By Lowell Smith, M.D.
Citrus County Chronicle, July 12, 2019
In the recent Democratic candidate debates, the specter of abolishing private health insurance was raised.
Should we consider that as a threat to our free enterprise system?
Having dealt with health insurers as a physician for 44 years, I can share my answer with you.
Health insurance started 80 years ago when health care started costing more than most citizens could afford out of pocket.
Initially, it was provided by cooperatives without profit motive, but then entrepreneurs realized there was money to be made out of that process, and private enterprise took over the medical payment system.
Private health insurers simply have not provided a good value in offering to make health care affordable for all of us.
A major factor is their underwriting costs. Insurers take 20% of the dollars paid in compared to 2% required by government run Medicare.
Over time, the payment systems have become more and more complex, resulting in administrative costs to providers of nearly 25% of the health dollars they receive. But I want to tell you of an underlying principle which I believe is a fundamental fault of the system.
For insurance companies to make a profit, they simply pay out whatever is required to the providers and then set a premium rate to cover those costs, plus handling costs and profit.
What is missing in that system is any control of the amounts they pay to providers. Providers are not stupid, and have no reason to limit their charges since it will be paid by insurance, and is therefore not a burden to the patient. Free enterprise does not work in this setting because the seller (provider) is insulated from the buyer (patient) by the insurance company. This results in continually escalating charges from doctors and hospitals and all the other providers. And it encourages the addition of new coverages such as medical equipment, PT, etc.
Here’s the good part: As charges increase, the amount of dollars handled by the insurers goes up. And, just like a bank or a casino, the bigger the bundle of money they handle, the bigger is the profit they can extract from those funds. Because of this perverse motive, there is no incentive to limit charges. The more a hospital charges, the more dollars flow through the insurers’ hands, and therefore, their profit margins go up. Why would any insurance board want to limit the charges? Why would any insurance board want to limit the charges that are made in the health industry? They are delighted with increasing charges and expanding coverages. Sure, they set some limits to avoid total chaos, but in general they have shown very little back pressure on limiting the payouts. This is explainable because they have to keep their customers happy by covering care even when it is ineffective.
In short, medical insurers have owned the keys to what services are paid for and what they will pay for those services. And it is hard to argue that there is any control on those charges other than making sure they make a profit. As much as we value private enterprise, health care insurance never was the industry in which to show the value of competition. Did you really think that they incorporated for the purpose of making sure that you remained healthy?
Could this be a significant factor for why this country has such excessive health costs, with no increase in quality to show for it? Are we so sure that keeping private health insurance coverage is the best way to pay for our health care? Can you explain to me the phenomenon of a governor who became a billionaire out of our health dollars, when he never provided care for a single individual. Private health insurance has to go and the sooner, the better.
Dr. Lowell Smith is a medical oncologist who practiced in Muskegon, Mich., and is now retired and living in Beverly Hills, Fla. He has held hospital staff and county medical society offices. He has worked both as a private practitioner and as a physician employee. He has been a member of Physicians For a National Health Program for 20 years.