Health Insurance Costs Gouging the U.S. Economy

Yesterday I received what was either a Halloween trick or extortion: a letter from Blue Cross Blue Shield notifying me of a 24% rate increase starting January 2010. Quite simply, this is price gouging per se.

Since this is a financial media site, I thought it would be educational to demonstrate how such unreasonable price inflation is completely unsustainable:

At the current pace, on my 54th birthday I can look forward to spending over $1 million a year on healthcare (but my bank will be broken many years earlier).

I can already hear the Blue Cross Blue Shield rebuttal now: “The average rate increase is 11% and your increases will not be as high in the future.” Well, since I have a sweet file in my basement, I found that 1) I have never had less than an 11% increase, and 2) I recently had an increase of 18%.

Those are huge numbers considering wages are not growing (I am lucky enough to be making money), we are in a recession, and there is absolutely no low-risk investment vehicle which can consistently match those type of returns in order to keep up. There is no way the middle class can absorb this burden. And the idea of saving for retirement and children’s education is becoming a bad joke which insults the efforts of young workers.

This is the type of fiscal black hole which will literally destroy any future economic prowess in the United States. Further, if healthcare costs continue on this trajectory, there will be a major brain drain as intelligent and productive citizens depart for saner pastures. Honestly, for the first time I am wondering whether my young family needs an exit strategy from this mess.

As I have said before, I do not know whether a public option is the answer. However, the system is completely broken when a healthy, fit family in their early 30’s is paying meaningful money for healthcare they will most likely never need. If the government can step in and stop gas stations from gouging, it’s time they crack open insurers’ books and see whether they are doing their part to help revive our economy.

Comments

[lower98th:]

You can thank Congress and the business lobby. About that antitrust waiver? Our lawmakers embracing actual, competitive free enterprise would be a start....but something today's "capitalism" finds unrecognizable.

Nov 03 01:53 PM

[User 207366:]

For what it's worth... I work at one of the co's tagged in your article. Just found out my premium is going up 46.9% and deductible is going up 5% (for an already "high-deductible" plan) in 2010, so in a Clinton-esque voice, "I feel your pain."

Nov 03 02:04 PM

[aavery6801:]

When every hospital, Dr. and drug company is under unmitigated legal threat for any misgiving, and attorneys are on the air running over 1 million ads per day encouraging this onerous plight on health vendors all citizens must use, there is no hope for a private system.

It is at best, bizarre that this administration would rather scrap our entire private health care system than face the private legal system with tough new legislation.

It is a glaringly simple solution that only takes a philosophy of decision making between the lesser of two evils to resolve.

Is it not hideously obvious that our current leaders have been hogtied with a such a deep political and monetary indebtedness that the prospects of consideration of such a rational solution to resolving the health care problem is all but impossible?

Nov 03 02:23 PM

[Pat C:]

The whole insurance business is a racket. I just re-upped on my workers comp. for our small business. Trying to find out true state and Fed. losses for our employee classifications is just impossible. Talk about opaque, they make banks look crystal clear I have never heard so much double speak in my life.

Nov 03 02:42 PM

[482614:]

We got the notice from United Health about the increase of 10%. There was a similar increase last year! If this is not a monopoly, I don't know what is.

Nov 03 02:44 PM

[Dr. Acula:]

"If the government can step in and stop gas stations from gouging, it’s time they crack open insurers’ books" - If you don't like the cost, don't buy it. Why is it the government's job to violate others' freedoms and force them to agree to your terms? I think that's morally wrong and it also suggests a lack of understanding of the price mechanism in markets.

"a letter from Blue Cross Blue Shield notifying me of a 24% rate increase" - Then drop them and find someone else. When I travelled to Mexico recently I received excellent, cheap dental care. And I could buy cheap meds from any pharmacy over the counter in literally seconds. I didn't need to go to a doctor for an hour to get a desired prescription, and then risk him not giving the one I want, and then waiting an hour while my pharmacist deals with all the red tape. Blame Congress for excessive regulations, which always result in inferior service and higher prices. Anyone who looks at the quality of Soviet era medicine will realize that more government is not the answer.

