Health insurance companies “have no one to blame but themselves,” according to an investigation by iWatch News, which discussed the failing and out-of-date business models of large, investor-held insurance companies.
CEO Mark Bertolini sounded a similar horn in a Las Vegas conference, saying, “The system doesn’t work. It’s broke today. … The end of insurance companies, the way we’ve run the business in the past, is here.”
Several external factors contribute to the obsolescence of Big Insurance’s old guard, including changes in demographics and the economic recession — plus reforms and regulations imposed on both the state and federal levels.
But the main contributing factor has been companies’ choices to settle for quick fixes in profits rather than real long-term growth.
“[T]he standard operating practices of the industry were simply not sustainable,” iWatch writes, “and actually contributed more to the demise of the business model than any external factors.”
One widely acknowledged problem with health insurance is ever-increasing costs that drive away potential policyholders. Large insurers, motivated by shareholder profit pressures and demands for a return on investment, “have actually been driving away customers and shrinking the universe of people they were willing to cover.”
This profit driver explains why a third or more of insurance applicants, on average, are denied coverage due to preexisting conditions. Some insurers also routinely cancel policies when patients get sick.
“Now you know why more than 50 million of us are uninsured. … Most of them either can’t afford to buy coverage or can’t buy it at any price,” writes iWatch.
This phenomenon has filtered into business-provided health insurance, primarily in small businesses. In the 1990s, as many as 60 percent of small businesses offered health care coverage to their employees. The rate today is well below 50 percent. “Over the past two decades,” iWatch notes, “insurers have methodically ‘purged’ small businesses when an employee or dependent got sick or seriously injured.”
Census data confirm that despite U.S. population growth of 27.1 million since 2000, fewer Americans have heath insurance today than they did then — “from 179.4 million in 2000 to 169.4 million in 2009.”
Another self-destructive but standard insurance business practice is to shift costs to policyholders, to businesses, and to employees, through increased deductibles.
Insurers are systematically pushing the high deductible plan to employers who provide health insurance in order to push them into higher-deductible plans. A press release from the giant insurer Cigna suggested that human resource managers “who haven’t moved all of their company’s employees into a high-deductible plan should be canned for fiscal ineptness.”
While high deductibles are a short-term cost saving strategy, people living under those policies are just one catastrophic injury or illness away from financial ruin. And as fewer consumers see the value in that proposition, the business model becomes self-defeating.
For these reasons, large insurers were crying out for the Constitutionally contested individual mandate in President Obamas health care overhaul law. Since the law requires all Americans not covered by Medicare or Medicaid to buy into the system, insurance companies can cover the costs of treating sicker patients while still operating at a profit — saving themselves from self-imposed ruin.
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