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The Truth About the Insurance Industry

Insurers often complain that their critics don't understand their business practices. It would be hard to say that about Wendell Potter. Potter, whose name sounds like that of a character in a Frank Capra movie, worked in the health insurance industry for more than 20 years. He rose to be a senior executive at Cigna. He was on their calls, at their board meetings, in their books. And today, at a hearing before Sen. Jay Rockefeller's Commerce Committee, he testified against them.

What drove Potter from the health insurance business was, well, the health insurance business. The industry, Potter says, is driven by "two key figures: earnings per share and the medical-loss ratio, or medical-benefit ratio, as the industry now terms it. That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits."

Think about that term for a moment: The industry literally has a term for how much money it "loses" paying for health care.

The best way to drive down "medical-loss," explains Potter, is to stop insuring unhealthy people. You won't, after all, have to spend very much of a healthy person's dollar on medical care because he or she won't need much medical care. And the insurance industry accomplishes this through two main policies. "One is policy rescission," says Potter. "They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment."

And don't be fooled: rescission is important to the business model. Last week, at a hearing before the House Subcommittee on Oversight and Investigation, Rep. Bart Stupak, the committee chairman, asked three insurance industry executives if they would commit to ending rescission except in cases of intentional fraud. "No," they each said.

Potter also emphasized the practice known as "purging." This is where insurers rid themselves of unprofitable accounts by slapping them with "intentionally unrealistic rate increases." One famous example came when Cigna decided to drive the Entertainment Industry Group Insurance Trust in California and New Jersey off of its books. It hit them with a rate increase that would have left some family plans costing more than $44,000 a year, and it gave them three months to come up with the cash.

The issue isn't that insurance companies are evil. It's that they need to be profitable. They have a fiduciary responsibility to maximize profit for shareholders. And as Potter explains, he's watched an insurer's stock price fall by more than 20 percent in a single day because the first-quarter medical-loss ratio had increased from 77.9 percent to 79.4 percent.

The reason we generally like markets is that the profit incentive spurs useful innovations. But in some markets, that's not the case. We don't allow a bustling market in heroin, for instance, because we don't want a lot of innovation in heroin creation, packaging and advertising. Are we really sure we want a bustling market in how to cleverly revoke the insurance of people who prove to be sickly?

If you'd like to read Potter's testimony in full, I've uploaded it Potter Commerce Committee written testimony - 20090624- FINAL.pdf.

By Ezra Klein  |  June 24, 2009; 6:29 PM ET
Categories:  Health Coverage , Health Reform  
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Comments

I hear "free market" all the time as if it's some sort of prayer. What about the term "market failure," which is what we have here. The free market is great for figuring out new ways to get us to pay more for watered down juice and for building better cellphones. It's no good at delivering public goods like health care. We're living proof.

Posted by: eRobin1 | June 24, 2009 6:49 PM | Report abuse

Hadn't heard that the industry renamed the medical loss ratio -- I'm kind disappointed they finally realized how bad it made them look!

Posted by: Mike_Russo | June 24, 2009 6:57 PM | Report abuse

Insurance companies make money when they deny and delay paying claims. It is a perverse incentive for them and makes them rightfully reviled by those who in good faith send them premium money for years only to face deny and delay when the company is supposed to pay. The irony is that it costs the insurers money to pay staff to explain why payments are denied or delayed, money that should be going to pay claims.

Posted by: srw3 | June 24, 2009 7:09 PM | Report abuse

As someone who has worked in the insurance industry for nearly 30 years, both for an insurer and then as a consultant, I can only second what Mr. Potter says. It is all true.

Posted by: scott1959 | June 24, 2009 7:18 PM | Report abuse

If they won't give up rescission, how about a law requiring a full refund of all premiums paid, with interest? After all, their stance is that the policy was invalid from the beginning; if there was never a legal contract requiring the services, there was also never a legal contract requiring the payments.