"When every hospital, Dr. and drug company is under unmitigated legal threat...there is no hope for a private system." Why not use waivers? I would gladly sign waivers - limiting my rights to sue or agreeing to use arbitration - in exchange for cheaper medical services.

"We got the notice from United Health about the increase of 10%... If this is not a monopoly, I don't know what is." - FYI, "mono" = one.

Nov 03 05:37 PM

[482614:]

Mono = 1. Yes, there is typically only 1 health insurance company that dominates a given market/state.
Also, I noticed that this excellent article was taken off from Yahoo! finance news. Any ideas why?

Nov 03 09:28 PM

[a fat panda:]

The insurance model was never designed for today. It was designed for the baby boomers when they were in their 30s when you had many low-risk people mixed in to lower the cost profile of the whole pool.

Today, younger, lower-risk people, don't get health insurance. Companies aren't subsidizing it as heavily, so lower-risk people see no point in paying full-frieght for insurance that they won't use. So they have left the pool. Utilization is much higher than ever before. Plus insurance increases benefits as each new service is covered or new drug is put on the market. These are the problems.

You are saying that you don't know whether the public option will work. But I imagine that we will agree. It can't fix bad demographics. It won't fix tort abuse. It isn't going to fix drug companies that advertise happiness-by-the-pill. Here what it can do; get the voters to believe that all is well.

Nov 03 09:30 PM

[bob adamson:]

While the public option can be characterized as socialist (in the same way and for the same reasons as Medicare for seniors, the public library and the public schools can), it does have interesting benefits for the private sector. It can relieve employers from the burden of insuring their employees (or bargaining about this in labour or employment contracts) thereby allowing them to concentrate their capital and management attention more fully on their core businesses. For example, Canadian corporations currently have a major advantage in competition with their US competitor counterparts best illustrated, perhaps, by the fact that tax funded public heath insurance reduces the cost in Ontario by about $1, 400 per car in comparison to in Michigan.

Even if the forgoing is true, you may ask, are these advantages not more than offset by an increased tax burden to pay for ‘free’ medical services for all? Again drawing on the Canadian experience, it is true that the cost of maintaining the system in each Province is a major expenditure for both Federal and Provincial Governments. These Governments, however, have been reasonably successful in containing these costs. Thus, even before one factors in the cost savings to individuals because they do not pay insurance premiums (no premiums are paid in most Provinces but small premiums are paid in BC, Alberta and Ontario but these are minimal in comparison to US rates), the general tax burden for most Canadians is similar to or less than that for corresponding US residents

Drawing further on the Canadian experience, tax funded public health insurance promotes labour mobility (a benefit to both employers and employees) because employees do not fear losing coverage if they leave to seek other employment. More health care professionals remain private practitioners rather than employees of government agencies or private health care providers because the Canadian system, paradoxically, presents a much lower bureaucratic burden on the private practitioner. This advantage is enhanced by the fact that malpractice insurance rates for MDs are much lower (in part because claims for damages are lowered by the fact that medical services required because of malpractice are already covered by the system).

In short, there is a special burden for US employers in comparison to their counterparts in many other countries with publicly funded health insurance that is citizen and not employment based. This is not to suggest that there are not other issues of importance in the US that might not make the adoption of a program having several of the attributes described above unattractive for many US citizens. The foregoing simply sets out a perspective that is relevant to business and is rarely presented.

Nov 03 11:54 PM

[Mr. Ed, Jr.:]

The problem with the "public option", as proposed by our Congress, is that it is a ploy designed to do exactly that-- induce employers to drop employee coverage. The last bill had a bribe built right in-- employers could dump their expensive health benefit plans for just an 8% added payroll tax-- far less than what health insurance costs. The clear and obvious result would have those dropped employees enter the government plan, which was being touted as a plan with pricing "not driven by profit". Private insurers would be put out of business by a government that prints money as it needs it. That is the idea, of course. We have video of our leaders telling supporters that the plan is to create a single-payer program, one step at a time, against the will of the people, if need be.

