BY JOHN HAMMOND
The News & Observer
Aug 16, 2009
PITTSBORO – In the first half of the 20th century, most health insurance was provided to those who could afford it by state-based, nonprofit Blue Cross/Blue Shield plans, which based premiums on a community rating system. The agency took the costs of its enrollees, added a reasonable overhead contribution and divided that by the number of enrollees to calculate the premium. Under this system, the young, healthy enrollees subsidized the cost of the older, more chronically ill enrollees.
At first, the for-profit insurance companies considered health insurance too risky. But by 1955, these companies figured out how to manage the risks and entered the health insurance market. To deal with adverse risk, they developed the concept of pre-existing conditions to exclude the sick from insurance coverage and applied liability-style risk rating to health insurance premiums, which reduced the premiums for the young while making insurance unaffordable for the older population. Thus, risk rating of premiums effectively ended the subsidy of older people by younger people.
The risk-based premium approach is appropriate for auto liability insurance, because people are responsible for their own driving records. But risk rating is totally inappropriate for human beings who cannot control their genetic inheritance, which plays a large role in their overall health. However, risk rating and pre-existing condition exclusions did protect the for-profit health insurance companies from the adverse risk of health insurance by denying access to insurance to those who need it most.
The introduction of risk-based premiums immediately caused major problems for the nonprofit BCBS plans. If they continued the community rating system, they would end up with all the sick (adverse selected population), and all the young healthy enrollees would flock to the cheaper rates of the for-profit risk-based premium system. This forced the nonprofit BCBSs to go to risk-based premiums and act like the for-profits. Today, for example, there is little difference between BCBS of North Carolina and CIGNA.
Another major problem is the total number of health insurance plans offered by the health insurance industry and the lack of any real regulation to ensure that they adequately cover the needs of the enrollees. The huge numbers of plans challenge doctors and hospitals to figure out what services are covered by what plans. Such choice drives the administrative costs for both the insurers and the providers higher than any other health insurance system in the world. It is profitable for the manufacturers of large mainframe computers and billing software vendors, but it adds billions to the administrative costs of the health-care system, and still hospitals cannot get our bills straight.
Further, the U.S. health-care system has the greatest number of administrative personnel of any country in the world. It is no wonder that our per-capita costs are 1.6 times other countries, even though millions have no health insurance. If these administrative costs could be reduced to the European or Canadian level, substantial money would become available to cover a part of the insurance costs of the 52 million to 55 million uninsured Americans for whom health care is difficult or impossible to get.
It is time to acknowledge that there are absolutely no market solutions for the chronically and mentally ill in a for-profit health insurance system. Boards of directors and executives of for-profit health insurance corporations aim to maximize the income of the corporations for investors. If for-profit and not-for-profit insurance companies with their plethora of plans are kept alive, it will be impossible to control costs, free the billions of dollars that today go to administrative costs and make these funds available for patient care.
All the existing health insurance companies must be eliminated. We need a single-payer system that covers every person in the country for medical, mental and dental health care. Its cost should be funded by income taxes paid by each adult/family in the country. It should provide universal access to care no matter where you are in the country, with equal quality and quantity and without regard to your wealth. It is time to face the reality that affordability and cost control are possible only with a single-payer system.
The current insurance system is both morally and financially bankrupt and cannot be sustained. It may not be possible to achieve all the necessary reforms quickly, but the direction we need to take is clear.
John Hammond, Ph.D., is professor emeritus at the School of Medicine, UNC-Chapel Hill.