Are Insurers The Problem?

Ezra Klein chides Brian Beutler and I for focusing too much on health insurance companies:

And one thing I'd caution liberals of is letting the insurers loom too large in our minds. They are one of many impediments to reform, but for various reasons, we tend to think of them as the primary obstacle. They're not.

Well, there are reforms and then there are reforms. The cost of people relying on private, for-profit firms as their primary source of insurance for medical expenses is large. When you pay out-of-pocket for health care, your money is going to buy health care services. When a public sector programs pays for health care, your tax dollars are going to buy some administrative bureaucracy and health care services. When a private sector insurance firms pays for health care, your premiums are going to buy some administrative bureaucracy, plus some marketing, plus some risk analysis aimed at avoiding acquiring the "wrong" customers, plus some people whose job it is to find ways to deny legitimate claims, plus health care services.

Insofar as the aim of health care reformers is to increase the number of people buying insurance from insurance companies (or having it bought for them by their employer) then, naturally, insurance companies won't necessarily be the main locus of opposition. But when I hear about how Ron Wyden and AHIP are getting along marvelously I don't think "Oh, look, the prospects for reform are better than I thought" I think "Oh, look, we're going to get an expensive-and-crappy reform." It's worth keeping in mind that a lot of the liberal interest-group pressure on the health care front is aimed primarily at improving the competitive posture of unionized firms vis-à-vis non-union or foreign rivals, rather than at improving America's health outcomes.

Comments

But said intereswt groups have no interest in expensive-but-crappy reform, right?

Posted by Nicholas Beaudrot | March 7, 2008 9:21 AM

sorry but: ...'chides Brian and ME', not '..and I'.

Posted by jonnybutter | March 7, 2008 9:34 AM

When a private sector insurance firms pays for health care, your premiums are going to buy some administrative bureaucracy, plus some marketing, plus some risk analysis aimed at avoiding acquiring the "wrong" customers, plus some people whose job it is to find ways to deny legitimate claims, plus health care services.

Plus, uh, profits. Not to get all vulgar-Marxist on you.

Posted by Gabe Roth | March 7, 2008 9:54 AM

NB, the history of national insurance reform is so long and checkered with massive failures that the point, I think, is that everyone, including the interest groups you reference, has rolled back what they hope for and think might be possible so so far, that when the cringe-inducing democratic congress goes up against their retch-inducing republican opponents, starting from a very mediocre compromise that has already forfeited any real reduction in the power of the morally-bankrupt private insurance companies, then the only real possible outcomes seem to me to be not much reform or expensive-but-crappy reform, regardless of what various groups would dream of as a best-case scenario.

Posted by Matt L | March 7, 2008 10:01 AM

NB, the history of national insurance reform is so long and checkered with massive failures that the point, I think, is that everyone, including the interest groups you reference, has rolled back what they hope for and think might be possible so so far, that when the cringe-inducing democratic congress goes up against their retch-inducing republican opponents, starting from a very mediocre compromise that has already forfeited any real reduction in the power of the morally-bankrupt private insurance companies, then the only real possible outcomes seem to me to be not much reform or expensive-but-crappy reform, regardless of what various groups would dream of as a best-case scenario.

Posted by Matt L | March 7, 2008 10:02 AM

Matt L, that sounds about right to me. The deal will not represent a rational answer to the question, "What would be the best way of providing health care for Americans?" It will represent the balance of power between the interests of corporate America/the privileged elite on the one hand, and the rest of us on the other. That balance isn't going to shift much in our favor, no matter what happens between now and next January.

Posted by Pesto | March 7, 2008 10:13 AM

The players in the current system are obviously responding to the market incentives now in place. Those incentives are clearly broken - mostly because insurance companies can get away with collusion with drug companies, hospitals and other medical suppliers to enable them to pay prices you and I, as individuals, simply cannot get.

Making such collusion illegal, although it would spur unnaturally fat drug and insurance companies to cut thousands of jobs, is still the right thing to do, and needs to be one of the first steps in the reform process.

