The health care industry in America is the single largest enterprise accounting for nearly $2 trillion in the sale of goods and services. With 750,000 physicians, 5200 hospitals, 3.8 million in-patient and 20 million out-patient visits daily, this behemoth is also the nations largest employer with 1 in every 10 American working in the health care industry. The health care industry also accounts for nearly 18% of U.S. yearly gross domestic product. The industry is continuously in a state of flux, seeking to balance the costs, quality and access to health care.
The health care industry has become increasingly market based and price driven, characterized by cost cutting measures, decreased consumer power in decision making, changing compensation systems and reduction of many medical services and most importantly increase in the ranks of the uninsured. Faced with globalization and competition, the American health industry mandarins are reducing their insurance costs by raising deductibles, increasing co-payments and trimming medical services under coverage.
The $2 trillion that U.S spends on health care each year has resulted in 'sharing interest groups', which include politically powerful private health insurance, companies and for profit hospitals.
An increasing clamour for health reforms rarely results in positive remedies since the structure of health politics in the U.S effectively stonewalls the adoption of any measures that would harm its bottomline. Fundamental reform poses a tremendous threat to institutions that have a vested interest in maintaining the medical status quo. This includes a large proportion of American hospitals, physicians, American health insurers, pharmaceutical companies and suppliers of medical equipment and technologies.
These 'concentrated interest groups' have much at stake financially to allow any reform that threatens their position. In addition these groups are well organized, well funded, willing and able to take advantage of the fragmented polity and the media.
Increasing health care costs and no fundamental reform has made health insurance expensive for many and has left 40 million Americans uninsured with a further 50 million left with insufficient coverage. The uninsured are a diverse group politically, ethnically spread far and wide with no organization, less financial resources and no political clout.
Ironically the 'best health system' in the world with surplus facilities and technological advances denies its low-income citizens access to medical care. This translates to the simple fact that one in five American families have at least one uninsured member. An another method to avoid paying claims is 'adverse selection' where people with a pre-existing health condition are denied coverage and forced to buy individual policies at highly exorbitant rates.
Win-Win situation for insurance companies:
Insurance minimizes risk by pooling together a large number of relatively healthy people. When people purchase health insurance they pay a monthly or yearly premium. When a policyholder falls sick the insurer pays a proportion of the medical costs. Some policyholders may never make a claim. When averaged out over all people buying a policy the cost evens out. Insurance companies set their premiums based on their calculated payouts aiming to rake in more money than they pay in the long run to cover expenses and in the case of for profit hospitals to make a profit.
Insurance companies also earn investment profits because they have the use of the premium money from the time they receive the premium till they need to pay a claim. This money is referred to as 'float'. When the investment of float is successful the insurance companies earn huge profits even if every penny of the premium is paid off.
Traditionally health care insurance coverage is based on Indemnity care whereby the insurance company charges a premium, invests that premium and pays out health claims. As health care costs were relatively low, insurance companies were earning money on the invested premium. Also in the 1960's the government introduced the Medicare and Medicaid plans for the elderly and low-income groups.Spiraling health care costs made traditional indemnity plans not financially feasible. As premiums began to rise the concept of managed care took root.
Insurance companies then began to develop mechanisms to control the costs of provision of health care services and gave rise to health insurance product services such as HMO's and PPO's.HMO's are similar to indemnity plans, they charge a flat premium and are responsible for the cost of providing health care services to its enrollees on a prepaid basis rather than an indemnity basis.
A PPO also works as a managed care but it is not an insurance product but an arrangement designed to supply health care services at negotiated discounted rates by network health care providers.As managed care concepts gained, insurers would provide 'medically necessary' services thereby excluding many services that are essential for a large number of patients. Increasing premiums, loss of services,lengthy waiting periods and cost sharing reimbursements with hospitals and physicians has resulted in less expensive care. All this is to hold down 'medical losses'-an industry term for actually having to pay for care.
Insurance companies trying to save money have led to ordeals such as the one suffered by Mark Kleiman, a professor at UCLA who nearly died of cancer because his insurer kept delaying approval for a necessary biopsy. As Professor Kleiman writes on his blog that it was later that he realized why the insurer was stalling. He had an option of which he was not aware that by going to Tier II he would not require approval only a higher co-payment. He further adds 'I don't know how many people my insurance company waited to death that year, but I am certain the number was not zero."
A recent article in Business Week states rather bluntly: "In reality, both data and anecdotes show that the American people are already waiting as long or longer than patients living with universal health care systems."A cross-national survey conducted by the Commonwealth Fund found that America ranks near the bottom among advanced nations in terms of how hard it is to get medical attention on short notice. It further states that America is the worst place in the advanced world if you need care after hours or on a weekend.
Proposed Health Reforms:
Single payer system: Under this system the government is responsible for financing the basic medical costs for the entire population. Revenue is generated through taxation.
Multi payer system: Every citizen is covered by insurance either by individual policies or employer coverage.
Tax Credits: The government provides tax credits to the individual to be used for the purchase of private health insurance.
Medical Saving Accounts: Money is placed into a tax-exempt savings account for individuals to use only for health care.
Managed Competition: Employers and Individuals join health care purchasing co-operatives that negotiate with private insurers for a minimum set of benefits. Individuals can purchase any plan among a array of plans. The premiums are priced the same for everyone in the plan regardless of their health status.
How do Health Insurance Companies Sustain Competition:
- Large insurance companies acquire smaller insurance businesses, thereby reducing competition and also decreasing customer options.
- Adoption of e-technology for less paper work, faster processing and maintaining records.
- Building innovative pricing models using advanced analytic techniques.
- Forecast business tends and take necessary precautions.
- Respond quickly and effectively to regulatory and bureaucratic demands.
- Customer intelligence is utilized to identify profitable consumer groups
- Operational intelligence, achieving sustainable operational improvement by pricing optimally, reducing operating costs and meeting service level commitments.
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