No Benefit

Crisis In America's Health Insurance Industry

Lawrence D. Weiss

• Publisher: Routledge
• Year: 2019
• Print ISBN:
  9780367153571
• eBook ISBN:
  9780429719110
• Topic: Social Sciences
• Subtopic: Insurance
• Index: Social Sciences

The private health insurance industry is unable to provide nearly 40 million Americans with basic health care. Relying on data from a wide range of publications about this secretive industry, Lawrence D. Weiss investigates the causes of the industry's problems and analyzes the social effects of the growing crisis. The causes include excessive overhead costs, widespread inefficiency, and exemptions from antimonopoly regulations; the social effects include small businesses' inabilities to provide adequate coverage for their employees, the reluctance of many carriers to insure certain social groups, and the disproportionate burden on minorities. Addressing these dilemmas, Lawrence D. Weiss offers a timely and important analysis of the health insurance crisis in America.

chapter one
Placing the Social Fact of Private Health Insurance in Perspective

In the United States having or not having adequate private health insurance has become synonymous with having or not having adequate access to health care. The health insurance industry has been desperately seeking to keep the association between private insurance and access inseparable in the public's mind. It is, however, a spurious and demonstrably harmful association. The Organization for Economic Cooperation and Development (OECD) is composed of twenty-two countries, including most of Europe, Japan, Canada, the United States, New Zealand, and Australia. Most of these countries have virtually no commercial private health insurance industry. Data from 1986 indicate that compared with these industrialized nations of the world the United States ranked first in average per capita spending on health care. According to George J. Schieber, director of the Office of Research, Health Care Financing Administration: "Spending in the United States was 38 percent higher than Canada, the second highest country; 49 percent higher than Sweden, the third highest country; 184 percent higher than the United Kingdom, the 17th ranked country; and 600 percent higher than Greece, the last ranked country" (U.S. Congress 1989e, 24).

Although the United States spends the most on health care, life expectancy in the United States ranks eighth among the OECD countries and infant mortality ranks twentieth.

Probing into perceived differences among national health care systems, Health Management Quarterly and the Harvard School of Public Health teamed up with Louis Harris and Associates in late 1988 to simultaneously survey populations in the United States, Canada, and Great Britain about attitudes toward various health care systems (Blendon 1989). Great Britain has a national health service characterized by a public-sector health care delivery system funded by the government. Canada has a national health insurance system with a private-sector health care delivery system financed with public funds. Private health insurance plays no significant role in either of these two countries. Finally, the United States has a private-sector health care delivery system funded predominantly from private sources.

Life expectancy in Canada is significantly higher than in the United States and Great Britain, where it is about the same. Infant mortality is highest in the United States, followed by Great Britain and then Canada. There are especially striking differences in the average per capita cost of these systems, as noted previously. Another measure of cost is health care spending as a percentage of gross national product (GNP). In 1986 this spending was 11.1 percent in the United States, 8.5 percent in Canada, and 6.2 percent in Great Britain (Blendon 1989). The unusually low percentage in Great Britain is the result of the deliberate attempt for more than a decade by the conservative government to starve the national health service and privatize it as much as possible. In light of this history the rather positive survey responses of the British are especially remarkable. The survey responses were as follows:.

• Thirteen percent of the Americans responded that there was a time in the past twelve months when they could not get medical care they needed. Only 4 percent of the Canadians and 5 percent of the British so responded.
• Of these respondents, 58 percent of the Americans indicated that the main reasons they did not get medical help was because of lack of money or insurance. Among Canadians 14 percent responded similarly, as did a mere 2 percent among the British respondents.
• Fully 89 percent of Americans viewed the U.S. health care system as requiring fundamental change. The comparable figures for respondents evaluating their own health care systems are 43 percent for Canada and 69 percent for Great Britain.
• Ninety-five percent of the Canadians and 80 percent of the British polled preferred their own health care systems to the one in the United States.
• Twenty-nine percent of the Americans surveyed preferred the British health care system to their own, and 6l percent preferred the Canadian health care system to their own.

No Human Right

There is no human right to health care in the United States. It is a commodity to be bought and sold when there is an effective market and to be ignored when there is not. The unique hegemony in the United States of marketable health care commodities has led to a series of social contradictions in our society—and ultimately to social crisis.

Every physician/entrepreneur who arbitrarily raises prices or performs needless medical procedures to maximize income contributes to the rising cost of health care (Physicians Who Profit from Tests 1990). The social price paid for the unlimited pursuit of personal gain is overtreated patients (who have cash or adequate insurance) and undertreated victims (who lack sufficient cash or insurance).

Each hospital that builds a new wing on speculation or buys trendy high-tech equipment to create another "profit center" passes on these excessive costs to everyone paying hospital bills. This strategy maximizes income for the hospital yet puts hospital care further out of reach for people with insufficient cash or insurance.

Every health insurer who denies applicants, charges higher rates, or attaches special exclusions on policies as the result of medical examinations does so to minimize payment of benefits and increase profits. The social consequence of this is the escalating production of uninsured, underinsured, and uninsurable people across the nation.