Posted by T.K. | March 7, 2008 10:15 AM

Ugh, really depressing post, Matt, thanks a lot. All too believable, unfortunately.

Posted by Jeff S. | March 7, 2008 10:41 AM

"When a public sector programs pays for health care, your tax dollars are going to buy some administrative bureaucracy and health care services. When a private sector insurance firms pays for health care, your premiums are going to buy some administrative bureaucracy, plus some marketing, plus some risk analysis aimed at avoiding acquiring the "wrong" customers, plus some people whose job it is to find ways to deny legitimate claims, plus health care services."

+ like Gabe Ruth said profits.

That's all true for every kind of insurance and true for a wide range of financial services and products in general.

And at 1/2 of it is true for every other product under the sun.

Your reasoning leads us to a poorhouse.

Posted by someguy | March 7, 2008 10:43 AM

The fact that a college graduate employed in journalism could write the phrase "Ezra Klein chides Brian Beutler and I" is deeply, deeply depressing.

Posted by not a grammar nerd, but | March 7, 2008 10:54 AM

The fact that a college graduate could write:

And one thing I'd caution liberals of is letting the insurers loom too large in our minds. They are one of many impediments to reform, but for various reasons, we tend to think of them as the primary obstacle. They're not.

is far more depressing. Ezra, it is obvious, is completely ignorant of health care economics in the U.S.

Posted by pinson | March 7, 2008 11:42 AM

Matt, the stuff you mention is such a small drop in the bucket, eliminating them is not what will fix our health care system. Insurers are earning about 5% profit margins, take that and some of the expenses away and you've still got double digit medical trend. If you think it is insurance companies causing the high cost of medical care you are sadly mistaken.

Posted by AB | March 7, 2008 11:46 AM

@pinson

Ah, the delicious irony of someone blaming insurance companies for our health care problems and in the same breath questioning someone's knowledge of health care economics.

Posted by AB | March 7, 2008 11:55 AM

As near as I can tell, the insurance companies play almost no useful role in our health administration system (of which only a small fraction is in "catastrophic" category, suitable for actuarial insurance).

Basically, the insurance companies are mostly parasites on the system, absorbing a large fraction of the financial inputs and converting these into administrative expense, advertising, lavish executive salaries, and profits. I think they're a very large part of the reason America's health care system is so extremely inefficient compared to those of most other developed countries.

It's certainly arguable that the insurance companies are just too "tough" to take on politically, and therefore should be left alone for tactical reasons. But ignoring their large negative role is ridiculous on the purely analytical level.

Posted by RKU | March 7, 2008 12:27 PM

As near as I can tell, the insurance companies play almost no useful role in our health administration system

Of course they provide a useful role. They provide a service in demand by consumers--health insurance. Just like home insurers, car insurers, life insurers, etc.

Basically, the insurance companies are mostly parasites on the system,

Oh, stop talking nonsense.

absorbing a large fraction of the financial inputs and converting these into administrative expense, advertising, lavish executive salaries, and profits.

All private companies do those things. You're not arguing against private health insurance, you're against private enterprise, period.

Posted by Mixner | March 7, 2008 12:40 PM

There's universal single payer coverage. Nothing else is reform.

Posted by Alan in SF | March 7, 2008 1:14 PM

Re: plus some people whose job it is to find ways to deny legitimate claims,

The people who deny claims are called claim adjudicators and you're going to have plenty of them in any public system too. And in fact, public systems also deny claims that do not meet their criteria for payment. However, the vast majority of claim denials (in both public and private systems) are due to claim errors, or to the submission of duplicate claims for the same exact service, date and patient (many providers seem to think that billing an insurer mutiple times will somehow speed up or smooth out the process). Once these are weeded out or corrected the percentage of claims that are outright denied is a very small number. Both insurance companies, and the public plans like to avoid appeals and complaints since those cost money to handle. Both generally save money by by nickel-and-diming the providers in ways that do not usually rebound on the patient. The public plans are in fact experts at this process. Check out Medicaid reimbursement rates sometime if you don't believe me.

Posted by JonF | March 7, 2008 6:45 PM