Why Health Insurance Doesn't Work [View All]

[Joanne98]

It is actually against their interest for insurers to compete on giving us the best care. It's not simply that they're not doing it, but given the structure of the marketplace, they shouldn't do it.

Ezra Klein | February 27, 2008 | web only

'The state's largest for-profit health insurer is asking California physicians to look for conditions it can use to cancel their new patients' medical coverage," said the first line of an expose in the Los Angeles Times earlier this month. The subject was Blue Cross' practice of enlisting doctors to help them deny the claims of sick individuals.

What's strange, however, is that everyone acted like the insurer was doing something wrong. Gov. Arnold Schwarzenegger accused them of asking doctors to "rat out the patients." Hillary Clinton gave the company a similar lashing, in the same tone of moral outrage used by most of those quoted in the article. Within a few days, the policy was ended.

But Blue Cross officials weren't doing anything wrong. They were doing exactly what we've asked them to do: They were following the incentives of the modern insurance market.

It's a common complaint that health insurers don't actually offer "insurance." As generally defined, insurance is a form of risk management that individuals use to protect themselves against unpredictable loss -- a car accident, say, or a house fire. Health insurance, by contrast, is a form of risk pooling that individuals use to smooth out lifetime healthcare costs. Heath insurance does not insure us against risks so much as it insulates us against costs. We pay regular premiums so we don't have to directly pay for irregular care.

Not all of us, however, make this deal with insurers. About 50 million Americans are uninsured, and tens of millions more are underinsured. There's no law that says we all must have insurance or that insurance companies must agree to cover us. Given that, it's natural that insurers -- which are, after all, for-profit companies, not government agencies or public trusts -- turn their attention to making deals with the most profitable among us and avoiding deals (or finding ways to break contracts) with the least profitable.

http://www.prospect.org/cs/articles?article=why_health_insurance_doesnt_work