Friday, February 26, 2010

Health Care Insurance and the Profit Motive

Rachel Maddow said, on her show a few nights ago (Feb 23-ish), that the real problem at the core of our health care crisis is that the system is set up in a way that pretty much ensures the problem will exist.

The progressives on the hill, and in the media/blogshpere, have basically demonized the health insurance industry and for seemingly good reason.  Insurers keep raising their rates, reducing the procedures and drugs they will pay for, and dropping people entirely when they get sick (and therefore expensive).  Each year we hear of obscenely high profits for these companies and the huge bonuses they pay themselves, and it is infuriating... especially to those who are sick, alone, hopeless, and afraid.

Rachel, a progressive if there ever was one, pointed out that we cannot blame a for-profit corporation for trying to maxmize its profits.  As a health-insurance provider of course they will prefer to keep rates as high as the market will bear, and to insure the healthiest (cheapest) people possible.  Maximize income, minimize expenses.  That's basic business.

Complaining about health insurance profits and cost-cutting measures reminds me of those people who insist on bringing wild animals into their homes as "pets", and then cry foul when one of them turns on a family member.  I grew up in rural Northern California where my father was the local fish and game warden.  It was (and is) illegal to keep deer as pets, but people do it, usually because they find an abandonned fawn.  Barely a year would go by before we'd hear another story of how the "cute fawn" that had grown into the family pet doe had, for no reason anyone could explain, attacked and killed one of the children.  A very tragic thing but let's face it: if you bring a wild animal into your home, you are foolish to expect it not to follow its own nature.

For-profit corporations are considered citizens in this country; they have rights, they pay taxes, etc... but they are not people.  They are collectives, and the people hired to run them have a clear and unequivocal fiduciary responsibilty to maximize profits and thus benefit their stockholders.  Those who do not are quickly gotten rid of.  If you have a 401K or a mutual fund, I guarantee the companies you own stock in are corporations you expect to generate a profit, and would vote the current leadership out of power if your stock value is consistently decreased.

It is, therefore, natural selection at work.  The corporate big-wigs who have remained in power are those who have generated maximum profits, and are therefore still in the job.  The "nice guys" who tried to look out for others failed to generate such profits, and thus are gone.

This can work.  An automobile company can only attract buyers if its cars are better and cheaper than the competition.  This pressure gets us, generally-speaking, better and cheaper cars.  Same for electronics, fast-food, tanning salons, etc...

The problem is that health care is different.  You do not control when you need it (you can decide not to replace your car this year; you canot decide not to have a health issue).  Also, the incentive for a car company is to sell you a car which they hope you will use (and wear out, and thus need another one).  The incentive for the health insurance industry is to sell you an insurance policy that they hope you will never use.

Cars, DVD players, hot tubs, vacations, tie-die neckties, etc... are nice things to have, but if we are not satisfied by the quality and the price we are offered we can elect to forego them.  You need health care and, given how expensive it is, you need insurance unless you are very wealthy.  If you don't like the price and the quality of what you are offered by the health insurance industry you have to buy it anyway.

  • The incentive of a car company is to figure out how to make a car you will find desireable at a price you will accept.
  • The incentive of a health insurance company is to sell you the most expensive policy, and then do the least for you.
This is nobody's evil intent here, it is inherent in the system. So... what do we do about it?  The only way to fix this is to change the system, and thus change the incentives and what they lead reasonable people within the system toward doing.

One way would be to remove the profit motive entirely (not from the health care providers, but from those that pay, the insurers).  "Single Payer" is often mistaken for socialized medicine, but it is not; it is eliminating for-profit health insurance, while maintaining a for-profit health care industry.  Replacing them both with government programs would be a "takeover" by the government, and nobody I know is seriously suggesting this.  Single payer is not on the table now, unfortunately, though it should have been... had it been explained properly, I think people would have supported it.

Think of it this way:  I think the proper job of the government is to do those things which we cannot reasonably do for ourselves, but must do collectively (I think it was Thomas Jefferson that said that originally).  National defense, protecting the environment, international treaties, things like that.  If we agree that most people cannot pay for their own health care when things get really bad, then this seems like such a thing.  We all pool some of our tax money, and when one of us gets seriously sick then this person draws on the fund.  It is, of course, what insurance is based upon... but a public fund would not be permitted to make a profit.  In fact, the accountability here would require managers to keep down costs while maximizing access to and the quality of care, or be replaced.  Pretty much the opposite of what we have now.

The other way, we are told, is to let market forces pressure the for-profit health insurers to lower rates and improve coverage.  Unfortunately this requires competition, and given that health insurance companies are exempted from anti-trust laws (believe it or not... they, and major league baseball are the only ones), then they can collude with each other so as not to compete.  They carve up the country into non-competitve business zones, and then charge whatever they want.  Of course they do, because they can, and this makes them more money (which is, again, what they are supposed to do)...

The proposed "public option" in health care reform is really just a way to re-insert competition into the system by giving people a government-run option to turn to if the for-profit industry refuses to act competitvely... but that looks to be circling the drain.  Thank the astro-turfing teabaggers for that one.  Of course, they were funded by the for-profit insurance industry, no suprise.

I am personally in favor of single payer, because I think health care is like clean water, something that we all need and that should not be a privilege.  That said, I think the conversation should be about how the system incentivizes the people who run it, and how we can create incentives that lead to the health care system we want.

What we have now will not do it.  We've invited a wild animal into our homes and are expecting it to act like a tame one.  This is fundamentaly foolish.  We must either increase the competition in the health care insurance business, in such a way that lowering our rates and improving the coverage makes them more money, or we need to eliminate the profit motive entirely.

What is being proposed now is "regulation".  It is probably the worst way to go; the only thing worse would be to do nothing at all.  Regulation depends on the wisdom of regulators to make rules that will force these for-profit corporations to forego profits... like trying to tame that wild deer by rapping its nose when it flashes its hooves.  This will be a constant struggle and will fail at times.  Given the inherent corruptability of regulators and the enormous sums of money involved in a large country, I don't see this as realistic... but again, better than nothing.

What I hope is that this is a step along the way toward real reform, but we'll see.

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