(I just realized I never actually posted this, but I think it's interesting, even if it is old news).
The first sign that the party may soon be over for health insurance companies came in the form of a recent article in the Wall Street Journal. As California Healthline reports, health insurers may be unable to continue raising premiums the way they have been for the past decade.
A little history is in order. In the early '90s, as HMOs began to dominate the market, cost was the single biggest factor driving health care decisions. This was a good thing in a way, because our country was in a mild recession and there just wasn't the money available to give everybody the healthcare they needed. Tough choices had to be made, and often that tough choice was to deny care. Sometimes, the choice was to deny needed care. So.... we had a public backlash against managed care. People still tell jokes about HMOs and how draconian they were, even though reality hasn't reflected that in at least ten years. Now, instead of denying care and restricting choice, insurance companies expand choice and approve almost everything. They don't want another story on the news talking about how they're denying needed care (that happens to cost $300,000) to a sick 10 year old.
Unfortunately, while this was going on, the government payors have a role as well. In the early to mid 1990s, the government was a very reliable payor for healthcare providers. Often they were overpaying for services, which meant hospitals could charge insurance companies a fair, and low, price. Then Congress passed the Balanced Budget Act of 1997 in an attempt to rein in Medicare spending. The result was hospitals started shifting more of their expenses to commercial payors to make up for the losses they were now incurring on services provided to government-covered patients.
So, health insurers were suddenly footing more of the bill for all heatlhcare services thanks to Congress's attempts to limit Medicare spending, while also being unable to limit spending by managing care more closely thanks to a blowout loss in their PR battles of the early '90s. How did they make money? By raising their premiums at absurd rates (and underwriting the hell out of their contracts to make sure they didn't cover people who had the temerity to be sick). Often over 10% per year. Inexplicably, most employers continued to pay these rates, mainly because they had no choice if they wanted to cover their employees.
And now comes the bad news from the Wall Street Journal:
59% of employers with fewer than 200 employers currently provide health insurance for employees, compared with 68% in 2000. The trend might prompt health insurers to consider reductions in price increases, but, "if they restrain price increases, or appear to, they get hammered by Wall Street," the Journal reports.
In other words, health insurers are stuck. They can't raise rates without forcing employers to drop out of the market. But they can't control spending because hospitals and patients have done such a better job in PR, that they're almost literally not allowed to say no. This is how the healthcare implosion will happen. This trend is just now becoming a serious problem, and it's only going to get worse. At this point, health insurers best bet may be to get on board with a Universal Healthcare program and hope they're one of the few payors the government picks to administrate it. And that's a good thing.
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