Letting Insurance Write the Bill: How Bad Is That?

Ezra has written a thoughtful follow-up to my complaint that discussions of the role of insurance company in writing our legislation neglect to discuss profit. I agree with parts of it and disagree with others. The most important point Ezra makes–which explains his focus on providers to the exclusion of insurance companies–is this passage:

The insurance industry is not a particularly profitable industry. To be more specific, they’re the 86th most profitable industry as measured by profit margins, with an average margin of 3.3 percent. That’s lower than drug manufacturers (16.5 percent), health information services (9.3 percent), home health care (8.4 percent), medical labs and research (8.2 percent), medical instruments and supplies (6.8 percent), biotech firms (6.7 percent), generic drug manufacturers (6.6 percent), and much else. That’s not to pretend that 3.3 percent is nothing, but it’s hard to see how that’s a primary driver of health-care spending, much less the growth in health-care spending. 

With that in mind, let’s take a step back to the question that started this series of posts–Matt Yglesias’ question, "how bad is that?" if the insurance industry writes our health care reform bill. With now several bills on the table along with the Max Tax framework and the President’s framework, how bad is it to let corporations necessarily motivated by profit maximization write the bill?

Short of our entire political system changing tomorrow such that single payer became feasible (which would make Ezra, Yglesias, and me all very happy), what we’re going to do instead is put tens of millions of people into the health insurance system who aren’t currently there. The question is, how to do it for the best outcome at lowest cost to taxpayers and individuals. Some of those people will be put into the system via Medicaid, though a great many will be put into the system directly via insurers. Importantly, those put into the system via insurance will be mandated to buy insurance. Some will be subsidized by the government, though others will not.

So the insurers will be getting tens of millions of new customers, and those new customers with financial constraints will be subsidized by the government but others will not.

Now, in his first post, Ezra wrote:

If you want cost control, though, you’re going to have to follow through on one of these strategies, and that’s going to mean making providers and patients really angry. Both like the health system better when it’s got unlimited amounts of money flowing through it. It’s actually easier for me to imagine a system with private insurers that holds costs down than a system with the current provider reimbursement rates and relatively passive insurers (be they private or public) that holds costs down.

Of course, that’s not entirely right. Patients whose health care is provided by their employer "like the health system better when it’s got unlimited amounts of money flowing through it." Patients who have to pay out of pocket–like many of the ones who will be mandated to buy insurance–don’t really like that so much. And it’s not just patients and providers that like a system that’s got unlimited amounts of money flowing through it. So do insurers (assuming you understand this to be a system as a whole). Even assuming insurance companies only make that 3.3% profit and setting aside things like huge executive incomes, the insurance companies have an incentive to have as much money flowing into the system that it can take its 3.3% profit on.

And that’s one of the baseline problems with letting the insurance companies write the bill: they have just as much incentive as providers to see that as much money gets flowing into the system as possible. And, they have an incentive to make sure that as much of the money put into the system as possible stays in their pocket. For those affected by the mandate who will not be subsidized or will only be partially subsidized, it is actually the patient, and not the insurance company, with the most urgency to cut the amount of money flowing through the system. But the patient doesn’t get to write the bill; the insurance company does, and it appears that it is with these patients that the insurance companies stand to make some of their highest profits.

That’s one of my gripes with the Max Tax. It sets out-of-pocket caps higher than other bills and sets lower amounts (73% if they are to be subsidized) that insurers have to cover. The result will be that more middle class families go into debt. As it’s written, the Max Tax (frankly, most the bills) amount to a mandate that is simply not affordable for some middle class families. But the Max Tax throws in a bit more mandated costs that will go to insurance company profitability. The extra thousand or more dollars included for insurance companies means a lot to a family otherwise faced with surviving off of less than $8,000 for utilities, transportation, education, clothing, and debt. To me, you don’t have to get any further than this money–taken from middle class families who will still go into debt under this scheme and giving it to insurance company profit–to demonstrate "how bad it is" that the insurance company wrote the bill. 

The other big difference with a bill written by insurance companies is that it includes no apparent means to challenge the insurance companies to limit how much money they ask to be put in the system in the first place–something the public option would help to do. Now, Ezra argues the exchange will be enough to bring costs down.

The answer to these problems, at least to my way of thinking, is not so much the public plan (though I think it would be a good inclusion) but the health insurance exchanges. And I do talk about them. Often. Loudly. In all different ways.

Expanding the exchanges is where insurers — both public and private — get the size for administrative efficiency and negotiated discounts. Expanding the exchanges moves us towards a system where people see how much of their money is being spent on health care and thus understand the need for cost control and the damage being done by the status quo. Expanding the exchange is even the key to a strong public plan, because the public plan is nothing without a large customer base to give it strength.

Scarecrow has written challenged the view that an exchange is enough in the past (here, here).

For me, there are two key points on this.

First, without a public option, you sacrifice one tool to keep insurers honest with regard to regulation. Now, the public option, as currently laid out, doesn’t do that. And there’s a risk that insurers will find some way to game the system and incent high cost patients to enter the public option. But the public option at least establishes a threat that insurers could lose more lucrative patients, as well. If regulation won’t be enough to prevent insurers from cherry-picking or denying coverage, competition might be. As such, the public option represents a hypothetical tool–one that would have to be beefed up to be effective–but one that may be necessary to force real compliance.

Then there’s the question of controlling total money flowing in the system. Best as I understand Max Tax and some of the other plans, while there are out-of-pocket caps on expenses, there are no hard and fast limits on premiums. As such, the pressure points to keep insurers from raising premiums are the following:

  • There is virtually no pressure point to keep premiums low for those in the 133% to 400% level (particularly the 133% to 300% level), because the government will subsidize the plans.
  • The pressure point for those over 400% of the poverty level is roughly 10% of their income. Once the cheapest policy (which under Max Tax would have to cover 65% of costs, including rules requiring coverage of preventative care) hits 10%, then an individual could opt out, though more affluent consumers would stand to lose savings if they didn’t carry insurance. Given that family coverage is already over 10% of the income of families at 400% of poverty level, it seems there would be a lot of middle class families who would choose to drop out.
  • MaxTax taxes "Cadillac plans" 35%–but not those in the individual market (Obama last night said the tax should apply to "insurance companies most expensive policies," without specifying whether that included individuals). In the absence of such a tax on individual policies, insurance companies would have an incentive to shift group policies to lower premium lower benefit plans (they’ve got four years to prepare to do so, at a time when corporations are looking to cut health care costs anyway), while continuing to charge those Cadillac premiums in the individual market.
  • The fees are actually not a big deal. At most levels of income, premiums will be more than 10% of income, which means people can just opt out. For those for whom this is not true–more affluent people–the $900 may be a much better deal than bad insurance. 

Perhaps I’m missing something. But none of these appear to be effective means to limiting how much goes into the system in the first place (indeed, subsidizing plans without any limit on that subsidy appear to be an invitation for abuse).

The public option, at least in theory, could offer one more pressure point on insurers to keep those costs down. 

All of which adds another point to my answer to "how bad is that?" By letting insurance companies write the bill, does it leave all sorts of pockets of coverage that insurance companies will exploit to maximize profit–which they will do under any scenario–without at the same time providing some means to counter that? Do those mandated, captive consumers become necessary profit points for the insurance companies, at the expense of affordability for them? To what degree does allowing the insurance companies to write the bill prevent us from limiting the total money going into the system, and as a result, move toward limiting costs all around?

And that’s all before you get into the very important question of how you cut down on those sub-industries where profit is exorbitant, like Pharma. Ezra may well be right that insurance companies will do a better job of bringing down costs given whatever share of the money in the system they get than even Medicare. I agree with Scarecrow, though, that "a well-designed Public Option could exert positive influence on how the providers dealt with cost-efficiency issues." And a public option will not have, in the first place, gamed the political system to make sure as much money flowed through the system as possible.

But let me take a step back. One reason a single payer is not feasible right now is that the health care corporations have captured our political system (the other is that we’d have to replace that part of our economy before being able to forgo one of our few healthy economic areas). One of the reasons Pharma’s profits are so high, and one of the reasons Obama felt the need to cut a deal with them on the side, is because Pharma has captured our political system. One of the reasons we have been unsuccessful in cutting Medicare rates is because providers have captured our political system.

That, to me, is the biggest reason you don’t send out a reform plan authored by a woman stuck in a revolving door between industry and Congress. Part of incrementally reforming health care (because that’s all this is) necessarily has to be incrementally retaking our political system from the industries that have captured it.  And allowing them–any of them–to take over the legislative process is not the way to do that.

We may well decide that we want to employ insurance companies to help us bring down the costs of health care. But that’s got to be on terms in which we employ them. Not in which the federal government is just a source of potentially unlimited subsidies, in which they employ the government to maximize profits.

145 replies
  1. allan says:

    Great analysis, as always.

    One also needs to ask how much the short-term interests of the management
    diverge form the long-term interests of the shareholders. (Gee, where have we seen that before?)
    The “low” profit margins that Ezra Klein cites of course are after executives and their lobbyists have been paid …

    • emptywheel says:

      Yeah, I don’t know that profit is the right measure, there, not without reform of executive compensation.

      But it’s not like Pharma execs are going begging, either, so the comparison is still fair.

