The Risk Pool
By Malcolm Gladwell
The New Yorker
August 28, 2006
“(UAW president Walter) Reuther and his brain trust had a theory of capitalism,” Nelson Lichtenstein, the Reuther biographer, says. “It was: If we force G.M. to pay extra (for employee benefits), we can create an incentive for G.M. to join our side (in broadly collectivizing risk beyond individual employers).” Reuther believed, in other words, that when American corporations reached the point where they couldn’t make their business more efficient without making it less profitable, when their dependency ratios soared to unimaginable heights (ratio of those covered by benefits to the active workforce), when they got tens of billions behind in their health-care obligations, when the cost of carrying thousands of retirees forced them to stare bankruptcy in the face, they would come around to the idea that the markets work best when the burdens of benefits are broadly shared. It has taken half a century, but the world may finally be catching up with Walter Reuther.
http://www.newyorker.com/fact/content/articles/060828fa_fact
Comment:
Don McCanne, MD
Segregating risk pools creates problems. General Motors has one of the largest health benefit programs in the nation, and if any entity could gain an advantage by controlling its own risk pool, surely General Motors could. Yet everyone is aware that the costs of General Motors’ health benefits are so high that their products have become less competitive with other vehicles produced in the international market.
Malcolm Gladwell’s article describes one important reason for General Motors’ problem. By maintaining their own segregated risk pool, G.M. experienced the impact of a large growth of individuals dependent on their health benefits program without a commensurate increase in their active labor force. A single national risk pool would have diluted this impact through the fundamental insurance principle of spreading the risk as widely as possible.
There is an even more important reason for General Motors’ health benefit difficulties. There are very serious structural problems with the U.S. health care system which have resulted in very high health care costs. Even though General Motors has the largest private health benefits program, it is still not large enough to function as a monopsony that would be able to demand restructuring that would ensure greater efficiency and health care quality.
The structural flaws include the administratively wasteful, fragmented insurance system, the deteriorating primary care infrastructure, the lack of a system to reduce waste on non-beneficial high-tech excesses, and the lack of a comprehensive mechanism to improve health care pricing. Establishing a single risk pool through a national health insurance program would create a monopsony that would allow us to demand greater health care value. No, that isn’t taking advantage of market forces, but then what has the health insurance market done for us lately?