Entrepreneurs and corporations in these private sectors of health care act to maximize their profit. The social consequence of their individual actions is a vast, growing army of uninsured or underinsured people who are blocked access to health care. Infant mortality and life expectancy rates in the United States continue to fall further behind the rest of the industrialized world. Thus, the central social question is: Should health care in the United States be a commodity or a right? In every other industrialized OECD nation, the predominant concept is health care as a right. In the United States, it is health care as a commodity, which is the principal reason health care costs skyrocket while statistically the health of Americans falls further and further behind.

Special Interests, Profit, and the State

During the twentieth century the development or the U.S. health care system was largely a history of physicians, hospitals, and insurance companies jockeying their respective positions to maximize profits while accommodating needs of the other players. The role of the state, that is, the public sector, has been to help private-sector players increase their income through favorable legislation while simultaneously providing some care for the country's residents who were pushed out of the private sector because they had ceased to be part of the "effective market." In this way the state also helped to blunt political opposition to a health care system based on the financial needs of the major players rather than the health needs of the public.

The private health insurance industry is the keystone of the bizarre and dysfunctional health care edifice now burdening the American people. The industry's structure and conflicting interests prevent it from effectively controlling physician and hospital costs or quality of care. The industry's overriding goal of profit rather than universal service is the single greatest obstacle to health care access. At the same time, the industry's political clout enables it to protect its interests and block effective reforms.

The insurance industry is one of the wealthiest industries in the economy. It translates that wealth into massive political influence to protect its interests, which are inextricably tied to the health care system status quo. The health insurance industry contributes directly to excessive costs of health care because its profits are determined in large part by investing revenue from premiums. The higher the premiums, the greater the potential investment profits. The insurance industry has little interest in low health care costs because they would directly affect its bottom line. The industry profits from exorbitant malpractice insurance premiums while ignoring the system of "self-regulation" that allows dangerous physicians to practice. The industry has historically encouraged the escalation of hospital and physician charges and now does little to effectively curtail them. The insurance industry has enjoyed legalized cartel status to pursue profits to the detriment of alternative forms of health care organization. Corruption, fraud, greed, and mismanagement are widespread in the industry and have disastrous consequences for those who have relied on financially unsound companies for health insurance. Finally, people are aware of the role that private health insurers have played. The industry is neither liked nor supported by the public.

The health insurance industry is not the only organized interest responsible for a deeply flawed health care system, but it is the most influential. Elimination of private health insurance in the United States will not alone solve all the structural problems of health care, but eradication of the industry will clear away defective groundwork upon which the system is built. With continued struggle, the rest will follow. The private health insurance industry can be replaced with a national health care system that will provide high-quality preventive and acute health care to all residents of the United States as a right—and at no charge. The concept is not wild-eyed social experimentation. This kind of national health system has a long-proven history in most industrialized countries. In the United States the implementation of such a system is simply a political question.

The Argument’s Journey

Chapter 2 lays down the historical and economic groundwork necessary for understanding the contemporary role of the insurance industry in general and the health insurance industry in particular. A brief analysis of the historical development of the structure of U.S. health care in the twentieth century is developed. It relies substantially on Paul Starr's brilliant Social Transformation of American Medicine, which is in part a history of entrepreneurial providers and private insurers who accommodated the financial aspirations and needs of each other while jointly fending off alternative health care systems that would have better served the needs of the American people. This chapter also recounts a history of massive influence peddling among federal and state governments that resulted in major concessions to professional organizations dominated by physicians, hospitals, and private insurers. These accommodations and concessions have determined the current structure of health care in the United States.

The commercial insurance industry has become one of the wealthiest industries in the United States. During the past few decades commercial insurers eroded the dominating market share of Blue Cross/Blue Shield ("the Blues"). However, in a dramatic transformation of the market in the past two decades, self-insured enterprises grabbed a huge portion of the health insurance market away from both the Blues and commercial insurers. There are indications that the number of commercial and even Blue Cross/Blue Shield insurers will decrease in the coming decade because of failures and mergers. Additional important trends in recent decades indicate that private health insurance has been insuring a falling proportion of all insured persons compared with the public sector and a falling proportion of the total population. Meanwhile, in both relative and absolute terms the number of uninsured has steadily increased.

Chapter 3 is a detailed discussion of who the uninsured are in the United States today and how they are produced by private health insurers. Some of those at high risk as uninsured include children and young adults, minorities, and single mothers. The usually uninsured number about 37 million, the periodically uninsured number more than 60 million, and the inadequately insured total about 60 million. Private health insurance is clearly a system that does not provide adequate access to health care for a very large proportion of people in the United States. The uninsured are increasingly generated by private insurers trying to maximize profit or minimize financial loss. The uninsured or inadequately insured are produced as a function of inferior benefits, expensive health insurance premiums, high deductibles, and costly coinsurance. Others are produced by long waiting periods, major illnesses, or medical underwriting, that is, the medical examination of individuals in order to determine if they are insurable and under what conditions.

