We Pay Health Insurance Companies To Argue With Us
I have recently seen an argument cogently made that 40% of every health insurance premium dollar goes to overhead. I don't have the permission of the author of this argument to credit him publicly for his reasoning, but I will outline what he said, citing the references he uses, as follows:
This 40% number is derived from two sources.
The original Woolhandler and Himmelstein article (2003) concluded $320 billion of health care funding goes to administrative costs that a single payer system would recover. (Woolhandler S, Himmelstein DU. Costs of health care administration in the United States and Canada, NEJM 2003;349:768-772. http://www.nejm.org/doi/full/10.1056/NEJMsa022033 see discussion).
The total devoted to administrative costs has been increased to $350 billion by adjusting for the population increase from 1999 (the year of data collection) to 2010 (the last census).
Please note this administrative loss comes from insurance premiums, not from government, philanthropic, or out of pocket spending.
CMS figures estimate $848 billion passed through insurance companies in 2010 (http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trend..., table 3)
$350/$848 = 41%. This number, unlike other estimates, can be documented from reliable sources.
This 41% is a low figure as more recent estimates of losses to private health insurance are even higher ($500 billion, Robert Kuttner, Market-Based Failure - A second opinion on U.S. health care costs. NEJM 2008;358(6):549-51, http://www.nejm.org/doi/full/10.1056/NEJMp0800265).
Put dramatically, out of every five premium dollars paid to private insurance companies:
The insurance company keeps one dollar for administration. The industry does not dispute an average national Medical Loss Ratio of 80%, although no common definition of the term exists (Committee on Commerce, Science, and Transportation, Office of Oversight and Investigations, Majority Staff. Implementing health insurance reform: New medical loss ratio information for policymakers and consumers. Staff Report for Chairman Rockefeller, April 15, 2010, Table 1, page 4. http://njahu.org/MLR%20Senate%20Report%204-2010.pdf). The ACA attempts to change this average figure into the minimum figure, but this will not happen. Secretary Sebelius already granted waivers of this requirement to three states (Maine, New Hampshire, and Nevada, Associated Press, June 4, 2011; J. Fritze, “Companies, Unions Wrestle with New Health Care Requirement,” Baltimore Sun, June 4, 2011).
Of the four dollars passed to providers, providers spend another dollar attempting to collect from private health insurance companies (Woolhandler, 2003, above; see also http://content.healthaffairs.org/content/early/2011/08/03/hlthaff.2010.0..., Morra D, Nicholson S, Levinson W, Gans DN, Hammons T, Casalino LP. US Physician Practices Versus Canadians: Spending Nearly Four Times As Much Money Interacting With Payers. Health Affairs, 2011;30(8): 1443-1450). It is helpful to mention private insurance companies deny 30% of all first claims (Vanessa Furhmans. Fights over health claims. Wall Street Journal, Feb. 14, 2007, pA1 https://www.ppocheck.com/fightsOverHealthClaims.htm)
The private health insurance business model is highway robbery, pure and simple. We are paying an entire industry to debate with us whether we need health services or not. First, we give them the money. Then, they begin finding ways to assure that their profit margins are protected and large. Foremost, they exclude those who most need the services from even having any health care financing. Beyond that, they hire endless bureaucrats to deny millions of claims and then engage in bureaucratic guerilla warfare with our doctors and hospitals. Inevitably, patients get killed (financially and literally) in the crossfire. This method of financing health care would have long since been abandoned in the US (as it has been everywhere else in the first world) but for the remarkable lobbying power of the health insurance industry. They have induced both federal and state governments to prop up their business model. What else is the Affordable Care Act beyond being a major support for the sagging health insurance industry? All of the reforms passed through the Utah legislature, beginning with the Mike Leavitt administration in the early 1990s, have had as a primary objective the care and feeding of health insurance carriers.
We can not remake our health care system without ridding it of this parasitic business model. The Utah Healthcare Initiative proposes a wholesale dumping of private health insurance. Who will join us in organizing the electorate for this massive effort?
Dr. Joe Jarvis