How Do the Insurance Premiums Get Spent?

When you or your employer pay the premiums for a health insurance plan, the money goes to several places.  Part is used to pay the providers of medical services like doctors, nurses, hospitals, pharmacies, etc.  Also, there are administrative costs for receiving the claims, reviewing them, and paying them.  There are costs of creating and maintaining a network of providers.  Also, the payout levels to the network providers must be set in order to entice providers to join the network.  Then there is the cost of marketing the insurance to employers and/or individuals.  Hopefully after all of this, there is a profit for the corporation providing all of these benefits to the policy holders.

The AHIP publishes industry costs as a percentage of your premium cost.  With regard to administrative costs, they were 14.7% in 1960, and in 2011 they were down to 12.3%.  Viewing the graph, 2011 appears to have the lowest percentage over the 52 year period.  You can view the statistics at http://www.ahipcoverage.com/2013/07/18/quick-facts-about-health-care-reform-and-premiums/.  This link shows that your health insurance premiums have closely tracked the cost of the health care services since 1980.

Would you say that the cost of administering our government health plans like Medicare and Medicaid is more or less than this 12.3% level of private insurers?  When you're calculating the administration cost of these government programs, you need to include all of the levels of bureaucracy that are required to operate them.  I would bet that we could dismantle the bureaucracy of Health and Human Services and just buy a private policy for everyone on Medicare and Medicaid.  The care would have to be better, the cost would be less, the fraud would be eliminated, and the providers would receive enough to keep their practices running.

Also, most of the profits that President Obama finds so appalling are being earned in pharmaceuticals and medical products and equipment.  The pharmacies, hospitals, and insurance providers are making quite modest profits.  Why?  Could it be that there is a lot of competition in these areas, whereas a pharmaceutical company that develops a new drug may have no competition until the patent expires.  Also, there is a lot of risk in pharmaceutical R&D.  Millions may be spent developing a new drug that proves to have side effects in clinical trials.  That drug may never make the company a penny.  There is also the risk that side effects may not be found in clinical trials.  If people are injured or die from a drug side effect, the costs can be astronomical.  Those lawyers that start the class action lawsuits aren't working pro bono when these things happen.  The plaintiffs get a small settlement, but the lawyers make millions.  Often, reports seem to imply that the drug companies purposely put patients at risk by cutting corners to get a drug to market more quickly.  If they are doing that, these companies can take a massive public relations hit in addition to the punitive awards to plaintiffs and their lawyers.

I believe there are ways to improve patient safety and patient care in the US medical industry.  There are ways that the costs could be reduced.  This MessAPolitico that is gradually being phased in does more harm than good though.  The Patient Lack of Protection and Unaffordable Careless Act causes the government to exercise increasing control over the medical industry.  The method of cost reduction is coverage denial or "strong-arming" providers into earning less money.  Why would a corporation risk millions of dollars developing a new drug or medical device, when the government tells them how much money they can earn when it goes to market?  Will the government subsidize these companies when the risk doesn't pay off?  Why would anyone want to go to pre-med and med school for 8-10 years and run up massive amounts of student loan debt?  Their reward might be a small salary and the opportunity to deal with endless red-tape feeding the bureaucracy.

So what are some things we could do to reduce the cost of health care without giving up services or quality of services?  Could we streamline the process of filing insurance claims and getting the providers paid?  How about if the claims were filed using an electronic, generic claim system used by all insurers?  What if your doctor electronically stored your medical records in a system that could be accessed by all of your providers?  They could better coordinate your care and watch for drug interactions, etc.  If you needed to go to a doctor or emergency room while traveling, the doctor there could access your records and update them for your provider back at home.  They would need your permission, of course.  Possibly you would carry a medical card with a barcode and PIN that would be used for access.  Wouldn't it be great if you didn't need to fill out all of those forms every time you visit a provider?  How about paramedics that could use your card to find out if you have diabetes or epilepsy.  What if the health insurance company could easily check your records to see if you are making fraudulent claims?  How about using a system like this to determine if a patient is really entitled to Medicaid or Medicare or if that patient is really a US citizen?

Why do the rules in each individual state need to be different?  This practice causes an insurance company to have 50 sets of laws to comply with.  Think of their costs for lawyers to figure out this MessAPolitico.  Insurers need as many providers in the network as possible and as many patients to offer to these providers as possible.  That will allow them to negotiate a great PPO deal.  Why limit this by making the insurance company act like 50 insurance companies, with a different set of policies in each state?  If we were going to have insurance reform, maybe elimination of red tape like this would help out.  Here in Cincinnati, you could get your health care in Ohio, Kentucky, or Indiana.  You could live in one and work in another.  Why do we need a bunch of unnecessary complication in the insurance business?

When are the politicians going to stop creating MessAPoliticos that screw up everything with red-tape?  When will they start to work for us instead of themselves?  It's time to kill Obamacare and do something meaningful and simpler.  How about they just get out of the way and let the market take care of itself?