In this country, the reforms that are being served up are not about insuring those who are unable to afford coverage. If that were the issue, it could be resolved with a one page bill, allowing persons with incomes below a certain level to be enrolled in the Medicare or S-CHIPS program. In some states, families with incomes up to $80k are enrolled in S-CHIPS, the states having received income waivers from the Bush administration.

No, this bill is about government taking control of 16% of the U.S. economy. That is a tremendous amount of money to be able to direct by rules and regulations imposed by agency heads-- and of agencies that do not even exist yet, but will be newly created by the bill. It allows unelected bureaucrats to impose their "mission creep" tactics on us, as there is hardly any aspect of our lives that cannot somehow be interpreted as a "heath" matter.

We wonder-- actually we know-- that the government will place limits on our healthcare, based on budget. Yes, health insurance companies also have limits, but we are free to find another provider, or pay out of our own pockets. Will we always have that option if government takes such control ? Are Canadians permitted to seek out their own doctors, or pay for care rather than be on a waiting list ? It is my understanding that they are not free to do so. That is part of what we fear.

Will health care become politicized ? It is not really so unthinkable, in our highly polarized nation. Will "friends" of politicians, or campaign donors, receive special treatment or waivers not granted to ordinary citizens-- or those who belong to a different political party ? Our current crop of "leaders" would use their influence in a nanosecond.

Americans are generally distrusting of government. It is our nature, having been so cautioned by our Founding Fathers. (Imagine that-- those who were creating a new government were warning the citizens not to trust it.)

The last health care bill out of Congress, which was scuttled, is Exhibit A in matters of distrust. Our Thomas Jefferson would not be proud.


On Nov 03 11:54 PM bob adamson wrote:

> While the public option can be characterized as socialist (in the
> same way and for the same reasons as Medicare for seniors, the public
> library and the public schools can), it does have interesting benefits
> for the private sector. It can relieve employers from the burden
> of insuring their employees (or bargaining about this in labour or
> employment contracts) thereby allowing them to concentrate their
> capital and management attention more fully on their core businesses.

Nov 04 03:31 AM

[john s. gordon:]

well the K street lobbyists with their 900$ guccis working for the big health-care monopolies have to be paid somehow, it comes out of your premium dollar.
all the more reason to go for elimination of the antitrust exemption - immediately.
> jack

Nov 04 09:07 AM

[jim.reed:]

Please let me know if I am missign something here:

The profit margins for health insurance companies are from 1.5 - 5%. That is consistent year over year. Their payments to providers consistently run 80 - 90% of the premium dollars they collect.

Isn't the inflation therefore on payments to hospitals and physicians. I am not saying that ins cos have no responsibility for cost increases, but we are not addressing health casre costs unless we address payments to healthcare providers. demonizing the health insurers because it is popular really gets us nowhere.

Nov 04 12:40 PM

[rkwriter:]

BCBS has bumped my rates up 100% in two years. I am spending 15% of my income on healthcare. And there is no appeals process.

Nov 04 03:14 PM

[bob adamson:]

The following recent Canadian polling results on public health insurance issues may interest some of you. Nanos Research is particularly effective at measuring Canadian political opinion.

www.nanosresearch.com/...

Nov 06 04:28 PM

[Michael Clark:]

So much apologizing for greed in the medical cartel and blaming the government. It's greed in the medical cartel and price fixing and bribery with the government to go along that has created this price bubble.

The health-care bubble has to POP. We think health-care is sacred and can''t be touched or we will LOSE something. Yes, we will lose overpriced services and very mixed results.

Why do drug companies keep drug costs in America 10 times higher than the same drug costs in Canada or anywhere else in the world? The drug companies own the government. The notion that they NEED higher profits to finance r&d is a lie. European drug companies produce quality medication without the inflated price protection.

The HUGE LIE (think of Goebbels and his BIG LIE) that the AMA and the Drug Companies (and the 'competing' insurance companies) tell and America seems to be is that health-care NEEDS to be expensive, otherwise it isn't high quality.

Investigate the triumvirate (Medical providers, drug companies, insurance companies) and bring them down here with the rest of us. Plenty of white collar criminals there also.

Nov 11 04:45 AM