January 2012

“It occurred to me that this panel would only take place, of the industrialized nations, in the United States of America.  That in every other industrialized country, they’ve made the threshold decision that health care would be provided in some fashion, maybe through the public sector, often entirely through the private sector…to all of their people.” “I want to tell you something.  I think that a 39% rate increase, at a time when people, Americans, are losing their jobs, losing their health care, is so incredibly audacious, so irresponsible….”

These are the words of borderline apoplectic Representative Schakowsky during a congressional hearing yesterday on Anthem Blue Cross’ recent premium hikes for insurance purchasers in the individual market in California.  The quote came during her questioning of WellPoint’s (Anthem’s parent company) CEO, Angela Braley.  Her comment was illustrative of the attitude most of the representatives shared towards Anthem’s recent rate hikes.  The representatives were, to put it delicately, quite upset by the rate hikes.  You can watch the hearing here, if you want to see what an angry mob of Congresspeople looks like.  Ms. Schakowsky’s comments quoted above can be found around nine and fifty-seven minutes into this session of the hearing.

Anthem announced its rate hikes (averaging 25%, and capped at 39%) in November, and hired an independent actuarial firm to determine whether or not the hikes were justified.  The company claims that increasing medical costs, combined with healthy people dropping their insurance because of tough economic times, caused the company to have to increase their rates in order to remain profitable.  In the last year, Anthem made about 2.38 billion dollars in profit (although only at a profit margin of less than 5%, as Braley continually reminded the panel).  Further, the company actually lost money in the individual market the previous year, necessitating the rate hikes in order to keep that segment of the business solvent.  Red ink does not tend to be a viable business model.

Braley’s grilling followed a heart-wrenching panel of people who had had their rates hiked by Anthem.  These people were all generally healthy, well-spoken, hard working, and sympathetic.  All undoubtedly face real hardship due to their increased insurance premiums.  What is worse is that all three had pre-existing conditions or children with pre-existing conditions.  This causes it to be very difficult for them to switch coverage, limiting their ability to shop around for the best price on insurance.

WellPoint faced increasing costs due to an inflation in doctors’ fees, hospital fees, and pharmaceutical fees.  Doctors’ fees had increased 6%, hospital fees were up 10%, and pharmaceutical fees were up 13%, which naturally resulted in a considerable increase in operating costs for insurers.  Braley pleaded her case to the representatives that the rate hikes were a mere symptom of the larger problem facing the American health care system, increasing medical costs.  She claimed not to like increasing premiums, but said that in order for Anthem to remain profitable she was forced to.  If WellPoint ran losses and went bankrupt, all of their customers would lose their coverage.  No one would want that.

One thing was incredibly clear from the hearing yesterday.  Our health care system is critically broken.  Seemingly endless price hikes, limited insurance portability, low competition, limited ability for consumers to switch insurance coverage, challenges for people with pre-existing conditions, and shortages of providers are all real reasons that the system must be reformed.  Essentially everyone (even insurance companies) agrees that health care must be reformed.  The question is, what reforms will be best for the American people?

The representatives seemed to think that these problems were caused by the desire of health insurance providers to profit from their businesses. As Mr. Stupak said approximately 35 minutes into the video linked to above, “The only way we’re going to get more affordable is to knock off these profits that are being paid for by the average American…I don’t mind you making a profit, but at the end of the year, 2009, a horrible year, you made 2 point something billion dollars, and that’s not enough?”   Demonizing for-profit health insurance companies is not the way to go about reforming health care.  Profits do not keep insurers from providing a satisfactory, affordable product any more than they keep grocers from providing satisfying, affordable groceries to consumers.  In fact, profits help the process of providing goods people want at an ever increasing level of efficiency.

The representatives seemed to be incensed that the companies were not providing health care to individuals as a public service.  But it’s not their job to provide health care as a public service.  It’s their job to make money for their shareholders.  Further, health insurance is not a zero-sum-game in which either you make profits or you serve consumers.  Making profits, in fact, means that companies are doing a good job serving consumers want (although the market incentives in health insurance have been admittedly been greatly distorted by government intervention).

Most of the problems in the health care marketplace have been caused, at least in part, by the intervention of government into our health care system.  Employer-based insurance was literally created by government intervention during World War II, when wage controls caused employers to look to offer benefits as a way to attract skilled employees in lieu of high wages, and is perpetuated by the favoritism it is shown over individual health insurance in the tax code.  This third party payment system has caused people to be separate from their health care dollars, reducing the costs to the consumer of consuming more health care than he needs.  Requiring stringent examination of new drugs by the FDA has caused drug prices to skyrocket, and has shielded big drug companies from new competitors (while still allowing dangerous drugs onto the market).  Federal restrictions on buying insurance from out of state have reduced the ability of consumers to shop around for the best coverage at the lowest price.  And state restrictions on who can perform what medical services have reduced the number of available medical providers, increasing costs.

The result of government “fixing” health care has been that health care has become more expensive and less efficient.

Other countries which run their health care as a public service suffer nasty side effects.  Long lines for services, shortages of beds, care-givers, and medication, lack of innovation, and higher taxes are just a few consequences of operating health insurance as a public service.

Attacking Anthem’s rate hikes is, in medical terminology, a palliative (treating the symptoms rather than curing the disease) treatment.  In order to reform health care and keep costs low, policy makers must deregulate the health care industry in order to spur competition, improve consumer choices, and decrease prices.  Eliminating restrictions on purchasing out of state insurance, increasing the number of routine medical practices nurse practitioners and other non-MD health care providers can perform, easing FDA restrictions, and equalizing the tax incentives for individual and employer-based insurance would be a good start.

NOTE: Anthem was not standing up for a free market approach to health care during the hearing.  They favor health care reform in which everyone is forced to buy insurance, which, not so surprisingly, would benefit them and other health insurance companies.  Corporations are not saints.  In fact, very frequently, like Anthem, they seek regulations that will benefit themselves or kneecap their competitors.  They are simply efficient providers of goods and services, health care included, when government does not interfere with the workings of the market.