Only A Public Option Can Make Decisions in Patient's Best Interest

By Maggie Mahar, Health Beat. Posted July 1, 2009.

By this time, the nation’s health care bill had begun to spiral. For-profit insurance companies saw just how much money was on the table; and they realized that now that the non-profits no longer had a stream of federal funding, for-profit insurers  could probably move in and take over the market. And this is just what they did.  Since they had deep pockets, these publicly -traded insurers were able to create price wars--and win them. Meanwhile, non-profits looking for capital turned to Wall Street—and turned themselves into for-profits.  In 1981, 88% of HMOs were non-profits; by 1986, the share of nonprofits had fallen to just 41 percent.   And by the 1990s, the vast majority of managed care companies were profit-driven.

They took over the HMO business and redefined what “managing care” meant. Rather than looking at outcomes, they looked at costs. Their investors were focused on quarterly earnings; they wanted profits to rise Now. This lead to short-term thinking. Rather than emphasizing on what might keep their customers healthy over the long-term, insurers focused on how to cut costs in the next three months.. Too often, this meant saying “no” to needed, effective care.

As we all know, patients, doctors and the media fought back. Stories of “care denied” became regular features on the evening news. Sometimes the treatment the insurer wouldn’t pay for was, in fact unproven. Bone marrow transplants as a treatment for breast cancer provided no benefit.  But the media put enough pressure on insurers that they relented, and covered the transplants. As a result, a great many women suffered horribly from a cure that was worse than the disease. (Some became so sick that when they died, they were unable to say good-bye to loved ones.)

Finally, at the end of the 1990s, the HMOs threw in the towel. They stopped saying “no” and began paying for most tests and treatments that the FDA approved. This was costly, of course, and explains why private insurers’ reimbursements have been climbing by 8% a year. Meanwhile they have passed those costs along in the form of higher premiums, making health care insurance unaffordable for more and more families. In Money-Driven Medicine, I quote a Wall Street analyst: “The social compact was that managed care would make careful decisions about costs; instead they became a cost-through vehicle.”

This brings me back to Jaffe’s argument. He says that, to contain costs, we must limit services, and “a public plan isn't a prerequisite for imposing such limits.” A private for-profit insurer could do it just as well., he suggests.

Here, he ignores the history of what happened in the 1990s. For-profit insurers did not “manage care” in a way that “maintained” their customer’s health. 

Why did they fail? As Ezra Klein recently explained in his Washington Post column: “The issue isn't that insurance companies are evil. It's that they need to be profitable. They have a fiduciary responsibility to maximize profit for shareholders.”  Klein goes on to paraphrase Wendell Potter, a 20-year insurance company employee who recently testified before Senator Jay Rockefeller’s Commerce committee: “as Potter explains, he's watched an insurer's stock price fall by more than 20 percent in a single day because the first-quarter “medical-loss ratio” [the percentage of  premiums that the insurer paid out in claims] had increased from 77.9 percent to 79.4 percent.”

Potter knows what he is talking about.  Disappointed shareholders can be brutal. And it doesn’t take much to disappoint them. In this case investors sent the share price plummeting because the insurer had the poor judgment to increase the amount that it paid out to doctors, hospitals and patients by 1.5 percent.

Even if an intelligent CEO wanted to do the right thing, take the long-term view, and provide labor intensive chronic disease management so that, over the long term, customers would be healthier—the CEO of a large publicly-traded insurance company probably wouldn’t keep his job long enough to find out whether or not his ideas worked.

See more stories tagged with: health care reform, private insurance, public option, hmo

Maggie Mahar is a fellow at the Century Foundation and the author of Money-Driven Medicine: The Real Reason Health Care Costs So Much (Harper/Collins 2006).

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