Business & Technology Nexus

Dave Stephens on technology and business trends

On US Healthcare – Insurance

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Now I’ve always equated “insurance” with “catastrophic” events. The idea is that you pool resources to share risk. But somewhere along the way, healthcare insurers have become “who pays for all your healthcare needs.” Some conservatives would argue this had led to an erosion in our ability to act as consumers and make the natural tradeoffs that occur in efficient markets. Some liberals might argue that the millions of Americans unable to secure insurance through our private system has led to the unraveling of our social safety net & at the same time resulted in higher costs for all. And like most people, I don’t identify wholly with either view.But it is true that insurers in the US system take on very broad role, essentially becoming gatekeepers of care from yearly physical exams, OB-gyn checkups, mammograms, access to specialists, etc.

And this does, from a supply chain perspective, twist incentives in a sometimes counterproductive way. Employers and their employees (who are the “Buyers”) form relationships with intermediaries (the insurers) instead of the service providers themselves. When I hear couples talking healthcare, they are just as likely to ask “How’s your PPO/HMO/EPO” than “How’s your doctor?”

But the insurers, as intermediaries, are a conflicted bunch. As for-profit enterprises, they want the largest possible subscriber base (revenue) & the largest possible margins (profit). As for quality of care? Of course they’ll talk about it, but in the end it doesn’t matter unless it’s so bad that it affects their subscriber base. After all, most insurers compete in the exact same “pool” of hospitals, clinics, and available physicians.

So, in the end, the name of the game is for insurers to use their large subscriber bases to beat suppliers up on price & then to gouge (let’s call it “right-pricing”!) that same subscriber base on premiums to extract the highest margins these firms can get away with. And collaborating with doctors incenting them to deny services altogether is another temptation these firms face constantly.

My view on the insurers goals leads me to look to blame quality of care and cost issues squarely on their shoulders. But one pesky fact prevents me from doing so: take a look at the profit margins of California HMO’s as premiums went through the roof (hint: even though premiums rose profits did not increase)

So the constraining force of a competitive market – meaning plenty of insurers to choose between, seems to be holding profits back. So who’s the culprit? Could it be we are simply consuming more healthcare and “prices” are not spiraling out of control as much as is commonly believed?
Now there is another big problem with the insurers, even if it’s not price gouging. And that problem is the consumer’s “unequal leverage” – meaning that while corporations (acting as customers of insurers) have enough leverage to extract coverage plans for “non-perfect” employees (those who may have a pre-existing condition or a prior surgery, etc) smaller businesses are shut out. And for an individual consumer, forget about it.

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Written by Dave Stephens

06/27/06 2:41 PM at 2:41 pm

Posted in Opinion

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