Health care: napkin #2.

In my continuing series of "back of the napkin" sketches, created to help more of us understand the health care debate, here is napkin #2. (I'll post #3 tomorrow and #4 on Thursday).

(You can download the whole series here.)

This is the cover of Napkin #2.

It's not "health care" reform at all; it's insurance reform.

Remember how all the reforms are focused on the insurance side of the equation?

The White House would do all of us (and itself) a favor if it just called this what it is: a for-profit insurance smack-down.

Is it fair to demand so much reform of the insurance business? Let's think about that. Aside from making a profit for its shareholders, the only value a private insurer provides is to keep costs down for its members.

Private insurance has miserably failed in its one value-added task: it has not managed to keep premiums down for members. If insurance can't manage costs, then why does it exist?

 
On the contrary, as the rest of the American economy has tanked, the private insurance industry has done exceptionally well. While the government bails out GM (that's failing in large part due to health care costs), the top three insurers averaged profits of $2,400,000,000.00 each for 2008.

Aside from insurance, is anyone else being asked to reform? A little, but nothing that government can legislate.

In the end, whatever reform package is adopted, it will all be paid for by me. If I'm employed and/or have coverage, I'm the only player putting money into the system.

Where will my money go? Depending on the decisions made by government in the next month, there are three possibilities: 1) Into the profits of private insurer shareholders; 2) Into funding new non-profit insurance co-ops and exchanges; 3) Into funding a new government insurance plan that by law cannot make a profit. (It really is that simple.)

In the next napkin, we'll sketch out the plans on the table.

See you tomorrow.

Comments

[cialis online]

i don't mean how many people have ill mental health currently, i mean, i an entire lifetime, what %age will suffer from some form of ill health at some point.

[bucket trucks]

it get better & better as the napkins keep coming

[Ron Stone]

Right on. It really is insurance reform and the insurance industry certainly needs reforming. Sadly though, I believe all the current bills will do is force insurers into even sneakier tactics to deny coverage. They insurers will work even harder at weeding out anyone that is or may become sick, the very ones that need help.

[James]

First, as an ex-insurance executive, each state legislates the loss ratios (premium to claims paid ratio) of the insurance companies. For example the BCBS orgaizations range from -3% profit to 7.8% in these types of insurers, as with mutual companies (the policyholders are the stockholders and any profits are returned to the policyholder. As you say it is a business. It is, in most cases, a very efficient business.

Second, Your napkin indicates that the govenrment option for healthcare insurance (the largest pool of uninsurable people to ever exist) will be part of a pool that legal can't make a profit. True, but very misleading. This governement pool will not only have the largest payout or loss ratio as a function of who will "opt" in but it will be run by the most nortoriaously wasteful organization on the face of the planet. Inefficencies and cost overruns will be the norm. Not to mention the forms, and procedures, and rings of fire a person will have to jump through to get at a mediocre doc making 32K a year. (She'll either be a very nice person or she more than likely be overworked, underpaid and just won't give a crap!)Don't beleive me interview some V.A. docs.

Give me one example of the federal government reducing costs. Really? How about an example of increased efficiency? No, nothing. Didn't think so.

[Matt]

Where will my money go? Depending on the decisions made by government in the next month, there are three possibilities: 1) Into the profits of private insurer shareholders; 2) Into funding new non-profit insurance co-ops and exchanges; 3) Into funding a new government insurance plan that by law cannot make a profit. (It really is that simple.)

I disagree with this statement. Although its very hard to do, it is possible that we will get more or better services for more money. The insurance companies will try to capture any new money we spend as profit, but its not technically impossible to have it go for better services instead of more profit.

[The_Overdog]

Wait a minute. You are saying each of the top 3 insurers made $2.4 billion for year, but you have an aside that pharma is being asked to pony up $80bb, which is more than 10X insurance profits. I'm not sure it's fair to discuss profits from one group without the numbers trueing up end to end, which in your zero-sum game approach, it must. Nor is it fair to use "Remarkably Profitable" for $7bb, but "Not So Much" for $80bb.

[Hawke]

It's about government reform, really - it tells us the types of insurance we can buy, where we can buy it (not across state lines!) and incentivizes such that we're stuck with a single provider choice from our work.

It'd be like if simply because I worked for company X, I can only buy auto insruance with the low deductable comprehensive plan (w/ uninsured motorist coverage) that covers auto glass and includes "free" oil changes from local White Sands auto insurance. That'd be a terrible situation and we wouldn't be surprised if White Sands was costly and didn't make needed adjustments to improve their services.

I don't understand why people are so willing to continue that sort of operation with their health insurance. Or why they want to make the claim that "the free market has failed" when clearly it hasn't operated that way in this country at all because of government involvement.

[Dan Roam]

Paul: keeping the money on the provider side (or just keeping it in our pocket and forgetting all about "insurance") are possibilities. I leave them out because they are not on the table in any of the proposed legislation.

Again, this is a fight with insurance. That's why all options are on the insurance side.

Take a look at Obama's latest town hall. The gloves are finally coming off and he is actively throwing private insurance under the bus.

Not doctors, not hospitals, not pharma, not patients: all reform is being focused on the profit-making private insurers.

[Paul Noël]

Dan,

Love what you've done here.
In the spirit of honing the message, however, isn't there a missing element between slide 9 and 10? In 9, you say we are still paying for reform (you probably should say we are still the only ones putting money into the health-care 'ecosystem' you so nicely laid out in your first series...). The problem comes, however, in transitioning that line of thought to slide 10 where you outline only 3 possible recipients. They are all on the insurance side of your teter-totter, though. To be complete, the money could also go to the 'provider' side (or even stay with us), no?
By the way, I only arrived at this conclusion because you simplified it for me...so good job, again.

Pau!

[Ravi]

Dan,

Maybe add a napkin for how/why insurance companies make money. Eg many ins co today "simply" administer services for self-insured employers who in turn are looking for plans that keep costs low and coverage high...

[Dan]

JRA. I wish I made enough on my books to enter a higher tax bracket. No problem with that. I think the highest I'd enter is about 33% in this country. Not sure where your 75% comes from.

That said, you have no idea of my politics. If you find something in these napkins that specifically betrays a political point of view, please point it out.

[Ryan Miller]

Dan,

Loved the post. Looking forward to the rest of the series. I think the discussion is certainly more complicated than the napkins, but you're right... It's INSURANCE reform, not health reform. I have to disagree with the above comments regarding profit. No one is saying you can't make a profit, but a system which makes money by not providing or denying care (the service for which you are PAYING for in the first place) is inherently flawed and I for one would like at least a serious discussion of alternatives.

Please continue with the great content.

@ryancmiller

[JRA]

Well Dan,

You make too much money on your books. So in order to be equitable - 75% of your book profits will be confiscated for the good of the public. You can pay taxes on the rest, and retain what is left over. Glad people like you are so generous.

Love your method about simplifying a message and communicating effectively. Your politics, less so.

[Nancy]

Great series Dan! As a Canadian who's lived in the US for close to 10 years, I understand the all-private and all-public options but don't know what an "insurance exchange" is. Hoping that will be illuminated on napkin #3...