      • JimWhite says:

        Yeah, but when you think about the financial statements of various businesses, insurance is very funny because of their “reserves”. Holding onto huge bundles of investments is expected of them. In other words, don’t just look at their P&L, look very carefully at their balance sheets (assuming the reserves are disclosed there). I’ll bet anything health insurance balance sheets have done very well over the past decade…

      • Rayne says:

        Profit should not be the measure. It can be and has been jacked around in many different ways. All they have to do is reject coverage for a percentage of items this month and voila, they’re profitable.

        There’s also a crapload of other pork in insurers’ books, starting with the amount they pay out in executive compensation. How profitable would any insurer be if they cut executive compensation by 25%?

        There are also 1300 or so insurers across the country; there’s a massive amount of redundancy with this many businesses fighting for the same market share. How much of their lack of profitability is tied up in competing for marketshare and paying for services which competitors duplicate?

        A fundamental problem with mainstream media coverage of health care is that most of the people covering it are not business majors, have no clue what they’re actually writing about. Ezra K. is proof; he accepts on blind faith that the numbers he’s gotten are accurate and in no way manipulated by the entities he’s covering.

    • ApacheTrout says:

      The “low” profit margins that Ezra Klein cites of course are after executives and their lobbyists have been paid

      My thoughts exactly. William R. Milnes Jr. (the last CEO of Blue Cross Blue Shield VT) retired at the end of 2008 and was paid $7.25 million in salary, bonuses and retirement cash. I suspect the pillage of the company coffers is substantially greater in states with larger populations.

    • dick c says:

      I found these figures for CEO compensation: http://bit.ly/3OS6VI If those amounts are close to right, 19.4 billion for 23 individuals over 5 yrs, that’s $2,980,000,000 per yr. Divide that by a family’s yearly insurance payment of $8,000. That comes out to 23 individuals skimming off the entire insurance payments of 372,500 families every year. I keep thinking that arithmetic has to be wrong — it seems a bit excessive.

  2. schnick says:

    I don’t have time to look into this right now from work, but I think I have a BIG problem with those numbers.

    Insurance makes most of its money not from premiums, per se, but from investing those premiums – and we have just gone through one of the largest market tumbles in the last hundred years. I know the last quarter wasn’t particularly bad, but I would venture to guess that if you review that chart over a few years, you would see a MUCH higher profit margin for that industry from, say, 2007 Q1 or so than you would for anything in 2009.

    A comparable chart for the last 2 years would indicate that banking was one of the most volatile of all commercial segments to be in. Is that indicative of the reality over a 40 year period? 100 years?

    Just a thought.

      • Rayne says:

        It’s a gross conflict of interest to have the fox draft the plans for the hen house.

        Health care insurers should be asked for input, but shouldn’t be in a position to draft any legislation which affects its business.

    • Rayne says:

      I’m sure what you’re saying is accurate with regard to insurance at large, but does the health care industry really do the same kind of investing that say, a captive reinsurance company does? I don’t think so. This is a factor we could certainly stand to learn more about.

      • cmhmd says:

        Private health insurers, including “not for profits” have many subsidiaries, often for profit, engaged in many of the higher profit businesses mentioned, such as home health, equipment, etc.

        There are literally trillions of dollars sloshing around in these massive entities, with the executives just taking a teensy weensy slice, year in and year out.

        Only in America would these companies have the gumption to be called not for profit!

        • DeanOR says:

          I recall a Consumers Union article (no link) on the various profit/non-profit hybrid forms that these corporate entities can take. They rival Wall Street in their creativity.

          • Rayne says:

            They ARE Wall Street.

            AIG is an insurance company, as one example, and many banks now have insurance services. Many corporations have captive insurance companies, which invest premiums in a multitude of financial vehicles.

            Health care is only a subset.

            • DeanOR says:

              “They ARE Wall Street”. It’s also even more complicated. There’s an array of confusing State laws regulating the forms that health care and insurance companies can take, including exotic hybrids of profit and non-profit, which is what I was referring to. This provides more opportunities for the companies to game the system. And how many people know what their State insurance and health regulatory agencies are up to, or that the agencies even exist? I would guess that the States may be even more corruptible by lobbyists than the feds.

              • readerOfTeaLeaves says:

                DeanOR, I wish that you would write a Sentinel Diary about this issue.

                I’m convinced that this is part of why the crap out of the GOP about how ‘people should be able to buy out-of-state health care coverage’ is so rank and deceitful.

                Imagine the following scenarios:
                2012: 30 million Californians buy ‘insurance’ in Idaho b/c that’s the cheapest plan. Meanwhile, Idaho has a population less than 5 million AND ALSO probably a State Insurance Commissioner (or the equivalent).

                So in 2013, Alabama comes in with a lower price, and 25 million Californians buy their health insurance from Alabama that year. What’s Alabama going to do — hire the Idahoans to work ‘online’ from Boise and Meridian while they all try to figure out Alabama’s laws? Meanwhile, what enforcement powers would Alabama have over insurance provided to 25 million Californians?

                So then in 2014, Louisiana and Nebraska want on the Big Healthcare Jobs Bandwagon, so maybe 5 million Californians still by from Alabama, 12 million from Louisiana, and 8 million from Nebraska.

                How are three different states supposed to regulate all those health care claims?

                How are all those Idahoans in 2012 supposed to keep their jobs the next years when all those Californians shift their coverage to a ‘cheaper state’? Or else the states all cut one another’s throats offering an employment pool based on cutting checks to Drs and hospitals.

                Meanwhile, can you even imagine trying to track a claim through a mess like that?!

                Sorry, but as far as I’m concerned it looks like the Mafia designed that GOP ‘let’s all buy coverage from out of state’ bullshit.

                Has **anyone** in the media actually asked the GOP — and I mean starting with Hatch and Grassley – “how does this actually work??”

                Just for starters:
                – How long it could take docs to get paid under that kind of complicated mess?
                – How would the GOP guarantee that their blithe, stupid promises actually deliver money to docs and hospitals in 30 – 60 days?
                – How would the 50 state Insurance Commissioners hire and train enough employees to track the health care business?
                – How the hell would someone in Boise be able to determine whether a claim was fraudulent if it came in from San Diego?

                Sheer, unadulterated lunacy.
                But hey, it makes one hell of a cutsie little sound-bite, you gotta give Hatch, Grassley, and the rest of the fools who spout this nonsense credit for sounding good on teevee.

                I seriously hope that the ministers in the Faith Community all over this nation talk about ‘false witness’ when this topic comes up! Because this is ‘false witness’ if I’ve ever seen it. But clearly, people haven’t figure that out because it ’sounds good’ in a sound bite on teevee.

              • Rayne says:

                Used to work in reinsurance handling filings of documents for admitted status in all 50 states. Yes, it’s a nightmare — and it can be one of the factors behind costs to operate, making a public option more feasible. A national public option could bypass the state licensing problems, while encouraging the 1300 health insurance firms to move towards consolidation. (I will say that there are some states which were great about uniformity and conformity to NAIC standards — others were flaming horror shows. States should be encouraged to adopt a single standard of uniformity to help reduce their own costs.)

                That there hasn’t been consolidation of this industry just flabbergasts me to no end. The cost savings from economies of scale must be enormous, and yet there’s no push to move to consolidation — even though the cost savings could be realized as profits.

                What’s that tell us?

  3. fatster says:

    Brilliant analysis, EW.

    It boggles the mind, in a field as complex as health care, that one person from industry has been put into a position to impose something upon us that will cost us tax-payors gazillions. Development of a plan for an entire nation requires the input of health care experts, not one lobbyist and industry darling.

    There is one possible solace I see in this. If (big if) the auditors under whatever emerges as “our” national health program are given substantial resources and the clout Medicare auditors used to have (don’t know about now as I’ve been out of the field for a while), then we’ll be dependent on them to try and keep the insurance companies honest. Rigorous, muscular government auditing is essential to that challenge.

  4. fatster says:

    O/T. Cool trivia. (from talkingpointsmemo.com)

    09.10.09 — 9:25AM // recommend (21)

    Rep. Joe Wilson’s 2010 opponent has received more than $100,000 in contributions overnight.

    –David Kurtz

  5. oldtree says:

    How did the idea that Lloyd’s of London had for insuring merchant ships get so out of hand? Insurance, a criminal conspiracy enacted into law, has become “accepted” by some. It is one of the reasons we have no character any longer. You can get insurance on anything if you are willing to pay. You can get it on a bet in Vegas. You can get it if you build your house where floods wipe it out every few years. You can get it for your pet.
    There is no personal responsibility involved with insurance. It is a scam that has been woven in to our fabric of government. It is clearly, one of the most compelling reasons to show that government employees have been bought, and that their loyalties are with the corporation, right?
    The people that mouthpiece for these companies are criminals. There is no kind way to say it. It is time we end organized crime so that it can no longer steal by government mandate from people. Insurance reform? This is a joke that they must laugh about quite a lot in the boardrooms as they talk about who they have bought as they give their congress scum the list of what to vote on.
    It’s broken. There are no repair parts to fix it. It is obsolete and there are a couple of things you can do with the remains. Turn them into a nice piece of art reflecting those “good old days”, or you can recycle it.
    Let’s try recycling shall we?

    • MarkH says:

      Eliminating health care insurance is an interesting idea. Without insurance the providers could hardly expect to get paid a penny if they charged too much. But, to ensure they get maximum pay they would no doubt charge more than a lot of people could afford — thereby ensuring a large number of bankruptcies.