Most health insurance in the United States is made available through the workplace. Chapter 4 focuses on the social consequences of employer strategies for coping with the rising cost of health insurance. Some of these strategies include shifting by various means more of the cost to employees and dependents, eliminating health care benefits for employees, dependents, or both, reducing or eliminating health insurance for retirees and dependents, and switching from commercial to often inferior self-insured plans. Other strategies involve the increasing use of managed care programs such as health maintenance organizations (HMOs) or preferred provider organizations (PPOs). The ultimate outcome of many of these strategies is increased production of uninsured or inadequately insured residents.

Fraud, corruption, and misrepresentation are widespread in the insurance industry, annually producing hundreds of thousands, perhaps millions, of victims. The sums of money involved in this industry are phenomenal, and regulatory safeguards are an ineffective patchwork. Chapter 5 discusses the elderly, who are routinely victimized by high-pressure, unethical insurance salespeople selling inferior medigap and long-term care policies. Greedy and fraudulent insurance corporation con artists sell worthless policies to thousands of victims, declare insolvency, then skip to another state to repeat the scam. Every year several current and former insurance commissioners and high-placed industry regulators are indicted for fraud, corruption, misapplication of funds, and other crimes. Major commercial insurers have bilked the government out of billions of dollars in Medicare funds, and additional huge sums of money are regularly involved in kickback schemes between insurance brokers and corporate benefits purchasers. Small businesses are routinely fleeced by insurance associations and trusts managed by fraudulent or incompetent operators.

Chapter 6 discusses the issues of insurance cartels, monopoly, monopsony, and related federal and state legislation. The messy concept of "free enterprise" has not been much of an obstacle to insurers. With the help of proindustry government policy, the insurance industry in general and in some respects the health insurance industry in particular have enjoyed the freedoms of conspiracy, price fixing, boycott of services (e.g., refusing to sell insurance in a state with stringent regulations), carving up territories, and standardizing product lines (i.e., selling similar policies in order to avoid competition on that basis). The result for people attempting to purchase health insurance has been fewer choices and higher prices. The halcyon days of cartel-like behavior may be somewhat curtailed, however, as public pressure for trust-busting emerges at both the federal and state levels.

By all accounts, the 1990s will be the decade of commercial insurance corporation insolvencies and mergers. Chapter 7 discusses the magnitude of the situation and probable effects on the American people. There are numerous documented similarities between the insurance industry now and the savings and loan industry on the eve of the catastrophe of the 1980s. Increased competition from banks and other financial institutions, excessive junk bond holdings, fraud and mismanagement, greed, and declining real estate portfolios are just a few of the reasons why the insurance industry is financially shaky. One-third of the largest insurance companies in the United States are expected to fail or merge in the coming decade. State guarantee funds, designed to protect people whose insurance companies fail, are entirely inadequate to deal with anticipated massive insolvencies of multiple major insurers. The end result of this process will be a concentration of market control in the hands of fewer corporations, increasing insurance prices, fewer policy choices, and more uninsured people with little or no access to health care.

The public sector is far more efficient than the private sector when it comes to providing health insurance to the American people. Chapter 8 discusses the fact that one-third or more of each dollar paid for commercial health insurance goes toward nonmedical expenses such as profit, advertising, dividends, swollen administrators' salaries and perks, and fancy office space. This amount is approximately ten times what it would cost the public sector to deliver the same health insurance. A welter of forms and bureaucratic red tape bloat administrative expenses in every hospital and every physician's office. The paperwork and bureaucracy alone discourage access to health care for many people. Insurance companies have little incentive to compete on the basis of price, and they have limited ability to reduce the cost of medical services. The result is that people pay greatly for private health insurance yet receive less health care than they would with public health insurance.

Chapter 9 reviews a selection of federal and state legislation nominally designed to address cost and access issues in health care. Special attention is paid to the role of private health insurance or its absence in each plan reviewed. Recommendations offered by a range of health professionals' associations and organized labor are analyzed. Proposals from the private sector by the insurance industry and other sectors of industry are also reviewed. In addition, the political power of insurance industry lobbyists to block meaningful health care reform is discussed.

Finally, Chapter 10 briefly summarizes the main ideas explicated in this study. The insurance industry in general is in a period of massive change and restructuring as a result of both internal and external contradictions. This restructuring will cause increased suffering and victimization of millions of residents who will lose their health insurance, money, access to health care, and finally, for many, their health. Yet many political forces advocate the elimination of private health insurance, and their power is substantial and increasing.

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Preface
• 1 Placing the Social Fact of Private Health Insurance in Perspective
• 2 Historical Development and Current Profile of the Commercial Health Insurance Industry
• 3 Creating the Uninsured
• 4 Employer Cost-Cutting Strategies
• 5 Fraud and Deception
• 6 Price Fixing and Conspiracy
• 7 Insolvencies: Insurance Companies That Cannot Pay Claims
• 8 The Inefficient Private Sector
• 9 A Political Question: Accommodation, Compromise, or Struggle?
• 10 Summary and Conclusions
• Bibliography
• About the Book and Author
• Index