Holding Their Feet to the Fire

Among the disturbing proposals for health care overhaul legislation is the so-called "public insurance option." The idea is to form a state-owned health insurance company that will compete with the currently existing insurance companies. How exactly the program would be administered and run is an idea in flux, but it's purpose is clear.

“If the private insurance companies have to compete with a public option, it will keep them honest and it will help keep their prices down,” President Obama said in a speech last week.

Senator Baucus, chairman of the Senate Finance committee was reluctant to call the new company public or state-owned but was likewise clear as to its purpose: “It’s not going to be public, we won’t call it public, but it will be tough enough to keep insurance companies’ feet to the fire.”

Keep them honest? Keep their feet to the fire? The President and Senator make thinly veiled accusations: 1. Health insurance companies are dishonest. 2. Insurance companies somehow need to be pressured, coerced or punished.

What does President Obama feel the insurance industry has been dishonest about? What law have they broken? If they have used fraudulent practices, it is his duty as chief executive officer in this country to see that they are prosecuted. Have they broken anti-trust laws? If so, it is his duty to see they are prosecuted. Likewise, what has the insurance industry done that requires having their feet held to the fire? Shouldn't whatever action or inaction that justifies government intervention be legally prosecutable? Why doesn't the senator suggest a prosecution?

From hearing and reading much discussion on health care reform, I could make a guess at the crimes alluded to. I believe that they might be the crimes of being expensive and of having exclusion criteria. Insurance companies are guilty of offering policies that cost too much and of having exclusion criteria that limit which customers are eligible for those policies.

Before we condemn the entire insurance industry as being greedy and immoral, let's review why prices are high and why there are exclusion criteria for plans. I say let's review because I believe we already know the reasons. Despite our knowledge we have branded the insurance industry as the enemy. We falsely brand the industry as criminal and strip market rights for our own personal gain. What a sad state for our democracy.

The high prices for health insurance are a direct function of the price of health care itself. Health insurance costs the going rate of health care, plus a little bit. The cost of maternity insurance is the cost of a delivery, plus a little bit for administration, losses, and the risk of emergency procedures. The cost of catastrophic insurance is the average cost of health care due to catastrophes among the policy holders, plus a little bit for administration, employee salaries, etc. The cost of any health insurance from any company that plans on staying around long enough to pay policy holder benefits must be the cost of the health care, plus a little bit.

The high prices for health insurance are also a direct function of regulation of the market. Each time a state legislature mandates that insurance companies cover this or that illness, insurance premiums must go up to compensate for new expenses. Every time a state legislature mandates coverage to see this or that specialist or to receive this or that test, the price of premiums must go up to compensate.

As for exclusion criteria, we know how difficult it is for those who do not qualify for certain insurance programs. But we also know that insurance companies maintain these criteria in order to keep the price of premiums low enough for the general populace to afford. Any plan to enforce removal of exclusion criteria may be noble, but is not based in reality. A plan without exclusion criteria is a plan that most people will not be able to afford.

Health insurance is a business. It is not a charity. There are many wonderful private charities and programs available to help those who cannot afford health care, but the insurance industry is not one of them. This is not a crime. Insurance companies must make a profit so their employees can take money home to feed their families. There may have been criminal acts committed within the industry. There may have been unethical behavior. These should be prosecuted. But the cost of health insurance is no crime. The existence of exclusion criteria is no crime.

When we understand the nature of health insurance and how its price is determined, we begin to see that the institution of a national health insurance plan does little to solve today's health care problems. The best any free and true health insurance company can charge is the true cost of health care, plus a little. The only way a national plan can compete with free market is for it to be non-profit earning. It must become a charity. In order to do so, it will require financial support. And so our tax dollars will go to support a failing insurance company, just as they now go to support failing banks and auto companies.

How will insurance companies owned and run by American citizens compete with such a national company? They can't. They cannot drop their prices enough to compete with a "company" that doesn't care about profit margins or the bottom line. Their customers will slowly trickle to the national insurance policy and one by one they will go out of business. As Americans, we will have the privilege to use our tax dollars to put our fellow countrymen out of business. It won't matter if the government did not initially take over the entire industry, because government will have successfully run its citizens out of the market.

Rusty Scalpel