      The only way to eliminate that would be to cap personal health care costs.

      Then, of course, the huge flow of cash through the health care industry would likely result in a much smaller and less terrific health care industry. We would all suffer from that.

      And then, it isn’t our way to tell someone they can’t create an insurance company to try and make a profit.

      Perhaps the worst problem is related to the growing gap between the Rich (including corporations) and individuals. Like motel pricing and other things which are used by both individuals and a large number of corporations there is corporate pricing and discounts for individuals who don’t travel during ‘business travel’ days. It’s a two-tier system which milks corporations for as much as possible and barely tolerating individuals. Our health care system does that too. Those with corporate insurance think they’re getting group discounts, but I’ll bet the real scoop is individual rates are jacked up entirely to make it clear to corporations they’re getting a break when in fact we’re all being taken for a ride. It’s called the “IBM Discount”. First you jack up prices 500% and then you offer a 10% discount to make people feel good. It’s also done in retail furniture sales. They can’t sell anything unless it’s “on sale” because people know the ‘regular’ prices are so high they can’t afford it. But, what do the retailers do? They just jack up all the prices, so their ’sale’ prices are still profitable AND they don’t have to have quite as many sales staff on days they know people won’t be coming in. It’s quite bizarre.

      The answer. Stop creating incentives for everything to be jacked up to insanely high levels, just so they can look like good guys when they give a discount. Less corporate insurance would be good, so health care providers would have to deal more with individual wallet sizes. More stockholder rights to dump big CEO pay packets would help a lot.

      In other words, a lot of our problems have to do with our corporate system and not just the ‘health care industry’. The Rich are taking it all. We have to use government to fix it. Even George Jetson, or was it Fred Flintstone had it right when he said, “Jane, stop this crazy machine!”

      In the meantime I think the public option, which doesn’t operate by private corporate rules, can put a brake on the current corporate system in the health care area.

      Does anyone have a better idea on how to restrain prices without instituting dictatorial price controls or other horrors?

  6. bobpine says:

    I hear the phrase,every american will be required to get health insurance and they compare that to most states that require us to have Automobile Insurance.Well if that is going to be the yardstick,we all know what happens to your premiums when you have an accident.Or if you have points on your license(pre-exsisting condition).Just asking.

  7. ferg says:

    “Ezra may well be right that insurance companies will do a better job of bringing down costs given whatever share of the money in the system they get than even Medicare.”

    I’m pretty sure that’s false, because Medicare’s inflation rate is lower than private insurance rates. I mean, we already have data on that specific issue, there’s no reason to speculate.

  8. beth meacham says:

    Analyzing insurance companies based on their reported profit margin is deceptive. A far better measure is their percentage of overhead, which includes salaries, advertising, lobbying, investments and incentives as well as the necessary administration costs.

    Most businesses try to minimize reported profit in order to minimize their tax liability.

    • MarkH says:

      Most businesses try to minimize reported profit in order to minimize their tax liability.

      I’m sure stockholders are pleased as punch to know they could be making a lot but that it’s better for the company to avoid paying taxes and instead give the dough to their CEO.

      More goofy corporate crap.

      Eliminating corporate taxes (since they’re not actually humans) and taxing individuals might help straighten that out.

  9. TheraP says:


    War crimes inquiry into Nato troops and Taliban insurgents: International criminal court prosecutor studying evidence of alleged crimes in Afghanistan

    The details emerged at a briefing yesterday on the emerging international criminal justice system, where Luis Moreno Ocampo, prosecutor of the ICC since 2003, confirmed that he was conducting inquiries into possible criminal acts by both Taliban and Nato forces.

    US soldiers acting for Nato are being investigated for alleged torture of prisoners and use of excessive force. “What we are trying to assess is … different types of allegations, including massive attacks, collateral damage exceeding what is considered proper, and torture,” he said.

    He said he had collected information from a variety of sources in the country, including human rights groups and the Afghan government, but was “very open” to additional information that foreign governments could provide.


    A dispute over whether US soldiers can be tried by the ICC is under way at the court’s headquarters in the Netherlands; in 2002, the Bush administration rescinded the US signature from the Rome statute, the document that legally binds 109 states to compliance with the ICC.

  10. fuckno says:

    Hey, I make 20% profit in my business!

    Would you trust me to be the CEO in charge of 16% of our economy?

    fuck no!

    Yet some people think that’d be, just honky-dory.

  11. klynn says:

    We may well decide that we want to employ insurance companies to help us bring down the costs of health care. But that’s got to be on terms in which we employ them. Not in which the federal government is just a source of potentially unlimited subsidies, in which they employ the government to maximize profits.

    Wonderfully written EW. You hit the essential points that the administration has to consider. The news that the industry wrote the legislation and wrote key points without benefits for the middle class or any citizen, or the families highlighted by the President last night, makes a mockery out of the families who have told their stories of financial ruin or of victimization of health care injustice.

  12. TarheelDem says:

    as measured by profit margins, with an average margin of 3.3 percent.

    Averages are lying with statistics in a case like this. The real question is what are the margins of the top 10 companies and what percentage of the market do they have. And then what is the median margin (half of companies above and half below).

    So now, taking this at face value as an argument, this is saying that we pay twice as much for the same care as other nations and the insurance companies are so poorly run that they only net 3.3%. Is that what their SEC filings say? As the cliche question asks, “So exactly what is the value-add of an insurance company?”

  13. DeanOR says:

    “Once the cheapest policy … hits 10%, then an individual could opt out, though more affluent consumers would stand to lose savings if they didn’t carry insurance”. That’s the option? You don’t have to pay more than 10%, but your alternative is to be uninsured??

      • DeanOR says:

        Thanks emptywheel. Okay, some people will opt out after spending 10% of their income and be uninsured, but I guess some would stay in the system and pay over 10% because there is a yearly cap on medical expenses. They have to be able to get to that cap, however, and they may not be able to pay the bills to get there. That means being uninsured. Or bankrupt?

        • emptywheel says:

          I think the way it’ll work is WellPoint will say to someone making $60,000 a year, “we want $6,100 to insure you.” At which point that person says, “screw that.” ANd hopes for the best.

          Otherwise, taht person pays the $6,100, plus up to $5950 (in the MaxTax) in out of pocket expenses ($11900 if it were a family). That’s the max he’ll pay in the year ($12050), but yeah, that’s enough to bankrupt a lot of people.

    • behindthefall says:

      Sorry to be late to the party, but … do I grok this correctly?

      The proposal is that I pay up to 10% of my income to get health insurance? How is that different from a hike in my income tax from, say 31% to 41%? If I _did_ have my taxes hiked by, in this example, about one-third, would I expect to get nothing more than medical services? Why, I would probably be joined by masses of people yowling about “governmental inefficiency and waste”, wouldn’t I? Yet, for the same amount I am supposed to fall on my knees and praise the magic of “free enterprise”?

      Explain that to me again, somebody?

      • emptywheel says:

        No, that’s absolutely right. You have to be willing to pay 10% of your income or be penalized (but if you were an individual on the market, unless you were really affluent, you’d be asked to pay that 10%).

        And the really troubling thing is that’s still before the insurance company can charge $11,900 a year for out of pocket. And the subsidise for the middle class are only for over 13% of income. So some of them are basically on the hook for 31% of income.

        So, yes, we could do this much more effectively if everyone paid 10% more in taxes.

      • MarkH says:

        While I like the idea of everyone getting insurance I’m not a big fan of the mandate because, as you suggest, it will be viewed as simply a tax by many and others will be unhappy because they really really don’t want insurance when they’re young & healthy. Pushing more dollars into the health care industry could be a mistake. It would be a huge amount of money and if it’s a mistake that would make it a huge mistake.

        I’m not a big fan of the employer mandate because we’re better off if corporate money isn’t competing with individual wallets as that will enable insurers to push prices higher. It also adds to the problem of corporate costs in competition with other companies around the world. And, it can lead many more people to become trapped in jobs they don’t dare leave because of the insurance.

        Offer people a good public option in terms of features/coverage & cost and watch competition hold costs down. If the plans are good more people will get insurance and that will help bring more people to the reserve pool.

        The subsidies are available to buy ANY insurance, so more people will have that to help them buy insurance and some of it will be private. Those firms should be happy for that increase in money flow.

        The elimination of pre-existing-conditions will also allow more people to have insurance.

        What about reform with a public option, but without mandates? Are the Blue Dogs so greedy they want the mandates, but no public option for their insurance pals? Could the Dems accept no mandates despite their desire to cover everybody? They would get a public option to compete and hold down costs.

        Remember, Repubs see the big plan with mandates and a public option as an attempt to buy votes for the future. Without a public option they see it as less politically dangerous because they know people won’t be seeing gov’t as their friend. That the mandate makes insurers happy is something they like as much as many Dems.

        Both things combined are dynamite. The Dems don’t like the mandate by itself. What if it was the public option, but no mandate?

  14. TarheelDem says:

    Another thought. There is in Ezra’s argument the canard that visibility of costs to patients allows them to make better choices of treatment. In healthcare, patients do not behave as consumers except to postpone treatment altogether. Knowing that the cost of a procedure is in the multi-thousands of dollars does not persuade a patient to get a cheaper alternative when the doctor says that the recommended treatment is the most effective.

