Inside Insurance

Posted Oct. 26, 2009, at 7:28 p.m.

The debate on the Obama administration’s effort to transform the nation’s health care system has ranged over a wide landscape. From the value of preventive care and end-of-life counseling, to the marketing of prescription drugs and Medicare reimbursements, the complexities of the system have been teased out and discussed.

But at the heart of the argument for revamping the system is the role health insurance companies play in it. These companies have been demonized, perhaps unfairly, for reaping enormous profits, paying exorbitant salaries and bonuses and turning a cold shoulder to the sick. That black eye may be unfair because businesses only do what the public, through its representative government, allows.

Car manufacturers began installing seat belts because laws required it. Landlords install smoke detectors in apartments for the same reason. And insurance companies will not deny coverage for pre-existing conditions if laws prevent it.

As Congress approaches the final stages of crafting a bill, insurance company lobbyists are predicting steep hikes in premiums if reform is enacted. This shows what’s at stake; insurance companies are fighting tooth and nail to maintain maximum profits.

From 2000 to 2007, profits at the country’s 10 largest health insurance companies rose 428 percent; understanding just how they earn such rates is critical to knowing how to regulate the industry so the cost of being insured drops. An authoritative voice answering that question is that of Wendell Potter, a former communications officer for the health insurance company CIGNA. Earlier this month, Mr. Potter met with the BDN editorial board and explained the inner workings of the industry.

With such a high rate of return, health insurance companies are the darlings of Wall Street, he said. Investors expect to see fat profits, he said, because these companies have delivered them year after year. In 1993, insurance companies expected to pay out 95 cents for care of every $1 in premium paid. Now, they expect to pay just 80 cents. If a small part of a company’s portfolio doesn’t perform at that rate, scrutiny comes quickly.

For example, he said, CIGNA found itself paying out more than 80 cents on the dollar in its contract with the Miami-Dade public school system. Those managing the plan began to look for reasons to deny coverage, and according to Mr. Potter, there are always enough fine-print clauses to do so.

Access to affordable premiums seems like a worthy goal, but Mr. Potter called that “a ruse.” Affordable rates mean little if annual deductibles are $20,000, he said. Those sorts of policies are on the rise. And those sorts of business policies are why he left CIGNA and became a whistle blower.

Mr. Potter, who now works for the Center for Media and Democracy, said if reform is blocked, so many people will fall off insurance roles that Congress will be forced to consider a single-payer system. A pubic option would “reset Wall Street’s expectations,” he said, and so must remain in the final bill.

Seeing the insurance industry through the eyes of an insider reveals it as a powerful, self-serving force. But the shame lies not with the companies, but with those who do nothing to limit their power.

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