Long ago and far away, it seems, there was pretty much one primary health insurance provider, Blue Cross Blue Shield (BCBS). It was originally founded in 1929, and subscribers paid $6 per year (around $80 today) for up to 21 days of hospital care. (Note: Kaiser Permanente health plan was founded around the same time, but was active mainly in California).
These organizations were specifically excluded from insurance regulation and allowed to operate as not-for-profits. They evolved over the years, taking subscriber premiums and paying out claims. They took on all subscribers without regard to pre-existing conditions, as required by their not-for-profit status. A modest profit was retained for unforeseen expenditures, and premiums were raised to cover increased costs.
The 1960s saw increasing presence from private health insurers, initially similar to the blue cross model, but as for profits, not restricted from denying coverage. These privates saw that there were two ways to make more money: increased premiums and tight claims management. So, slowly at first, and then not so slowly, the profits rolled in. As the temptation for greater profits grew, the blue cross plans were either bought up by the private insurers, or began acting like them. Today, the for profits and not for profits are indistinguishable in their behaviors, their executive payouts, and their greed.
For example, Bruce Bodeken, CEO of Blue Shield of California, took home $4.6M last year, more than four times as much as the CEO of the largest state for-profit insurer, Anthem. Not to worry however – Anthem is owned by Indianapolis-based Wellpoint. Its CEO, Angela Braly, made $3.8M and $9M in stock awards in the same year. (Update: Agenla Braley was ousted by the Wellpoint Board this year for “dissapointing second quarter earnings”).
Remember not-for-profit Kaiser Permanente? Their head, George Halvorson, took $6.7M in total compensation and benefits. The company increased premiums in California by 9% shortly after.
In terms of sheer, audacious greed, however, the aforementioned are mere pikers. The reigning king of avarice title has to belong to William McGuire, M.D. of United Health Group In 2005, his compensation totaled $124.8M. Shocking, huh? But wait. His stock options, awarded during his eighteen-year tenure, amounted to $1.6B (that’s a “B”) which he was prepared to take when he resigned, while the company was under duress from the SEC.
Unfortunately, the SEC threw a wrench into the plan by discovering that the options were backdated. That is, the option grant dates coincided with the stock’s lowest prices for the particular periods, resulting in optimal (and illicit) gains. McGuire ended up keeping a piddling $800M or so, and United, whose Board colluded in this shady deal, had to pay some $900M in shareholder restitutions and fines.
Let me put another perspective on this unbridled avarice: assuming an annual 2006 family health insurance premium of $12,000 per year, United could have awarded McGuire $100M, and still paid the premiums for 125,000 families with the difference from what he originally planned to take. And you might throw in another 75,000 families for the $900M in penalty paybacks. Possibly, McGuire thought the phrase was “physician, heel thyself.”
United was also sued for other scams by the NY Attorney General, and the AMA resulting in a $350M combined settlement. Guess it beats paying claims.
Although United is the largest and perhaps the most avaricious health insurer, its tactics are not unique. It’s obvious where the money is going with private insurers. The AMA did a study in 2005 on how much of the premium dollar is absorbed in “administrative costs”. It found that while Medicare spent 3.1% on administration, private insurance spent 14.1%. A 2006 study by The Council on Affordable Healthcare showed a 5.2% to 16.7% difference in the same comparison.
Under the recent Obama health legislation, insurers are mandated to spend 80% on subscriber care. I would think most people would consider 20% administrative costs quite high, but in a number of states, insurers have requested waivers because the insurers are spending over 20% on administration. Have to cover those top salaries.
Is this what healthcare is or should be about? Is anyone out there happy with their health insurance? Is it time for an overhaul yet? How about a single-payer system?
Let’s look at Canada, which has a state-sponsored single-payer system. Premiums run around $100-$150 per month per family. All citizens are covered. Administrative costs are one-fifth of private insurance plans in the US. A Gallup poll indicated that while 17% of Canadians were very dissatisfied with the availability of affordable healthcare, the US figure was 44%. I’d bet that figure is higher today. Oh, and by the way, Canadians live an average of 3 years longer than we do. Nothing like getting your money’s worth, eh?
Most European countries have single-payer or heavily regulated multi-payer healthcare. Please reference the attached chart to see what different countries are paying and getting for their money. Also below, for your reference, is recent New York Times reader response to an article about a visit to Australia/New Zealand.
I might note that the World Health Organization ranked countries for the quality of their health systems in 2010. The US finished 37th, right behind Costa Rica, while France finished first. Not to be outdone, the US finished first in cost, by a wide margin.
In healthcare insurance, it seems apparent that excess is the standard for operations. But the examples of the insurance companies mentioned are nothing extraordinary today. The self-absorption and greed of these companies and organizations are examples of what’s wrong with healthcare in America.
But be assured that the health insurers are not the only ones with their hands in our pockets. More about the others to follow.
A New York Times post:
A tale of two daughters and medical care
Both daughters, one who lives in New Zealand and one who lives in USA
recently each had the exact same major female surgery. In New Zealand, terrific doctors and facilities performed successful surgery served by dedicated nurses and was kept in the hospital for four days. She never saw a bill from providers in New Zealand
In USA, second daughter had terrific doctors and facilities. In the USA our daughters’s insurance company, Aetna, said this major surgery is a day surgery according to its guidelines. Carrier denied physicians request for a single overnight surgery as its “guidelines” even before the surgery said it was not necessary. Since she lives alone, she told hospital if necessary she would pay for the overnight if doctor thought it was necessary since Aetna would not preauthorize. She was admitted for overnight following the surgery. When charges were sent to Aetna, ALL surgical charges including overnight (except surgical costs for the doctor) were denied since Aetna insisted it had only approved outpatient care. Daughter faced with thousands of dollars of charges over and above the overnight charge. We were told coding from outpatient to inpatient could not be changed. What’s wrong with this picture?
R. Ogden
SANTA FE
March 28, 2012 at 11:43 a.m.
Graph from Mary Meeker of KPCB
