Monday, July 6, 2009

Another Health Care Reform Post or Why We Need a Serious Overhaul of the System

First, a couple of links to some articles that I came across a few weeks ago, then some commentary.

Here's an interesting article from the Ezra Klein, blogging for the Washington Post. He summarizes the Congressional appearance of Wendell Potter, the former head of Corporate Communications for Cigna. Potter worked in the industry for more than 20 years, and this PDF reads like the testimony of someone who decided to break loose from the tobacco industry. To quote from the Klein article:
What drove Potter from the health insurance business was, well, the health insurance business. The industry, Potter says, is driven by "two key figures: earnings per share and the medical-loss ratio, or medical-benefit ratio, as the industry now terms it. That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits."

Think about that term for a moment: The industry literally has a term for how much money it "loses" paying for health care.

The best way to drive down "medical-loss," explains Potter, is to stop insuring unhealthy people. You won't, after all, have to spend very much of a healthy person's dollar on medical care because he or she won't need much medical care. And the insurance industry accomplishes this through two main policies. "One is policy rescission," says Potter. "They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment."

And don't be fooled: rescission is important to the business model. Last week, at a hearing before the House Subcommittee on Oversight and Investigation, Rep. Bart Stupak, the committee chairman, asked three insurance industry executives if they would commit to ending rescission except in cases of intentional fraud. "No," they each said.

Potter also emphasized the practice known as "purging." This is where insurers rid themselves of unprofitable accounts by slapping them with "intentionally unrealistic rate increases." One famous example came when Cigna decided to drive the Entertainment Industry Group Insurance Trust in California and New Jersey off of its books. It hit them with a rate increase that would have left some family plans costing more than $44,000 a year, and it gave them three months to come up with the cash.
Beyond the health care questions, it's another interesting insight into the challenges of having to be a spokesperson for a product or an organization that violates your moral sensibilities.

On a side note, while looking for the link to this article, I came across a bunch of other interesting Ezra Klein posts including this one that references the South Park Underpants Gnomes. Based on that alone, Ezra's probably worth following just for the writing.

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