Originally posted by: alchemize
Mike, thanks for your response. I'm going to respond based on my brief experience working in managed care insurance (and IT at that) so I'm no expert but I do know a bit.
private insurance is unfortunately beset with a bad set of best choices for insurance companies. I'll try to explain this the best i can without getting something longer than most people would bother to read.
Lets outline some preconditions first:
A) most medical expenses will be undertaken regardless of an individuals ability to pay, especially the most expensive ones, ie emergency care. For simplicities sake, we will just assume the all are.
Strongly disagree. The whole principal behind an HMO is that doctors will happily order just about any test or procedure because they make more money and are less likely to be sued. That's a generalization, but the underlying principal is true. Private AND Public insurance restricts a doctor's ability to go willy nilly with charges. I believe private is more effective as they are more motivated to contain costs to increase profit.
B) given condition A, Health care providers know that they will have to write off a given percentage of their income patients, and will figure this as a cost of doing business and will work it into everyone bills.
Basically yes, but it's not because of A. It's because private health insurance funds public insurance underpayments (medicaid).
C) Insurance companies are for profit firms, and seek to minimize costs and maximize revenues.
Agreed. See above.
D) Individuals can declare bankruptcy.
you betchya.
E) there are may insurance companies.
yup.
the problem should be pretty obvious already, be I'll explain it anyways.
Lets start with a beginning state where everyone is insured, and people can switch insurance companies at will, and insurance companies can get rid of customers as they choose.
This state does not exist. HIPAA.
Certain patients are expensive to insure (obese smokers with diabetes, for instance), these patients are often uninsured because they are likely poor and cannot afford their insurance.
Factored into premium rates, just like with public insurance.
Insurance companies can also choose not to pay out on a given claim, for instance if they can prove (or even claim) someone has a pre-existing condition to the start of their coverage.
Generaly no. HIPAA.
Often this will involve courts and lawyers, so the insurance companies will only contest claims where the cost of a lawyer and the probability adjusted cost of a judgment in favor of the customer are less than the projected cost of just covering the customer, or in other words, only the most expensive claims.
Incorrect. Insurance companies rarely contest claims with the exception of a) doctors committing fraud b) experimental procedures/borderline procedures.
In the first case, after heavy medical bills, a much larger portion is going to be unable to pay. In the second case, the customer/patient is, in addition to being charged with their medical bills, often hit with attorney costs as well. giving them a much higher default rate as well. The hospital gets no money from them, and they are written off, and their costs are averaged into everyone elses, increasing their rates.
Again incorrect. Contested claims almost never go to court. They are handled by
Now it should be pretty obvious to everyone, that on average, each insurance company ends up paying the same amount out in claims, since the cost ones they didn't cover are simply added to the costs of the ones they do.
??That doesn't make sense.
Lets say that each company has two real choices: cover everyone, or to engage in the practices i have just outlined. If the other insurance companies adopt the policy to cover everyone under all circumstances, company B will be at a significant advantage if it choices to practices the more aggressive methods. If they other companies have already adopted the more aggressive practices, it will be at an enormous disadvantage if it chooses the less aggressive policies, and will quickly go out of business. In summary, it's always in the insurance firms best interest to go with the aggressive policies, and all firms will do so. In this situation, significant extra costs are added to peoples rates, in the form of attorney fees and others. In the real world, this causes private individual insurance rates to be about 20-40% more expensive than they otherwise should be.
And therein lies your problem - you don't understand private insurance. Private insurance is more expensive for two reasons:
1) Employers (and their employees) demand rich features.
2) Private insurance subsidizes medicaid/underinsured via hospitals charging higher costs.
If you look at private insurance, low frills plans at Blue Cross/Blue Shield, you find their administrative costs are equal to or better than Medicare, and offer a richer feature (disease management, preventative, etc.)
With a single payer system, the costs are relatively similar, however many inefficiencies are removed: it is no longer efficient to drop coverage on the high-cost (they would have to pay for them anyways), there are no incentives to not pay out on a claim (they would have to pay the entire cost anyways), there are no adverse selection problems (meaning they no longer have to worry that they are only insuring the sickest), and the moral hazard problems roughly stay the same. it is for these reasons that single payer systems around the world generally offer similar or better care at significantly less expense to the average person.
All addressed above as incorrect assumptions.
My personal (and shared by many) opinion is the best bet is a blend of private and public insurance, which is the French model. Completely eliminating private insurance and going with completely government controlled - we have countless examples of how that is not a good thing in this country.