You get the notice in the mail every year. Due to a wide range of factors, etc. etc. … your health insurance premium will be going up by 13% as of next month – thank you for your business and have a great day! Fantastic. You’re now paying twice what you were paying when you got your policy five years ago. Too bad your salary hasn’t doubled in that time. So you call your agent, who helps you switch to a slightly less expensive policy (assuming you’re healthy enough to qualify) and you cross your fingers and hope that next year’s rate increase will be a little less painful. Or that you will have won the lottery by then and won’t care anyway.
So what is driving health insurance premium increases? Obviously, the health insurance companies take the brunt of policy holders’ frustration, since they’re the ones collecting the money and sending out those lovely letters every year. But what are they doing with all the extra money? Exasperated insureds might be picturing health insurance companies that are raking in monster profits, but that’s really not the case, according to Aetna CEO Ron Williams, who spoke today with the Senate Finance Committee about rising health insurance premiums. Williams cited the 6.6% profit margin reported for Aetna last year, and made the case that rising health insurance premiums are a reflection of rising health care costs, and that health insurance carriers have to raise prices in order to keep up with the escalating cost of claims.
Fair enough. But profit is defined as the amount of revenue that exceeds expenses. So how do we know that the expenses are reasonable for health insurance companies? Aetna paid Williams over $18 million last year, and $30 million the year before. Is that reasonable? Maybe, maybe not. Some people defend multi-million dollar compensation for CEOs as a necessary cost of doing business. But when families are having to decide between paying the mortgage and paying the health insurance premiums, I doubt many of them are thrilled to see 8 figure annual payouts to insurance company CEOs. Sometimes I think that big companies (not just health insurance carriers) might spend money a touch too lightly. I wonder how many people in upper management have ever said “Who cares how much the wine costs – I have an expense account!”? Are these companies really trying to lower their expenses, or is it just easier to raise premiums and carry on doing business as usual? (I should point out that Aetna is one of our favorite health insurance carriers, and one that we highly recommend to our health insurance clients in Colorado. I’m only drawing attention to Williams’ salary because he happened to be the CEO who met with lawmakers to justify health insurance premiums).
I do agree with Williams that health care costs are a huge factor in health insurance premium increases. We’re spending far more on health care than most other developed countries, and yet our overall outcomes are worse. There’s a lot more to the health care industry than health insurance. Perhaps the health insurance company profits are only a small percentage of revenue, but what about the pharmaceutical company profits (generally recognized as one of the most profitable industries in the US, with high double-digit profits year after year)? What about hospital profits? What is there to reassure us that all of the elements that make up the health care system in this country are doing everything they can to keep expenses to a minimum?
Health care is a necessity. And the health care industry is very aware of that fact. If money is tight, you might forego buying a new car or going out to dinner. But if you’re on kidney dialysis, and taking a handful of medications with every meal, you don’t really have a choice about whether to continue your treatment when the budget is lean. During economic downturns, auto manufacturers are quick to offer reduced prices, lower interest, and a wide assortment of incentives to get you to buy a car – when was the last time you saw a drug company or hospital offering incentives? Or even mentioning price at all in their advertising? The health care industry is not a free market system, even though opponents of a national health care system claim that the best thing about our current system is the free market aspect of it. There’s not enough information available to consumers to allow them to make educated choices, and even when we do try to comparison shop for health care, we’re thwarted at every turn. And the health care industry has a very captive market, since at one time or another pretty much all of us will need some level of health care. There just isn’t the incentive for the health care industry to control prices the way there is with other industries that have to work harder to attract and retain customers. Whether people want to hear it or not, this is an industry that needs more government regulation. We’ve set ourselves up for failure by allowing health care – an absolutely vital service – to be organized around thousands of private entities all vying for a chunk of a huge market, with little regulation on pricing or profits. We’ve let the fox guard the henhouse, and we wonder why things aren’t going so well for the hens.
