When Private Insurers Claim They Can’t Compete Against a Public Health Insurance Option, They Just Make Themselves Look Silly
You've got to give the private insurance companies credit for chutzpa. The argument that they have been making to Congress - with straight faces - that they "can't compete" against a public health insurance plan is preposterous. That's because it is internally inconsistent.
If it were true, then private health insurance firms must be inherently unable to provide health insurance as efficiently as the public sector. And if that were true, why would our nation allow itself to be held hostage by private insurance companies that unnecessarily siphon billions of dollars of wasted health care dollars from our collective pockets?
Every time the private insurance companies - or their Republican apologists in Congress - make the argument that "private insurance companies can't compete", they might as well dress up in clown suits and put on big red noses: they just look silly.
President Obama pointed out the absurdity of the argument in his news conference yesterday: "Just conceptually, the notion that all these insurance companies who say they're giving consumers the best possible deal, if they can't compete against a public plan as one option, with consumers making the decision what's the best deal, that defies logic."
The insurance executives are the first to tell us all about how much more efficient the private sector is at doing anything than the "government." Do they mean to tell us that the "best and the brightest" from private industry can't compete with a "bunch of government bureaucrats"?
There is, of course, considerable evidence that private insurance companies are generally more inefficient than public insurance plans. For instance, only 3% of every Medicare dollar goes to administrative costs, while from 13% to 17% -- and sometimes more - goes to administering and marketing private plans.
Or there's the fact that "MedicareAdvantage" plans - where private insurers are paid by Medicare to provide insurance for Medicare beneficiaries - have required about a 20% subsidy above the cost of providing insurance through the regular Medicare system.
But the image of the poor little private insurance companies arrayed against the public colossus is ridiculous. One Republican went so far yesterday as to argue that the way a private insurance company would compete against a public plan was the way a rabbit competes with an alligator. The private insurance companies are not cuddly cute little bunnies. Many of them are giant multi-billion dollar companies that have massive provider networks, longstanding client bases and pay their CEO's tens of millions of dollars.
The real problem for private insurance companies is not that they can't compete with a public plan. It is that they can't compete and continue to do business they way they want to do business. And that, of course, is the point of a public option - to change the behavior of the players in the health care market to assure that everyone has access to quality health care, and to stop the skyrocketing increase in health care costs.
The whole idea of insurance is to spread risk. Everyone pays into a common insurance pool, so when anyone gets sick they can count on getting the health care they need even if it costs far more than they could afford individually.
But left to their own devices, private insurance companies have an ever-present incentive to minimize their own risk of paying out for health care to their policyholders. That's why they try to select only customers who are well and get rid of those who are sick. That's why it's in their interest to spend millions on armies of people whose only job is to deny claims - a task that has no value in the broader scheme of the health care system, but makes perfect sense from the standpoint of a private insurance company. That's why they don't want to take people with pre-existing conditions - because they are more likely to get sick.
And, private insurers are not in business to provide health care coverage for every American, or to slow the growth of health care costs. They are in business to maximize return for their investors and the pay of their top management. So when left to their own devices, private insurers generate huge profits and pay their CEO's tens of millions of dollars.
The entry of a public insurance option into the health insurance marketplace would change the rules of the game. If consumers had a public option, who in their right mind would sign up with a company that would discontinue your policy if you got cancer or had a heart attack? Who would join a plan where they had to pay for bloated executive salaries - or had to regularly do battle with an insurance bureaucrat in order to get a claim paid? Why do seniors like Medicare? They don't have to contend with these kinds of problems. They have secure, reliable health insurance.
So to compete, private insurance companies would be forced to change the way they do business. They would have to end all of those practices that American consumers have grown to hate, cut administrative costs - maybe even cut CEO pay. Of course since the CEO of Cigna makes $26 million - 65 times the salary of the President of the United States - he could afford several million dollars in belt-tightening.
They could compete - but they would have to change the way they compete. That's what they are fighting tooth and nail to avoid - and that's also the whole point of health care reform: to change the incentives that determine how the players in the health insurance market do business day to day.
Of course there is another reason why all the concern about the competitiveness of private insurers is so absurd. The point of health insurance20reform is not to benefit the private insurance companies. It is to provide everyone access to quality, affordable health care - and to control exploding health care costs.
It's up to every one who cares about health care - and the future of our economy - to make sure Members of Congress remember what is really at stake in the health care debate. And it's not the health of the private health insurance industry.