent too much. CEO Williams wasn't complaining to the Senate about that.
The health-insurance risk pool should be as large as possible. Only the government can do that by imposing a single-payer system. That spreads the risk over the most people. But even a single-payer system is not immune from risk-shifting. Some say the late Natasha Richardson paid the ultimate price for a lack of helicopter medical evacuation in Quebec's provincial medical-care system. The cost savings/risk of no helicopter evacuation was shifted to injured trauma patients like Richardson.
The health-insurance industry knows that its current business model is at risk. The big insurers are scrambling to re-define themselves not as entities that pay - or refuse to pay - claims but as, according to CEO Williams, entities that "improve health and ensure our consumers get the best most appropriate treatment possible managing complex diseases."
Now, the bean counters with finance degrees want to do what even physicians have trouble doing: determining the right way to practice medicine. They failed to learn in business school that the history of medicine is that conventional wisdom is always proven wrong.
The key political question of the day is: Can we afford the private insurers anymore?
© 2009 , Published by The Providence Journal Co.