[Note: This post is part of an ongoing series on Big-Picture Health Care. The introduction to the series is here.]
This is the second post of three on the players in the big picture of health care. Although a lot of this may be familiar–even obvious–this is an important bit of stage-setting before we go deep into the dynamics of change and the connections between the complex parts of this system. Hang in there.
Yesterday we took a look at the direct participants in health care: patients and medical professionals. Today we’ll address the primary authorities determining how that care works: insurance companies and government. Let’s start with everyone’s favorite villain:
Insurance Providers. HMOs, PPOs, supplementals, government plans–it isn’t technically accurate to call them all insurance companies, but we’ll consider them together as insurance providers in order to understand how they work. While the technical labels may differ, the processes are very similar.
At its most basic, the system works like this: you pay some money (premiums) and your employer pays some money to an insurance provider, who puts all the money in a pot and pays for your health care out of that pot. The insurance provider makes its money by managing the pot, which means more money taking care of you is less money for them. In order to make the numbers work, the insurance provider needs to set some restrictions on what it pays for your care (it wouldn’t make sense to give boob jobs and laser eye surgery to everyone who wanted them), including co-pays and referrals. In order to stay in business as a viable concern, the insurance provider needs to make sure that it is taking in more than it pays out, and also covering its internal costs like salaries and Post-It Notes.
In this scenario, “insurance company” can mean Blue Cross, Kaiser Permanente, the Veterans Administration (VA), or any number of organizations established as businesses, non-profits, cooperatives, or government programs. The key is that bit about some people paying in, the provider paying out, and a bunch of rules in between (in the case of the VA and government programs, some of the provider’s money pot is funded by taxes, which we will return to later). When you use this system, you are a patient and your money is going to medical professionals.
The insurance providers wield a lot of power in the current health care system. Despite not being popular, it’s better to have insurance companies than not have them. If you had to pay medical professionals only when you got sick, that would be great most of the time. However, if you needed heart surgery or months of hospitalization, it would suck. The pot of money everyone pays into provides some safety–you’re paying a little on a regular basis so that you don’t pay a lot when a very bad situation arises. At least that’s the theory.
The problem–and this may surprise you–is that although insurance companies wield a lot of power through rules and oversight of the big pot of money, they don’t actually make a lot of money. Their profit margins are reported in the high single digits (by comparison, oil, banking, and pharmaceuticals have profit margins of 20-30% as a percentage of revenues; health insurance doesn’t make it into the top 10.). Their procedures are sometimes maddeningly bureaucratic because they are fighting to hang onto premiums without paying out any more than necessary.
Insurance providers are almost certain to lose in the political battle over health care reform. Few people like them, and many have horror stories. The call for health care reform really is for health insurance reform, and the industry isn’t likely to emerge unscathed.
This brings us to the insurance providers’ uneasy relationship with…
Government. The role of the government in health care–at least at the moment–is to maintain oversight of the insurance companies through regulations. Government also funds its own health care plans through budget appropriations, which are primarily funded by taxes. Perversely, Congress and the VA have universal health care coverage with high rates of customer satisfaction. This will become important later in the series.
The government has a great deal of power, though it would have much more if not for the constitutional system of checks and balances that promotes bureaucracy and gridlock. Think of your last visit to the DMV and you’ll get an idea of why government with all its resources doesn’t wield more power (quick note: my DMV in Colorado is an exception–their service is fast, friendly, and generally better than the experience you’ll get at most for-profit industries. I don’t understand why, but I’ll try to find out.). The government’s power is checked by government itself.
Government makes the rules the insurance providers operate under, which means that the relationship between you as a patient and your medical professional is restricted by the insurance provider, but only to the degree the government allows. While you and your doctor may agree on what you need, there is a clash of titans outside that examining room that may or may not permit you to pursue that treatment.
Government, like insurance providers, doesn’t have a lot of friends among citizens primarily because it can be clunky and slow, and because you have to chip in money in the form of taxes to support it. This is what people are on about at town halls.
Okay. With the insurance providers and government explained as they relate to patients and medical professionals, we are almost ready to talk about what happens when they fight it out. Before we can do that, though, we need to pause to look at the groups orbiting around this nucleus of health care: employers, taxpayers, medical suppliers, and lawyers. I’ll have a brief sketch of each of these in tomorrow’s post. After that, we’ll move into what change is likely to look like, and who will ultimately control it.