The Pebble and the Avalanche

Mon, 2006-Jul-31, 08:16

Health Care Insurers Run Amok, Abandon Disaggregation

A weird, almost incomprehensible article in the Wall Street Journal explains how health insurers now consider each and every business account as a separate entity and demand that each of them provide a healthy profit:

His [30-person company's] medical costs were roughly half of the premiums he paid between 2002 and 2004, according to his insurance data. But last year, after an employee was severely injured in a highway accident, WellPoint's Blue Cross Blue Shield of Georgia boosted premiums by 30%. It had asked for a 41% increase but came down after Mr. Perkinson agreed to make employees pay even more of their bills out of pocket.

Insurance allows you to disaggregate risk from a small group and spread it to a larger group; the idea is that if one person in a small company has an accident, the experience doesn't bankrupt the individual or the company. Yet here we see a health insurance company, in pursuit of higher profits, abandon this idea and punish the small company for a statistical fluke. What's the point of insurance is risk isn't disaggregated?

Although that's bad, it gets worse. Health insurance companies are now abandoning their role as arbiters of health care finances and quality, and pushing decisions to the consumer:

[E]xecutives believe the recent trend toward giving consumers more data on price and quality, with the goal of steering them to cost-effective care, will help bring health-care expenditures under control.

Allow me a moment of cynicism to translate this: by imposing harsher terms on consumers, they will be forced to scrounge for lower-cost care on their own.

The current insurance-driven health care system imposes an incredible price regime; I've seen a thirty-thousand dollar hospital bill for the uninsured magically transformed into only a couple of thousand dollars when an insurance company picks up the tab. The combination of cost squeezes by insurers and government-run programs have pushed the highest costs to the people who can afford it the least. While consumers, businesses, and medical programs go begging, the insurance business continues to hum along and generate profits. I have to wonder how long this state of affairs can last.