Amidst the ideological back and forth that is the health care reform debate of 2009, recent studies reveal a growing reality that each of us can easily understand, no matter what our ideological point of view.
It will not be long until the private health insurance model will no longer work –for anybody.
It’s got nothing to do with public options or single payer advocates just as it will have nothing to do with those prepared to defend America from socialism at all costs.
The simple fact is that single-payer, government controlled health care is inevitable because the trajectory of the private health insurance system reveals that it is doomed to fail – and sooner than we might realize.
In 2009, health insurance premiums will grow at an annualized rate of 5%, just as it has done for the past two years. Despite the fact that the annual cost of living for 2009 is projected to decrease , this 5% premium increase is actually the good news when you consider that in the four years preceding the leveling off at 5% annual increases, the annual bumps ran between 10% to 13%.
So, how did we get so lucky in 2009? Did the private health insurance companies realize it was in their best interest to bring down profits in order to lower the costs to their customers? Did the costs of medical treatment stabilize with the downturn in the economy?
Sorry. None of the above.
The premium increase remained at 5% because the insurance companies cut a lot of meat from the bone, providing considerably less for the money they received.
According to the non-profit, non-political Kaiser Family Foundation and the Health Research and Educational Trust report published last week , the reduction in the annual premium increases can largely be traced to the increase of high-deductible insurance policies being offered by employers who simply can’t keep up with the out-of-control cost of providing their employees with health insurance benefits.
In 2009, the number of insured with high deductible plans will grow from 18% to 22%.
Let that sink into your brain for a moment.
Over 20% of all employees receiving health care coverage through employment now face out-of-pocket payments of at least $1,000 annually before their health insurance begins to pay their share of the medical bills. Of course, in addition to the deductible, there is the roughly $3,500 – 4,000 the average employee will contribute towards coverage for his or her family, plus the co-pays and other charges that come with American health insurance coverage.
The move to high deductible programs was most prevalent in small businesses where one in three covered workers have a deductible of $1,000 or more.
Let me be quick to point out that some might attribute this growth in high deductible policies to the institution of Health Savings Account programs that permit employees to contribute to tax advantaged savings accounts, usually with matched contributions from employers, and come with a legal requirement to maintain a high deductible , ‘catastrophic’ insurance policy . The purpose of these programs is to allow employees to save the money that they can use to fill in the costs incurred before reaching the high deductible. The money can be carried over each year, allowing younger savers to build a substantial savings account for their health costs and, arguably, give them more control over how they spend their healh care dollars.
This would certainly provide an argument for how the high deductible policies are a step in the direction of consumer driven health care, an approach some believe will serve to control the costs of health care in the long run.
And these consumer driven health care proponents might be right if it weren’t for the fact that the greatest growth in high deductible policies do not come with health insurance savings account programs – they are just high deductible insurance policies, period.
According to Drew Altman, president and CEO of the Kaiser Family Foundation,
We may be seeing the tip of the iceberg of a trend towards less comprehensive, skimpier health insurance coverage for many working people.
Altman also pointed out that the slower growth in premium costs we’ve experienced over the past three years is not likely to last, predicting a return to more typical growth of 7% to 9% increases per year over the next decade. “We’ve historically seen these peaks and valleys before, and we always have a bounce back effect.”
So, if annual premiums for family coverage grows, as expected, by an average of 8.7 percent per year over the next decade – as they did from 1999 to 2009 – premium costs will increase from the current average of $13,000 for the average family to more than $30,000 for the average family. As employees pay, on average, 28% of their premium costs with their employer paying the rest, that means that employee costs will go from $3,640.00 per year to $8,400.00 per year.
How many families do you imagine can afford $8,500 per year in health insurance premium costs, plus the large out-of-pocket costs for high deductible insurance plans? And how many companies do you imagine will be able to afford $21,600 per year in employee health insurance for each of their employees with a family?
Clearly, the employer health insurance model that accounts for 60% of health insurance coverage in this country is completely and unarguably unsustainable.
The next question is where it gets weird. If the above is true – and the numbers make it pretty clear as to where this is going – wouldn’t the private health insurance companies adjust their model rather than commit suicide by pricing themselves out of business?
As counter-intuitive as it may seem, the answer is likely to be ‘no.’
Virtually all large health insurance companies are publicly held and public companies have a life force that is unlike any other. They are driven by the desire of current management to show improved profits of about 10% each year so as to sustain share price increases for the shareholders and compensation increases for management. Also understand that while public companies like to talk about the “long term”, the phrase has no true meaning to them.
Management and shareholders worry about this year’s numbers with an eye towards next year’s – and that is as far as it goes. Most shareholders and managers have no expectation of being around in the ‘long term.’
Thus, while current management of the large health insurance companies may very well realize that they cannot sustain their business model for the longer term, this is not something they can afford to worry about. Their shareholders want returns on their investment as management wants boosts to their compensation and they are looking for it now. The future will be someone else’s problem.
Take virtually any failed industry in America and you will see that the dynamic set forth above is inevitably true. Whoever ran General Motors before the CEO in charge when the industry fell apart probably knew what was down the road for the company. But it wasn’t his problem. An adept shareholder in GM who got out five years ago, really didn’t care where the industry was headed nor did a CEO who had no plans to be around when the balls in the air crashed to the ground.
So, when the price of health insurance reaches the point where most Americans truly cannot afford it – and the numbers make it more than clear that the point will be reached and reasonably soon – what then?
Will ‘free marketers’ be out there arguing that we should just let the health insurers fail? After all,that’s how a pure, capitalist system is designed to work, right?
This might be an argument they can make when it comes to the automobile companies because none of us really have to buy a car this year. And if we do, we all know that a devastated car industry means better prices for us when we appear in the showroom. As for the lost jobs? Very sad – but not our immediate problem.
Free marketers don’t care much for bank bailouts so long as they’ve gotten their money out the bank before it fails.
But when it’s health care? I think you will find that teabaggers everywhere will have a very different perspective when they find themselves out there alone with no way to pay for their family’s medical costs.
Who will need the save the day when this happens? The government will – and that means a single-payer system.
Whether the result fits your ideology or not, the numbers would seem to make clear that it is only a matter of time before private health insurance prices itself out of the market, leaving only the government with the capability to insure the nation’s health.
Given what appears to be a very dim future for the health insurance business model, one cannot help but conclude that the battle in Congress, while framed in ideological terms for public consumption, is really more about helping the insurance companies to earn as much money as they can before their inevitable collapse. After all, Congress is not unlike public companies in that elected officials tend not to worry beyond the next election cycle. When the insurance companies ultimately are priced out of the health business, and the government must take over, it will either be the next Congressman’s problem or enough time will have passed to allow constituents to forget the past ideologies of their representatives.