    Healthcare is very poorly modeled as a market.

    • emptywheel says:

      That’s not entirely true. I am borderline advised to get a MRI every 6 months to a year. That’s $800 out of pocket for me, and a huge expense. I’m not really convinced it’s a good use of money–mine or my insurance company’s.

      Also, what this doesn’t account for is that the system still chooses certain kind of treatments over others. If I lived in Europe, my cancer treatment would have been hormone treatment alone (a few thousand, maybe), whereas here, it had chemo as well ($40,000). On paper, at least, the outcome would have been exactly the same, and doing the chemo added negative effects to my long term health. I didn’t learn this though, until after the fact–it was not a choice I was offered.

      • TarheelDem says:

        But your decisions along with the decisions of others don’t affect the pricing of the services. An aggregate of people all of a sudden not getting MRIs will not drive down the price below $800. In all likelihood, the price will go up per patient in order to ensure cost recovery.

        The idea of patient as consumer is to try to get the patient themselves to deny needed services on the basis of cost, reducing the need for the salaries of all those nurses who are doing pre-certifications and the claims personnel who are deciding whether a cost is an eligible cost.

        Yeah, we get to shop for healthcare at the margins. But in most situations there are not a wide range of options.

        And making the patient the consumer is just another way of rationing, one based on the ability to handle out-of-pocket costs.

  15. Hugh says:

    I have to say that I am so freaking tired of references to Ezra Klein. He is pretty much a shill and stand-in for the Obama White House. It drives me nuts when someone throws out a number in isolation. 3.3%, OK, 3.3% of what? 100% of ten bucks is ten bucks. 3.3% of a trillion is $33 billion. Size matters. And even here how much of that base number is overhead? Strip out the the 3.3% of say a trillion dollars. Take out another 3% for overhead comparable to Medicare. If the overhead is 30%, that still leaves you with 24.7% overhead or $247 billion of that trillion. That leaves a lot of change that can be paid out in bonuses or otherwise goldplate the lives of those who run it.

    Ezra Klein is a vacuous git. Can we please have less of him. If we want our stupid pure and unalloyed we can always go to Obama or Rahm.

    • readerOfTeaLeaves says:

      Bless you, Hugh.
      Although I wouldn’t (yet) refer to Ezra as a ‘git’, numbers aren’t always ‘just numbers’. They HAVE to be viewed in context to know WTF they mean.

      Also, at least up to comment #28, I have not yet seen anyone ask where Ezra got that figure of 3.3% profit for the health insurance profits, nor have I seen any one question that it is ‘86th most profitable’.

      As beth meacham, JimWhite, Rayne, and others point out, ‘profit’ is a function of accounting measures, minimized to avoid taxes. ‘Profit’ is **not** a good measure.

      But even at that, how is it that no one questions where Ezra arrived at those numbers?!

      Because a Health Industry Lobbyist quoted Ezra and his figures today on msnbc’s “Morning Meeting”. Why do I have that same sick feeling in the pit of my stomach that I had when Rice went on teevee to reference Judy-Judy’s planted info about ‘mushroom clouds’? And then Cheney piled on.

      This looks like the same dynamic at work: give numbers to Ezra.
      Have Ezra publish them.
      Then quote Ezra and ‘his’ numbers, which you provided someone that he would trust.

      The HealthCo’s are counting on Ezra to get their memes into the national conversation and — most likely — legitimize very questionable ‘profit’ numbers.

      Which is another tipoff that the healthCo’s have captured D.C.
      Another tipoff is the failure of any of these conversations to mention the data that Howard Dean uses in his book on health care reform, starting with figure for healthCo CEO ‘compensation.’ Funny, how the lobbyist on ‘Morning Meeting’ didn’t fit that topic into his comments, eh?

      • Rayne says:

        Agh. Which is exactly why Marcy needs to take Ezra to the woodshed every damned time he yaps about something he doesn’t understand.

        I hate to sound ageist, but his age is working against him; he hasn’t been burned enough to know he’s been used like a shiny new tool.

        Or maybe he knows, in which case he deserves a drubbing.

        • readerOfTeaLeaves says:

          I’m with you on the ‘ageist’ thing.
          I think that he wants to do well, and he has terrific forums.
          And too damn much naivete, plus too damn little knowledge.

          And it doesn’t appear that he’s ever had to fend off fraudulent billings, nor help coordinate treatment for end of life care, nor a whole lot of other things that would make him a great deal more knowledgeable and wary.

          Goooooooooo Marcy!!!!!!!!

  16. alank says:

    From AFL-CIO blog:

    Profits at 10 of the country’s largest publicly traded health insurance companies rose 428 percent from 2000 to 2007, while consumers paid more for less coverage. One of the major reasons, according to a new study, is the growing lack of competition in the private health insurance industry that has led to near monopoly conditions in many markets.

    That came from HCAN which is pro-multi-payer.

    You must take into account the biggest players when assessing profitability. Their share of the market is, shall we say, predominant?

    And, yeah, give Ezra a rest, please.

  17. OldFatGuy says:

    First of all, I’m very skeptical of the 3.3% number, and wonder if it’s mixing apples and apple butter, because many insurance companies are set up to be non-profit.

    Secondly, as EW correctly points out, even if you give the 3% number credence, the fact any corporation, all corporations, will still benefit by having more dollars going through the system. 3% of $20 Trillion is a better profit than 3% of $15 Trillion. And having mandates without a public option does just that, it increases the numbers of dollars, and profits, through the system. Which is why the insurance companies are spending millions in ads in support of “reform.” Duh.

    So, whether it’s 3% (or as I believe more like 5 to possibly 7), that’s still billions and billions of dollars spent annually on nothing. Nada. Not a single flu shot, not one dental checkup, nothing. I still have yet to see a coherent and meaningful argument for how spending billions of dollars annually on profits in the health care arena is efficient, much less moral (which it’s not). The same, tired, private entity is always more efficient than government bullshit is just that, bullshit.

    Here’s where I could expand this post to 10,000 words with examples of why it’s bullshit, from what the DoD spends now to feed and support it’s troops (with mostly contractors now) compared to 30 years ago (with mostly troops), to the USPS, to the very on point Medicare system that is multiple times more efficient in terms of dollars spent for health care versus admin (disregarding profit even).

    But I’ll stop here.

    I just wonder why this guy Ezra is supposed to be considered so smart?

  18. dcgaffer says:

    As always, there lies, dman lies and statistics.

    First, go here.


    Then mentally screen out the smaller players in terms of Market Capitalization.

    Then look at Return on Equity.

    Investors are focused on RETURNS, and in this case ROE is a better proxy than Profit Margin (which has all kinds of squirrelyness in terms of comparability to other Industry’s as well as issues as to this data is mrq (most recent quarter).

    Don’t have time to completely dissect why this ‘talking point’ is so bogus.

  19. earlofhuntingdon says:

    I’m unconvinced by Ezra’s profit data or that it accurately describes relative power. Size matters. Insuresters are bigger than nearly all other industries he lists. They also hold the pass at Thermopylae. Little exits or enters the medical services system unless it first passes through their hands.

    And let’s not forget that compensation is a deductible expense, which takes away from profits due shareholders. Making those as large as possible is what corporation theory tells us is the only reason for a corporation to exist or act. (Barring making managers wealthy first, which isn’t in the theory but is an empirical reality.)

    It’s not just profits that dictate power, it’s size, role, market share, monopoly characteristics, and access to cash that can be put to use. Japanese trading companies and Wall Street arbitrageurs, for example, operate on tiny profit margins too, but their scale and unique advantages generate enormous wealth and power.

  20. foothillsmike says:

    Profit is what is left after expenses are deducted. What are they spending the premium dollars they receive on.
    1. Bloated salaries to officers.
    2. Ginormous overhead expenses.
    3. Bonuses to people who deny legitimate coverage.
    4. Advertising expenses.
    5. Ginormous Lobbyist expenses
    6. Political contributions
    7. Huge legal costs defending denials and recissions

    • Rayne says:

      Oh yes, was in a huge argument this morning over the corrupting influence of money and the health care industry, focused on the campaign contributions involved.


      320 million documented dollars spent on campaign contributions over the past 20 years by insurance industry as a whole. Does not include other undocumented funding to campaigns.

      http://www.opensecrets.org/ind…..hp?ind=H01 — in the same period, 469 million from health care professionals.

      http://www.opensecrets.org/ind…..hp?ind=H04 — in the same period, 174 million from pharmaceuticals.

      This kind of money could have bought a lot of health care. Keep in mind this amount of money is far less than upper management and boards of directors pulled down as compensation for these industries, and is in many ways designed to protect that same compensation.

  21. earlofhuntingdon says:

    Who could possibly think that having the insurance industry write our health care reform legislation would be a bad idea? Why no one. Let’s also have,

    The FBI’s top ten most wanted and their lawyers write the new book on criminal procedure.

    Al Qaeda rewrite the law on domestic and foreign surveillance powers.

    Timber and mining interests write our environmental laws and regulate their “oversight” agencies.

    Doctors and lawyers regulate themselves in order to protect consumers from incompetent and harmful practitioners.

    Insurance companies rewrite our tort laws and Marc Rich rewrite the IRS tax enforcement code.

