Universal Coverage: The Cure For the Ailing Inurance Companies

Industry pundits agree that perhaps the largest contributing factor to the defeat of Clinton’s Health care reform efforts in the 1990s was due to the mighty lobbying effort on the part of the private insurance companies.

Billions of dollars were spent by the insurance companies, both on the health and property/casualty sides, to thwart reform efforts. And ultimately, it worked and reform was defeated. This was also the case when health care reform was shot down under Carter, Johnson, and even Truman’s terms in office. Although Medicare did make it through despite the same type of lobbying efforts simply because there was enough of an aging population to support it.

This is also the single biggest reason why health care reform will ultimately happen under Obama: because private insurers will support it this time.

I get some pretty wild reactions from people when I make this statement. Everyone in my industry seems convinced that any governmental reform will push the private insurers out of business.

That simply isn’t true. For one, the government just spent billions bailing them out this year. Why would they make an investment in a business that they ultimately intend to bankrupt?

But the real reason why the insurers will support reform this time around is because of the membership they stand to gain, and need. In fact, it can be argued that the industry needs universal coverage, and the new membership it will bring, in order to survive. The only way the insurance companies will close their doors is if a single-payer system is adopted. Individual or a universal coverage mandate is however, necessary. (More on the disadvantages of a single-payer system later. . .)

One of the main provisions that exists in every major reform measure is the requirement for universal coverage, or an individual mandate. Once that provision is adopted, the private insurers will see their membership grow exponentially, almost overnight.

Since 2000, the number of private insureds has eroded tremendously. The payers lost nearly 9 million customers over the last 7 years. This erosion only exacerbates the problem as the rest of the industry (providers, hospitals, insurers, and even the government) must subsidize their care. The law prohibits the denial of treatment for emergency care. As a result, the insurance companies must raise their rates to keep pace with medical trend. And the uninsured place a heavy burden on the system, which drives up the trend. This in turn, forces more people out of the system. It’s estimated that there are nearly 50 million uninsured individuals right now.

And the recession has only made it worse.

Another big hit to membership will come in the next few years when the baby boomers begin to transition into Medicare. It’s estimated that 80 million people will turn 65 in 2011. Over the next two decades, private insurers stand to loose nearly 200 million members to Medicare.

How are they going to make up for this loss?

Now let’s go back to the Universal or, Individual Mandate. The 50 Million uninsured? They represent future customers. That would certainly help repair the membership erosion the private insurers have experienced. It might also mean that new companies will sprout to accommodate the market growth and capacity. That would breed more competition and could drive prices down for the first time since the early 1990s (when there were far more health insurance companies and HMO enrollment was prevalent).

The insurers finally possess the understanding of how to control medical inflation, and that’s through prevention. That’s another reason why medical tend was negative in the early 90s. It was due to high enrollment into the HMO model, which placed an emphasis on preventative care. Simply tossing the entire population into a single pool- with the idea that spreading the risk around will be sufficient to cover the costs- has failed time and time again. PERS is nearly bankrupt, Medicare will drown, eventually, and most of the Union Trusts are crippled. It can be argued that the cost to provide health benefits brought down the auto makers.

A Single Payer System will only reinforce this concept. In fact, a single-payer system will completely undue any reforms that any interest, be it the insurers or the government are trying to accomplish.

My next entry will focus on how a Single Payer System will bring about this downfall.

In the meantime, the industry should at least acquiesce to the idea of Universal Coverage, and work from there.

-Josh Spitz