Health Insurance – The Dirty Secret Part 4 "Having Your Cake and Eating It Too"

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“But,” health insurance companies sometimes insist, “improving our bottom line benefits both shareholders and policyholders.  By reducing the cost of health care we can both improve our bottom line and lower the cost of  health insurance to our policyholders.  Everyone wins!” 

On its face, this seems like a reasonable point.  No one can argue that the cost of health care, apart from insurance, is increasing exponentially.  The chief reason for this increase in cost is the increase in technological innovations that have made treatment for a disease vastly more effective – and expensive – than they were in the past. 

The modern health insurance industry was born in the 1930s, during the Great Depression.  The first health maintenance organization may well have been the managed care set up by Henry Kaiser, the industrialist, at the site of the Grand Coulee Dam in Washington State.  Kaiser made arrangements with physicians to provide health care for the workers at the dam, which was located in a very remote area far from other treatment facilities. [xvi]  The first indemnity insurance plan, called Blue Cross, was started in Baylor Texas in 1929.[xvii]  The Baylor University Hospital offered to provide up to 21 days of hospital care for any teacher who could pay the six dollars a year in premiums for the plan. [3]

The first fee for service (FFS) plans which followed the Blue Cross (hospital services insurance) and Blue Shield (physician services insurance) model were usually organized and run by hospitals and physicians themselves.  Because payments were made relative to the number of services provided, FFS plans tended to encourage over-prescription of medical services.  Doctors ordered too many tests and procedures, which in turn drove up costs.  A ‘do-everything’ mentality, regardless of outcome or quality of care, thrived.  [xviii]

The steady increase in the number of tests and treatments available, especially through the 1960s and 1970s, further increased the cost of health care.  Few individuals could pay for the high tech care now available to them without insurance.  But at the same time, the probability that any given patient would need the new and expensive treatments was low enough that insurance costs remained low for a time.  [xix]

In addition to increases in the cost of treatment options, there are two other reasons for an increase in the cost of health care which, in truth, have nothing to do with actions on behalf of insurance companies.  The first is the demographics of the United States; as the population ages, and the percentage of the overall population over 65 grows, the cost of overall health care increases correspondingly.  The second has to do with an increase in lifestyle and environmental diseases.  The rate of obesity in the United States continues to increase, owing to a more sedentary lifestyle (less exercise) and more processed foods that lead to increased weight. [xx]  Diseases associated with unhealthy living and eating such as diabetes need to be treated over a long period of time, and so in turn lead to a significant increase in treatment costs. [xxi]

Having said all that, it might seem that the increase in health insurance costs is beyond the control of health insurance companies.  They are simply victims of circumstance.  Yet too often health insurance companies, because they choose to serve their shareholders rather than their policyholders, make a bad situation worse rather than better.  In addition to the increased cost of technology, the aging of the population, and lifestyle and environmental diseases, there are three other causes for the rise of health insurance costs.  Not surprisingly these all are all connected directly with the profit motive of insurance companies, and not at all with improvements in health care.  They are an increase in charges for the same services, providing new but unneeded services simply to gain market share, and striving to identify more and more services as medical, rather than societal, issues.  [xxii]

By Chris Ryan and Charles St. Onge

This last deserves some explanation.  Take, for example, obesity.  The health effects of obesity can be lifelong, and result in a long stream of medical management costs.  The issue is at heart a societal problem, and one that could be tackled through prevention initiatives.  The cost savings that could result from helping just one person remain fit are significant.  Yet the insurance industry often draws political and financial support away from such initiatives.  Furthermore, the tendency to “medicalize” certain social problems also serves to increase health care costs for everyone. [xxiii]  Not only do health insurance companies not help control these costs, in some cases they can play a significant role in increasing them.