    And let’s have K Street rewrite Congress’ rules on limiting lobbyists’ access to and influence over the legislative and rulemaking process.

    Matt and Ezra, sometimes you act like children. Must be the air along the Potomac.

  22. Ann in AZ says:

    Blue Texan has his regularly scheduled post up and it looks to be an ass-kicker: “South Carolina Congressman Who Screamed at President Obama Fought to Keep Confederate Flag”

  23. jcc2455 says:

    Insurance profits are notoriously difficult to measure. They hold monstrously huge cash and asset reserves, which makes it easy for them to manipulate their profits by moving money between operating statements and balance sheet. And logically, businesses that generate significant returns from their assets would likely show down profits over the past 18 months.

    Ezra’s full of shit.

    And even if he weren’t full of shit, what would be so bad about letting these cash rich if minimally profitable businesses write the bill is that they would feel enormously “incentivized” to write the bill to expand their meager profit margins.

    Did Ezra get his permanent Village ID yet?

    • Hugh says:

      They hold monstrously huge cash and asset reserves, which makes it easy for them to manipulate their profits by moving money between operating statements and balance sheet.

      Again this is another excellent point. With insurance companies, profitability is not defined by the difference between inflows and outflows (OK, I know I am simplifying here because there are ways for other corporations to tinker with these numbers as well) but also by how they define reserves for “projected” future payments. Essentially this is an enormous fudge factor that can be manipulated and rationalized at will.

    • tk1200 says:

      My first year in law school our Conflicts Resolution professor (I can’t remember his name) said that the most important advantage a lawyer can gain is to be in control of the first draft of any agreement. It serves as the template for all future discussions because there are only a few lawyers who will tear it all up and insist on reaching an agreement from scratch point by arduous point. He was right. The first draft is almost always slanted in your client’s favor. The language is tight when well defined clauses serve your client’s interests. It’s ambiguous when ambiguity will better serve your client’s interest.

      If you accept the Baucus approach to addressing health care reform, which is short on analysis and long on industry favorable solutions, you will fall into this trap.

  24. WilliamOckham says:

    I have a nit to pick with you on this phrase:

    what we’re going to do instead is put is put tens of millions of people into the health care system who aren’t currently there

    I think you really meant to say:

    what we’re going to do instead is put is put tens of millions of people into the health insurance system who aren’t currently there

    Everybody in this country, including illegal aliens, is “in the health care system”, one way or another. Maybe they are only in it when they go to the county hospital ER. Maybe they are only in it when they are in a workplace or car accident. Maybe they are in it by paying their doctor in chicken eggs (don’t laugh, I’ve scrambled some pretty fine eggs that my wife accepted in payment). Our society goes to great lengths to hide the true cost of dealing with the health needs of the uninsured, but the costs are there, nonetheless.

  25. lukasiak says:

    there is something decidedly dishonest in Ezra’s citation of a 3.3% profit margin for the insurance industry as not significant. The insurance industry is simply a multi-trillion dollar “pass through” middleman — it doesn’t create any goods, and the only “service” it performs is writing checks to the people who do perform the services and provides the goods.

    The insurance industry adds no value — and 3.3% profit for doing nothing of value is excessive.

  26. Gitcheegumee says:


    And here I thought the dead janitor policies had been declared illegal YEARS ago. Apparently not:

    Banks Use Life Insurance to Fund Bonuses – WSJ.comMay 20, 2009 … Banks are holding life-insurance policies on workers, with the firms as beneficiaries, a tactic to help pay executive bonuses and pensions.
    online.wsj.com/article/SB124277653430137033.html – Cached – Similar

    • fatster says:

      And it’s not just banks.

      “Hundreds of companies — including Dow Chemical, Procter & Gamble, Wal-Mart, Walt Disney and Winn-Dixie — have purchased this insurance on more than 6 million rank-and-file workers.”


      • klynn says:

        That was awful to read. I cannot believe someone can take out a life insurance policy on me without my permission.

        Don’t they need one’s SS# and other information? Does this not violate privacy? To think of all the companies that issued furloughs but probably continued to fund these life insurance policies. Maybe if there was a split on the payout and that the company had my permission, it might be a bit more humane.

        (Klynn shutters)

        • fatster says:

          I’m shuddering right along with you, and have been for a long time now.

          As for your question, they have your SS# since you’re an employee.

          I feel a real shrill coming on (my automatic response when our unbridled corporations are under discussion), so I’m going to take a little nap right now and spare all of you one of my outbursts.

          • klynn says:

            Yeah, I know they have our SS#’s but I thought the privacy laws give corporations limitations as to using it expressly without employee permission outside of notifying parties regarding taxes.

        • MarkH says:

          Just think of a scenario where they’re desperate for cash to keep the company going and they’ve got lots of policies on lots of employees. Well, in the 1980s they raided a lot of retirement funds. Now they can raid the insurance company reserves if only a bunch of people accidentally slipped and fell hard. Does that make you feel good, that someone else might have an incentive for you to die? It sounds an awful lot like Credit Default Swaps on a car company struggling to survive. It sounds a lot like banks deciding not to supply credit to a company they consider marginal and on which they just happen to have CDSs.

          Too much financial interest in destroying things has already caused us a world of trouble. We need to end that.

  27. Downpuppy says:

    3% of premiums as profit is outrageously high.

    Insurers aren’t doctors. All they do is collect money & pay claims. There are 3 federal agencies with similar functions – Social Security, Medicare & the IRS. All process about $1 trillion a year, with total operating costs anywhere from 1/2 of 1% to 3% of gross.

    20 years ago, health insurers managed something similar – their cut was only about 5%. Now it’s 20%, including the Frist & Scrushy type obscene levels of compensation as expenses.

    Ezra is being a Moran.

  28. justbetty says:

    This is way late but I want to note a few things. First, of course, it’s a conflict of interest for the insurance companies to write the bill – to comment, to critique, OK, but not to dictate the terms. Secondly, wouldn’t the industry profit levels be affected by the fact that some of the companies are still technically non-profits? Third, if its’ so unprofitable, why don’t the for-profits get the heck out of it and leave it to the Govt or genuine non-profits?

    • Funnydiva2002 says:

      Just the ones who can afford it and still opt out.
      Now, what proportion of our tens of millions of uninsured persons those are is never mentioned, so that level of subtlety goes out the window.

      Mr President, it is NOT like automobile insurance required by states. I can CHOOSE to not drive a car. I CANNOT choose to forego medical care (after a certain point, at least). I don’t understand why this is so difficult to grasp.


  29. Scarecrow says:

    My views on this are, uh, evolving, though I’m not quite to the point where I feel the need to repudiate everything I’ve ever written.

    1. On the basic point about “who should write the bill.” The answer is obvious: it should not be written by those with an interest or predisposition to channel as many dollars as possible through a corrupt for-profit system that has become so concentrated and politically powerful that it cannot be trusted to protect the public interest.

    Marcy gets this: The more $$ we push through that system, the more powerful their stranglehold on the process will become. In that case, a mandate becomes an automatic right for this industry to automatic direct deposit from your bank account to theirs. That’s unconcionable; it’s like giving steriods to the guy who’s strangling you.

    2. The purpose of the Public Option is not to “compete” with the private insurers, in the classic economic text book sense. A competitive market in insurance is not possible, as Ken Arrow, Stiglitz, Krugman, et al have told us, over and over. The purpose of the Public Option is to channel mandatory dollars need to achieve universality away from the private system that is strangling the market and the public interest. It’s that simple. It’s about who controls the money.

    To get control of our money, we have to first create the public option (Medicare II), then make it a viable alternative, and then open the gates so that more of the $$ can flow to the public system, rather than the corrupted for-profit private system. Control the flow of $$, and you change the politics.

    3. Since the Public Option is not a “competitor” in the normal sense, all the restrictions about “level playing field” and relying only on it’s own premiums and not federal subsidies are a huge conceptual mistake. If the goal is to redirect public/tax payer dollars away from the corrupt for-profit system, the feds need to structure the viability of the PO in such a way as to ensure it succeeds in that task.

    That is why I harshly criticized Sen. Schumer months ago when he first came out with the “level playing field” gibberish. Now Obama has bought it, because these people don’t understand (or don’t agree) what the PO is for. It’s to recapture the dollars from a near-universal mandate and stop giving those $$ to a corrupt system that has a stranglehold on our political system. This is fundamental to long-run political and health reforms. Naturally, it’s in the private industry’s interest to prevent any diversion of those dollars and channel them all through the private system, which will then extract its cut — whether it’s 3.5 % or 5% — doesn’t matter — it’s the control that matters.

    4. Most of the assumptions about how the PO will lower cost because of X, Y, and Z efficiencies are guesses, but not provable until we get going. In the studies that conclude the PO will capture 130 million (Lewin) or 10 million (CBO), the model they use to predict switching is driven by the assumptions of payment rates to providers (some variation of Medicare rates) relative to payments by for-profit insurers. If you assume much lower payments for the PO relative to private insurance, you get lots of people switching; if you assume higher payments, you get litte switching. Garbage in; garbage out.

    5. I do not assume, because I do not know, how much a PO could actually save in adminsitrative costs. But I suspect that even with the “regulations” banning bad insurer behavior, that adverse selection will occur through the way the private insurers in the exchange market their products. The’ll appeal to the low cost/risk people and discourage the high cost/risk people, who will then have to resort to the PO be meet the mandate to buy insurance.