Posted by: kcc3 | June 24, 2009 7:40 PM | Report abuse

I don't understand why we can't start treating the health insurance industry like we treat the tobacco industry. As far as I'm concerned, the health insurance industry is far worse.

kcc3,

Rescission will be illegal under any health care reform plan.

Posted by: SteveCA1 | June 24, 2009 7:45 PM | Report abuse

do we want insurance or do we want health care? I think we want health care...but the terms that we seem to be discussing are: coverage for all, etc.
Why is that? Why doesn't the federal govt just start opening up clinics where they believe it would do the most good?

Posted by: atlmom1234 | June 24, 2009 9:05 PM | Report abuse

Ezra, the fact that the industry tracks loss ratios is not in itself shocking. All insurers do. If the ratio gets out of hand, they go out of business. A public plan would have to control its ratio or require huge taxpayer bailouts. It is disturbing, though, that health insurers have managed to dramatically reduce the ratio by reducing benefits and cutting off individuals and businesses. That's does indicate that a for-profit healthcare industry doesn't work for anyone but shareholders and execs.

Posted by: sprung4 | June 24, 2009 9:57 PM | Report abuse

But this is just the tip of the proverbial iceberg.

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/24/AR2009062401636.html?hpid=topnews

Posted by: lensch | June 24, 2009 10:43 PM | Report abuse

No, Ezra, private health insurance companies ARE evil. They are as untrustworthy as snake oil salesmen. They have NO business in our health care system.

Posted by: suescannon | June 25, 2009 12:06 AM | Report abuse

"Are we really sure we want a bustling market in how to cleverly revoke the insurance of people who prove to be sickly?"

So how do you feel about Medicare for All (HR676) now, Ezra?

Posted by: lensch | June 25, 2009 12:30 AM | Report abuse

"They have NO business in our health care system."

I'd be happy with supplementary insurers accepting premiums to cover copays and things like private beds or cable TV in the hospital. I wouldn't want the parasitical scum who currently run the health insurance business to make a brass cent from it, though.

Posted by: pseudonymousinnc | June 25, 2009 12:48 AM | Report abuse

"We don't allow a bustling market in heroin, for instance"

You lost me there, Ezra. That's exactly what government drug policy enforces.

Posted by: albamus | June 25, 2009 5:30 AM | Report abuse

Personally, I think they are evil.

Posted by: aka3000 | June 25, 2009 6:56 AM | Report abuse

How can a nominally competitive insurance industry possibly be absorbing over 20% of premiums for overhead and profit? That's bizarre. Why not just regulate the loss ratio? Require them to pay out 95% of the premiums and let them compete and differentiate themselves based on how efficiently they use the remaining 5%.

Posted by: tl_houston | June 25, 2009 8:41 AM | Report abuse

Ezra's following comment is a recurring theme in his posts here and, previously, at The American Prospect, and it is wholly unnecessary and diversionary:

"The issue isn't that insurance companies are evil. It's that they need to be profitable."

The two qualities--being evil and the need for profitability--are not mutually exclusive! In fact, insurance companies ARE evil, and they do have a need for profit. Why, Ezra, can't both be true?

Virtually everything you ever write about insurance company practices, Ezra, confirms that they are evil. Why do you constantly feel the need to defend their intentions? Is it to maintain the access you need to have to insurance industry executives, so that you can get "their side" of the story? Ah, yes, the need for "balance," false equivalence, and objectivity. If I didn't know better, I'd say that you're truly a natural fit at the WaPo.

Posted by: glennpeake | June 25, 2009 8:51 AM | Report abuse

"The industry literally has a term for how much money it "loses" paying for health care."

It's interesting to watch Ezra's posts alternate between describing cost control as good and describing cost control as bad.

Posted by: tomtildrum | June 25, 2009 9:13 AM | Report abuse

I don't need Wendell Potter's testimony to reveal inconvenient truths about the insurance industry.

We ALL should know that the business model of an insurance company is to pay out less than it takes in.

