Blue Cross Blue Shield, a nonprofit provider, has 34 percent of the commercial (nongovernment) health insurance market. If profit is the problem, why haven't the nonprofits taken over the entire market? You should ask why you don't see these facts reported by the national media: They are rather inconvenient for the argument that insurance profits are what ails health care.
Two other charges regularly leveled are the top 10 insurance companies' profit increased by more than 400 percent from 2000 to 2007, and premiums rose by 120 percent over the same time period (Daily Kos). Clearly evil, right? The for-profit health insurance industry experienced a merger wave during that period; so, the top 10 companies were acquiring smaller companies and consolidating their revenues and profits with their own. Therefore, the base profits from 2000 are not comparable to the profits recorded in 2007. The claim that profits increased by 400 percent is very misleading.
Increasing costs
The second accusation is just silly. From 2000 to 2007, average health insurance premiums more than doubled. Well, what is the underlying problem we are trying to solve? The problem is the rising cost of health care services. How do those rising health care services get paid for? The insurance companies pay for those services out of the premiums they collect from us. Whenever the underlying health care costs rise, what must happen to premiums? They must go up; health insurance premiums are driven by real health care costs. The more than doubling of premiums reflects the more than doubling of health care costs.
The premium complaint demonstrates why insurance companies are so easy to demonize. As beneficiaries of health insurance, we do not pay health care costs directly; they are paid by the insurance companies. Therefore, our first personal exposure to rising health care costs occurs in the following time period when insurance premiums rise to cover the increased cost. Too many people do not associate their utilization of health care services with increases in insurance premiums; they are only too happy to "punish the messenger." It is very easy for a cynical politician to exploit the public's disassociation of real health care costs with insurance premiums.
This was evident in the way Nancy Pelosi responded to the Association of Health Insurance Plans' study that said insurance premiums would rise significantly if Congress mandates pre-existing conditions coverage without mandating universal coverage. She accused the insurance companies of threatening to increase premiums in retaliation for not getting their way.
That, of course, had nothing to do with what AHIP was saying. AHIP's point is mandating pre-existing conditions coverage without mandating universal coverage means only sick people will buy insurance and healthy people will go without insurance (knowing they can buy it later if they get sick). If only sick people buy insurance, risk cannot be pooled, and insurance fails. The insurance companies would have to raise premiums or go out of business. Where will that leave President Obama's promise to those who have private insurance and want to keep it?
Bob Martin is emeritus professor of economics at Centre College. E-mail: bmart@centre.edu.