    So it’s entirely possible that without extremely vigilant risk-sharing arrangements (in the bills, but detailed battles for another day), that the PO will wind up with a higher cost pool and will thus be forced to have premiums higher than the private insurers. If/when that happens, what should government do?

    (a) fold the tent? That means the high-risk patients could face discrimination, such as in how their claims are treated by the private insurers.

    (b) further subsidize the premiums? — well, that’s exactly what we do, in a sense, by making people eligible for Medicaid and eventually, Medicare. I think that’s the logical govt response.

    So the PO may well need to be subsidized, because the private insurers will make the PO, despite (crappy) regulatory oversight, into the dumping ground for high risk patients. SO BE IT. These people need an affordable way to cover their costs, and having a subsidized PO is the means to do that. if you called in Medicare II, it would make perfect sense and we’d stop getting confused about all this competition nonsense.

    If you stop and think about what Obama meant by the “interim” high risk pools to insure against catastrophic loses — it’s the same principle — but it takes an enforced federal pool to make that work. Everyone must be mandated to buy it to create a large enough risk pool.

    6. Now to Ezra. Where to begin. The problem I’ve had with Ezra is that for all his knowledge and smarts — and I respect those — he’s still fundamentally unclear about what the exchange does and what the PO does and what the mandate does. The exchange does not create the large risk sharing pool that lowers average costs. The mandates do that.

    Mandates create pools, and pools spread risks by allowing you to average. You can do that without the exchange, which is just a convenient way (a website) to shop. The exchange administration can perform other useful functions, so it’s fine to have them, but the thing we need to create is a large risk pool, so we can spread out the average costs. The mandates do that.

    Ezra obscures this just enough (so the Joe Kleins say really stupid things) to make us think the exchange is key, but somehow the PO isn’t. But we could do the key things without any exchange: create a mandatory pool to share/spread risks, then funnel the $$ through the PO instead of cycling those $$ through the corrupt for-profit system.

    7. Finally, on cost cutting. I’ve argued that the PO could be a model for changing the payment incentives by providers. As marcy notes, a small, limited PO would have little hopes of achieving that. So to increase the ability of the PO have some positive influence on the cost curve, we have to expand the reach of the PO — expanding the $$ flowing through the public system dedicated to reforms, and reduce the $$ flowing through the private system that doesn’t care about the reforms.

    But the thing to recall is that everyone is really looking to Medicare, which already controls huge $$, to perform this function. So most of the cost-cutting measures are in how we pay providers for Medicare. The PO can augment that if it piggybacks on Medicare efforts and uses the same providers — so that effectively, the leverage the feds have on provider costs is the total $$ funneled through Medicare plus Medicare II — the PO. So the PO is not the key to cost control, it’s the way to expand Medicare’s cost control influence into the the under 65 markets.


    • Hugh says:

      I would just add as has been pointed out by marcy and others that the PO may well turn out to be junk insurance. People pay into it because of the mandate but can’t use it because of the high deductibles.

      And if Obama and the Democrats were reasonable enough to modify the PO to make it effective, well this pre-supposes a reasonableness not in evidence. Or put another way, if Obama and the Democrats were serious about real healthcare reform we wouldn’t be here now having this discussion.

      • Scarecrow says:

        You’re describing a scenario in which the public finds the private insurers aren’t providing an affordable product worth it’s price, which is why they the public turned to the PO, but it’s premiums are too high and the Democrats won’t fix that to allow the public option to be a viable alternative. So everyone caught in that trap would be furious at Obama/Democrats.

        The alternative scenario is that they would realize they have to make the PO a viable alternative, which is what I think could happen, or simply give up on coverage for the most vulnerable.

        Do political parties commit suicide? Some do.

    • emptywheel says:


      I’m curious of what you think the 10% opt-out will do.

      As I said here, just about everyone but the affluent or the subsidized will be asked to pay 10% of their income for premiums. So technically, the mandate is not really a mandate at all–bc opting out will be effectively free, aside from the nasty fact that you won’t have insurance.

      So what do you think will happen?

      And how does the opt-out level copare with ROmneyCare?

      • Scarecrow says:

        Dunno how to predict the actual outcome of the 10% threshhold. When I first looked at the MA plan, I thought the penalties were too low, so it would be rational to avoid the mandate and pay the penalty. But after a couple of years, people wanted to sign up, and most of them (95%?) did. So there’s a value people are placing on having some insurance that we haven’t factored in, and if they perceive that the plan has made insurance more affordable than it was, they’ll try to comply, because they want to have insurance, even if the penalty seems too small to induce that effect.

    • jcc2455 says:

      “Most of the assumptions about how the PO will lower cost because of X, Y, and Z efficiencies are guesses, but not provable until we get going. In the studies that conclude the PO will capture 130 million (Lewin) or 10 million (CBO), the model they use to predict switching is driven by the assumptions of payment rates to providers (some variation of Medicare rates) relative to payments by for-profit insurers.”


      The difference between 130 and 10 million subscribers is access. The CBO is scoring the House bills which do NOT permit anyone with existing private coverage to go through the exchange and get into the public option. Doesn’t matter how good the rules are, the absolute maximum universe of possible enrollees for the House bills passed in committee is only around 30 million. Obama threw away any useful public option last night by specifying that it’s only limited to those currently uninsured.

      In other words, the public option, as described by Obama last night and, thus far, encoded in the House bills will never have any significant impact on US health policy, US health care costs and/or the behavior of the private insurance system. It’s a shadow, fictional, pathetically weak version of what has been described by people like Jacob Hacker.

      And btw, FDL’s whipping on the public option among progressives has generally let them off the hook on this issue. Many of the videos carefully avoid the words “available to all” that are supposed to be part of the FDL principles.

      The fantasyland response when these points are raised is that well, if we just get the public option in some form, then we can go back and expand it later. Uh huh. That was the argument for keeping Medicare to old folks. How’ve we done expanding on that?

      • Scarecrow says:

        Yes, I agree that the difference also arises from the access limits — unrestricted in Lewin, very restricted by CBO. It’s also true that Lewin assumed a larger differential in rates. There’s no dispute that the initial access limits in the bills would keep the public option much smaller than what Lewin assumed was its potential.

      • Sparkatus says:

        Medicare hasn’t been expanded in all that time. Exactly.

        Given that the “Obama Plan” weakness: greater controls on dropping insureds, an exchange and a mandate and nuthin’ else, I’d much rather see it fail and propose something dirt simple, like an annual decrease in the age to access Medicare. Slow steady progress rather than the POS that Obama is trying to sell.

        At 2 years drop each year, we’d reach 18 (and SCHIP eligibility from the younger end) in “only” 24 years. If Hillary had taken that approach we’d be over halfway there.

        • MarkH says:

          I don’t like the mandates.

          If a ‘public option’ is simply another insurance plan, then why not use the Medicare infrastructure and just open it up and add plans for average folks instead of just the elderly. We could pay doctors what they want instead of some percentage. They would have less reason to jack up prices.

          All the other parts of the House, Senate & Obama reform plans to fill the Medicare donut, regulate private insurers and to expand federal health clinics, doctor & nurse training and to study treatment effectiveness and so on are pretty good and not so controversial.

          At least Republicans would be happy that there wouldn’t be quite so many new gov’t employees turning Virginia bright blue.

          Improved care, control costs by offering more choice and cover MORE people if not all.

          And, in the notes, no new gov’t administration, just use Medicare for the public option. And, no mandates which are gov’t over-reach and just a hidden tax.

          Sounds like a plan to me.

    • bobschacht says:

      Thanks much for your lucid analysis!

      As for your last points, wouldn’t it be simpler just to lower the age of eligibility for Medicare by about 5 years of age per calendar year until everyone is covered?

      Bob in AZ

  30. MsAnnaNOLA says:

    Remember what an average is. Average profit can mean that the few oligopolists make a very high profit while many small providers make small profit or make losses. It may average to 3.3% average profit, but what is the mean profit? What is the profit of the biggest players? The ones who insure the most people? I think industry average is meaningless.

    I bet it is not near 3.3%. I remember reading about one of the biggies making record profits of 26%. I wish for the life of me I could remember where I read it but it stuck in my mind because it is very very high.

    • MarkH says:

      Average profit can mean that the few oligopolists make a very high profit while many small providers make small profit or make losses. It may average to 3.3% average profit, but what is the mean profit? What is the profit of the biggest players? The ones who insure the most people? I think industry average is meaningless.

      I bet it is not near 3.3%. I remember reading about one of the biggies making record profits of 26%.

      Another point which has been made, and I”m going to repeat it, is that they don’t have to make a huge percentage profit so long as their reserve pile of money (which they invest) is growing. The 3.3% of $1Million is a lot less than 3.3% of $1Billion. Same percentage, vastly different numbers of dollars.

      I suppose I should also suggest that growing health care costs, as opposed to insurance costs, means they could be handling much larger flows of cash IN AND OUT with their net profit not remaining the same (as that might indicate), but still growing because the overall size of the cash-flow means they invest more and more and make the larger dollar amounts. Same percentage, but vastly larger dollar amounts.

      They have an incentive to encourage health care providers to increase THEIR prices. They benefit by the larger flow of dollars, not by a revenue less expenses model.

  31. kwires says:

    The trick here is that the rewards are delivered to the management based upon profit. This year with, if these numbers are to be believed, the industry on average made about three per centage profit. The question then should be asked how did the CEOs of these organizations merit bonuses for millions of dollars for such a poor showing. That is millions of dollars on top of their large salary and exorbitant perks. Same for their executive management teams. The key here for the insurance provider is that they hide the robbery by becoming part of the gigantic overhead cost structure. How can I be ripping you off if I only made 3% profit after administrative costs, that include my jets, bonuses, resort summits, etc. Ask the industry to recheck their profit without counting executive salaries, bonuses and perks. This is an old trick from the non-profit days of the industry. If we have more revenue money than is allowed to stay non-profit, then it is time for a party.

  32. jurassicpork says:

    I thought I’d heard it all when I first read of Wal-Mart taking out life insurance policies on employees. The policies were privately called “dead peasant’s insurance.” Then from Greg Palast I heard about vulture fund managers who buy up national debts then take Third World nations to court and sue them for the full amount of the debt. However, pure human evil always has the resourcefulness to surprise to spelunk to new levels of moral putrescence. And just when you think you’re heard the ultimate in corporate sociopathic greed, you read about something like this

    • Gitcheegumee says:

      There was a thread here this past weekend about viaticals.

      It’s what made me think of the dead peasant policies and how they could possibly be a source of possible “carrion” for the viatical vultures.

      And when one considers that Goldman Sachs just recently purchased millions of dollars in investment in the premier software and medical billing company Emdeon, who does a huge percentage of Medicare billings well…..

      • temptingfate says:

        When I first read about this ghoulish sounding investment strategy it wasn’t about Wall Street wanting in, it was about the German investors that lost big time on the same thing. With that information taken into account the losers from the Wall Street gambling addiction would probably continue to be the investors (think mortgage SIVs) and everyone one that has a life insurance policy due to increase premiums.

        Bottom line for the Germans was the American policy-holders that they bought-out ended up living quite a bit longer than hoped for by the investors.

      • Rayne says:

        Drop me a note. Depending on the company, it’s not as bad as you think because there are pressures on the firm to reduce claims. In some ways it’s a different kind of bet, not that workers will die but that workers will live…think about credit default swaps, for example. They worked best when the underlying swap had no losses.

        At least one of the firms cited (not Walmart!) had a life insurance premium holiday for several years on policies its employees purchased, meaning the experience rate was pretty doggone low. When experience is next to nothing, it might actually benefit the rest of the employees to have policies out on co-workers which pay premiums for rest of them.

        The large companies cited as examples are also so big that they must self-insure; they may be better at health maintenance programs within the company, choosing to spend the money on preventive care to reduce health care claims since doing so may cost less than the claims they offset.

  33. Sparkatus says:

    The key to looking at profitability comparisons across industries is risk adjusted. Insurance is a lower risk business. The business of insurance is managing risk over large populations in order to benefit from the law of large numbers the lower variability of outcomes.

    Health care requirements for individuals are going to be very stable when aggregated in the millions. (Frankly one reason that single payer makes so much sense is that the pool of insured risks is at the absolute maximum.)

    Insurers don’t bet large sums on drug trials, have large investments in R&D and equipment like device manufacturers, etc. It’s a low risk business and cost savings in lower payouts drop directly to the bottom line.

  34. RevBev says:

    I couldn’t read the whole piece, but Amy Goodman had remarkable coverage of Baucus and his conflict of interest with most of his staffers/resources being straight out of the insurance cadre. Remarkable…we want to mend abuses, so foxes come guard the hen house. I think we get her program a day-delayed, so it may have been yesterday’s program.

    • Nell says:

      @80 RevBev, re Baucus staff coming from and going to industry:

      This TPMDC piece from July is a good look at the subject. I couldn’t find a recent episode of Democracy Now that was directly on that subject.

  35. temptingfate says:

    Ezra wrote that “It’s actually easier for me to imagine a system with private insurers that holds costs down than a system with the current provider reimbursement rates and relatively passive insurers (be they private or public) that holds costs down.” This probably means that complaints by health professionals that Medicare excessively caps fees are equally hard to imagine. The 3.3% profit for the health insurers, if true, in no way reflects modifications toward efficiency of purchaser cost nor the amount that could be saved via alternate approaches. More importantly, the percentage of admitted profit is less important than the amount of money sloshing around the system. The American health care system currently is more expensive than any other. If the current system were already an effective solution to controlling spiraling costs we wouldn’t be having this conversation.

    In a private system where costs are contained, the profit is often simply diverted into management compensation. This will be even more true when the insured is a captive of a government mandated system. Ignoring the likely outcome of creating another scheme that almost asks the participants to figure out ways to game the system. This may also be true of a public option. The biggest problem with all of the talk about the Max Tax or a public option is that there is no central clearinghouse for standards of procedure appropriateness of costs. Each insurance company has some combination of processes that they apply in order to determine appropriate procedures for their customers but that lesson has not been applied to what the government does in a systematic fashion.

    The US should have created a health care standards board years ago. Unlike the toothless office of Surgeon General, the board, much like OSHA, would have the ability to set care and cost standards for services that are paid for by the government. These standards would apply to all individuals covered by the government including health care provided to recipients of Medicare and Medicaid as well as Senators and Congressmen. The use of defined standards would also make the government a barrier against some of the lawsuits that result from health care disputes. When it comes to health care it is obvious that one-size-fits-all will not work very well but that again would be part of the standards body’s job to resolve.

    Without a disciplined approach to cost control, the Max Tax or even a public option will do little to reign in costs. The Max Tax just being the worst possible choice.

    • fatster says:

      I’m trying to understand exactly what you’re saying. Medicare has diagnosis and procedure codes, developed over a long and laborious process and copied (Medicare traditionally sets the standard). And it has rules about how the two interact. That is (and I’m going to give you a very silly example), you will not be allowed to claim surgery to remove an appendix if the diagnosis for the claim being submitted is for an ear infection. Computer programs are in use by claims reviewers to ensure that procedure codes and diagnosis codes conform. Claims are returned “Denied” if they don’t (and for a variety of other reasons, but let’s keep it simple right now). At that point, the provider has the opportunity to correct the error or to appeal the denial.

      Is this the kind of issue you are addressing or did I misread your comments (if so, my apologies)?

      • temptingfate says:

        Please don’t mistake me for an expert on Medicare cost control procedures but DoctorRx, among others, say that one of the big problems with cost controls Medicare is the lack of a pre-approval mechanism. Lack of manpower and or authority to be proactive. Similarly, Medicare does not pre-dictate or negotiate drug costs. This of course leads to all sorts of surprises for people receiving care. Closing the barn door after that cow got out, as it were.

  36. Gitcheegumee says:

    @65–Thanks, fatser

    Wal-Mart Gambled, Lost $1.3B on ‘Dead Peasant’ Policies, Insurers SaySep 8, 2005 … Wal-Mart Gambled, Lost $1.3B on ‘Dead Peasant’ Policies, Insurers Say … Wal-Mart Stores Inc. et al. v. AIG Life Insurance Co. et al., No. …
    news.findlaw.com/andrews/bf/dcl/…/20050908walmart.html – Cached – Similar

  37. earlofhuntingdon says:

    For [email protected]:

    And if Obama and the Democrats were reasonable enough to modify the PO to make it effective, well this pre-supposes a reasonableness not in evidence.

    Exactly the problem. Thanks for pointing it out. It’s the source of much of the angst here and on Main Street. The insufficiency is not the need or desire for greater access to health care and the means to pay for it via large pooled risk. The insufficiency is among the political class that can’t see a way to make responsibly meeting that need a win for them.

  38. Gitcheegumee says:


    Truthout had a TERRIFIC essay on this yesterday:

    t r u t h o u t | Money and HealthSep 9, 2009 … We spend twice the money on health care as most other countries and we are supposed to just accept this as the cost of a free market, …
    http://www.truthout.org/090909A – Cached – Similar

    • letsgetitdone says:

      No. We ought to conclude that the “free market” in health insurance isn’t worth it, and we ought to get rid of it now by implementing Medicare for All. Of course, this way of proceeding is also indicated by noting that health insurance isn’t really a classical free market because of the effective insurance oligopoly or monopoly existing in most states. A market isn’t “free” only because it is run by the Government. It is also not free because it is so dominated by large companies that effective competition doesn’t exist. So the real choice in insurance isn’t a free market or a Government controlled one. Instead it’s a choice between a corporate controlled market or a government-controlled one. When things come down to that choice it’s always better to choose thee Government option.

  39. egtalbot says:

    I like Ezra’s attempt at looking at reality, but I think he’s using bad numbers, which sort of shoots his whole premise. Now, I can’t vouch for the accuracy of the following links, but then again I can’t determine the accuracy of Ezra’s numbers. These certainly seem like what you’d expect. When you take into account ALL the costs, the difference between Medicare and private insurance represents orders of magnitude. Suggesting anything else fails the laugh test. That’s not to say there aren’t other issues beyond costs. In all honesty I’m inclined to feel that costs are less important initially than making sure everyone has adequate health care and does not suffer financially to get it. It’s a moral issue. Cover everyone, eliminate healthcare-related bankruptcies, THEN address costs. I’ve seen too many dollars pissed away on pre-emptive wars and other crap to come to any other conclusion.



  40. raven333 says:

    I’m starting to call this “suck up” economics. As, it sucks money up the hierarchy of wealth, it sucks up the savings of independent policy holders, it involves lots of sucking up to financiers, and it just plain sucks, period.


  41. Ryan says:

    Sure, there’s a 3.3% profit margin in the industry, but who says this is about corporate profits? Many of these health insurance companies are technically “not for profit.” That doesn’t mean they’re not there to make money, though. Not for profit can mean many things in America — there are a lot of not for profits that are very profitable, intentionally so. What we have in this case are corporate entities, for profit or otherwise, with many, many paid positions with high salaries. The shareholders, in this case, are the large bureaucracies within these companies. If those salaries were slashed of public rates and all the redundant jobs slashed (the ones set up to find every excuse to deny coverage possible)… suddenly the insurance industry *would* be very profitable.

  42. Gitcheegumee says:


    You may want to check out response #82

    One $ BILLION loss for WalMart in lawsuit against AIG who SOLD WalMart the dead peasant policies years ago.

    These policies are outright illegal in some states like Texas,so the corporatists purchase them through other states like Delaware,for example, where its legal.

  43. Gitcheegumee says:


    Not to make you shrill,*G*, but check this latest corporate revelation:

    Source: Chicago Tribune

    Back in the pre-bailout days when big commercial banks were riding high, the giant J.P. Morgan Chase helped itself to $750 million in customer funds without telling anybody about it for days.

    That’s the finding in a Commodity Futures Trading Commission investigation that resulted this week in a $300,000 settlement — raising questions about how one of Wall Street’s survivors is keeping its books.

    Read more: http://newsblogs.chicagotribun…..s/2…

  44. readerOfTeaLeaves says:

    Oh, and it also doesn’t appear that he’s heard docs vent about how much of their time is wasted justifying treatments to healthCo bureaucracies, which may — or may not! — pay them within 6 months.

    That’s the other reason I find that 3.3% profit number very suspicious.
    I’m not the only one to muse over a glass of wine how much principle the healthCos collect while they hold off on paying the docs.

    Must be nice to ‘hold back’ payments another quarter so you can ‘invest’ that money, huh?

    • fatster says:

      That’s SOP for MediCal, too. The nearer we’d get to the end of the fiscal year (June 30th), the smaller the checks would be and the longer the time interval during which submitted claims would sit over at EDS awaiting processing.

  45. fatster says:

    O/T, somebody has a new job.

    Cass Sunstein Confirmed 57-40
    By MATTHEW DELONG 9/10/09 4:10 PM

    “Cass Sunstein, President Obama’s pick to head the Office of Information and Regulatory Affairs, was confirmed handily by the Senate just now by a vote of 57 ayes to 40 nays. Glenn Beck will no doubt rue this day for as long as he shall live.”

    [Webb voted no.]


    • Gitcheegumee says:

      fatser,have you seen anything about a new book by Sunnstein,entitled “On Rumours:How Falsehoods are Spread”?

      And no,that’s not a joke.

      • fatster says:

        Maybe it’s not a joke, but it led to a good laugh, nonetheless. I guess he’ll be spreading much such wisdom over at the Office of Information.

        Gitcheegumee, would you please try with the link again at 111? I get through to a blank page when I click on it, and I would like to read it. Many thnx.

  46. Gitcheegumee says:


    There is a terrific essay at Truthout(not long,btw) that addresses many of the musings in your’s and others’ comments:

    t r u t h o u t | Money and HealthSep 9, 2009 … We spend twice the money on health care as most other countries and we are supposed to just accept this as the cost of a free market, …
    http://www.truthout.org/090909A – Cached – Similar

  47. robspierre says:

    Part of the problem with the health care reform discussion is that we do not all mean the same thing by “reform.” I realized this very clearly while listening to my so-called representative at a townhall meeting.

    To you, me, and most of the public, reform means getting everyone the health care that they need at the lowest practical cost to society as a whole. So, to us, every logical train of thought leads ultimately to government-provided, single-payer coverage and the end of private insurance, just as the same discussions did in most of the industrialized world.

    But to people like my representative, “reform” seems to mean something very different, something more akin to what my company would call “expense controls” or “stop loss”. This kind of reform focuses on reducing the number of people who make demands on health care and reducing the kinds of demands that they are allowed to make. The focus is not even on overall cost, but on the operating revenue and healthy reserves that make a bureacracy a going concern. All that matters is minimizing the provider’s outlays, maximizing its income, and preserving money for its operations (i.e. for its overhead). It doesn’t really matter whether the provider is the government or the insurer–Congresswoman Markey kept going on about the alleged trillion dollar cost and the deficit, as if the Federal government cost were the only cost and private insurance were free. To these congenital bureaucrats, reform means increasing the efficiency and security of the enabling bureaucracy–in effect, increasing overhead and decreasing everything else. Seen in this light, improving the service that the bureaucracy is supposedly providing is, by definition, a terrible extravagance that increases expenses without increasing the rewards or security of managers and adminstrators.

    Single-payer or even a reasonably robust public option was thus off the table from the start because it did not provide fundamental reform as industry, Congress, and the White House understood the term. It didn’t achieve savings by limiting what we spend on actual care. Instead, it saved much more by limiting what we spend on administering and financing healthcare–in the best case by eliminating the whole health insurance industry. The public’s definition of reform would thus bring about everything that the established powers expected reform to prevent.

    • DeanOR says:

      ” ,,,as if the Federal government cost were the only cost and private insurance were free.”
      Right, in that game they only look at the cost to government. They don’t include profits as cost, not only insurance company profits, but also for-profit health provider profits, as if those profits and administrative overhead were not part of what we as a society spend on health care. It’s all about scaring people with raising their taxes, even if it’s for a program that saves them more money than they’re spending now. It’s a defense of corporatocracy. Anything that does not favor corporate profits is defined as socialism, wasteful, too expensive.

  48. fatster says:

    Good links for more info on these issues contained in this article.

    Century-old precedent barring direct corporate spending to control election outcomes is under attack

    “After hearing arguments during its last term in the case of Citizens United v FEC, the Supreme Court took unusual action by inviting re-argument of the case to evaluate long-standing law (and recent Supreme Court decisions upholding these laws) that prevent corporations from directly spending company funds to influence election outcomes. “


  49. rosalind says:

    ot: did you hear the one about the couple who lost everything in the bernie madoff scandal, turned over their luxury malibu house to wells fargo, whose senior vice president responsible for foreclosed commercial properties then turned it into her own personal party pad instead of showing it to the many people interested in buying it?

    read all about it…

  50. DrZen says:

    I think you could replace the industry if you had single payer because you would a/ need a large part of the health infrastructure you have and b/ would create jobs with the expansion of government it would entail. Possibly, you’d actually employ more people (national health services tend to be very very large employers). Health insurers wouldn’t have to be prohibited or anything. They exist even in the UK. Obv. they are on a much smaller scale than yours, but you would probably retain a bigger market.

    Having your legislature owned by corporations is harder to wish away though.

  51. rkilowatt says:

    Canada health premiums


    Over $28000/yr income:
    1 person $54/mo
    2 persons family $96/mo
    over 2 family…$108/mo

    p.s. These are the US Senate Gang Of 6 who will write he Senate Healthcare bill, showing populations of their state and % of total US pop. :

    Baucus; Montana; 0.967 Million; 0.3 %
    Conrad; N.Dakota; 0.641 M. 0.2 %
    Enzi ; Wyoming; 0.533 M. 0.2 %
    Grassley; Iowa; 3.002 M. 1.0 %
    Snowe; Maine; 1.316 M. 0.4 %
    Bingiman; N.Mexico; 1.984 M. 0.6%

    TOTALS 8.443 M.

  52. Gitcheegumee says:


    JP Morgan ”borrows” $750 million from unwitting customers
    Chicago Tribune – ‎Sep 10, 2009‎
    Back in the pre-bailout days when big commercial banks were riding high, the giant JP Morgan Chase helped itself to $750 million in customer funds without …
    LON:JMI $350K ACC penalty for JP Morgan Chase

    Arizona Daily Star – ‎Sep 10, 2009‎
    The Arizona Corporation Commission ordered JP Morgan Chase & Co. to pay a $348779 penalty Wednesday in connection with its auction-rate securities sales in …

  53. Gitcheegumee says:

    I posted upthread about Wells Fargo buying thousands of dead janitor policies to fund bonuses for execs.

    Check this out:

    Source: CNBC/AP

    A Wells Fargo executive who oversees foreclosed properties hosted parties and spent long summer weekends in a $12 million Malibu beach house, moving into the home just after it had been surrendered to Wells Fargo to satisfy debts, neighbors said.

    The previous owners of the beachfront home in Malibu Colony — a densely built stretch of luxury homes that has been a favorite of celebrities over the years — were financially devastated in Bernard Madoff’s massive fraud scheme, real estate agent Irene Dazzan-Palmer said.

    The couple signed the property over to Wells Fargo last spring, and the bank subsequently denied requests to show the house to prospective buyers, Dazzan-Palmer said.

    Residents in the gated community told the Los Angeles Times that a woman they believe was Cheronda Guyton took up occupancy at the home in May.

    Residents said Guyton, along with her husband and two children, often hosted guests at the home, including a large party the last weekend of August.

    Read more: http://www.cnbc.com/id/32793442

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