We ALL should know that if you are ill, rates to insure you become unsustainable.

(Think about what happens to your car insurance rates if you have a fender bender - doesn't everyone wonder if submitting a claim for a minor repair will be worth the higher rates you'll be charged when you renew? Same rules apply in health insurance.)

What Potter is talking about is the insurance industry's business model - not some devious secret they take pains to hide from us.

It's a business model that focuses on profit, not healthcare. Why is that a surprise - that an American business would focus on earnings instead of service? In their focus on profitability, the insurance industry is not an outlier by any stretch of the imagination.

http://wardonwords.blogspot.com

Posted by: anne3 | June 25, 2009 10:35 AM | Report abuse

How can a nominally competitive insurance industry possibly be absorbing over 20% of premiums for overhead and profit? That's bizarre. Why not just regulate the loss ratio? Require them to pay out 95% of the premiums and let them compete and differentiate themselves based on how efficiently they use the remaining 5%.

Posted by: tl_houston | June 25, 2009 8:41 AM | Report abuse

95% huh? Well many states are now at 85% or moving there soon. I'd ask what do you do? What if you gave away 95% of your income and worked on 5%? Exactly how would you survive. Ya i thought so.


Do you even realize what goes into the 15-20% overhead/profit? Call centers, utilization review, provider networking departments, website maintenance and development, provider credentializing, fraud administration to just scratch the surface.

Oh and by the way profit last year was 2% on average. But why let the truth get in the way of those that would consider the insurance industry scum sucking pigs.

Posted by: visionbrkr | June 25, 2009 1:12 PM | Report abuse

oh and they do regulate the loss ratio. Most states are a minimum of 80% and some are 85%.

Posted by: visionbrkr | June 25, 2009 1:16 PM | Report abuse

Does anyone have a link to a video of the Rockefeller senate commerce committee hearing (6-24-09)? I've looked on c-span and don't see it there.

Thanks

Posted by: indres1 | June 25, 2009 1:55 PM | Report abuse

Great Post.

The answer isn't single payer for two reasons:

A) the profit motive is what creates conflict of interest. Not profit insurers like Geisinger and Peugot Sound can (and do) put patients first.

B) If you have single-payer, what do you do when Jed Bush --or Sarah Palin--is elected president. Don't laugh. Were you laughing when GWB was re-elected?

This is why having non-profit alternatives is a good idea. In Europe, everyone has a hybrid system. Only the UK and Canada have single payer --and look what happened to healthcare in the UK when Margarte Thatcher took power.

Posted by: mahar1 | June 25, 2009 1:57 PM | Report abuse

We are never going to solve the health care crisis until we face up to the fact that the insurance companies have to go. They are leeches on the health care system. They contribute nothing and pull the entire system into the muck.

Posted by: NCpolitics1 | June 25, 2009 2:17 PM | Report abuse

Um, I hate to say, but we do have a bustling, active, creative market in heroin, and other illegal drugs. Most of the creative energy goes into transportation and inventory protection and there is always amount invested in research and development. Even though these activities are illegal, they do occur. There are buyers and sellers - this is known as a market!

Insurance companies don't operate on the profit margin of a Microsoft or Google and you might actually be surprised at the financials as to how modest they actually are - about a 10% profit. Given this non-remarkable return, it would not be surprising that without stringent controls they could loose a bunch of money realy fast!

Yes, the concept of insurance requires a large pool to average out the risk, and this is why it makes sense to have some sort of national pool for a certain set of services into which the insurer pool their interests and share the risk. This form of reinsurance exists in other forms of insurance, but could be expanded for health insurance without the government having to get involved and run the whole thing.

This is why high deductible insurance makes a lot of sense. Other policies can be purchased from the deductible to cover other costs, much like the medicare part b.

Posted by: pb1222 | June 25, 2009 4:09 PM | Report abuse

I was shocked at how few answers Obama had for Obama-care on June 24! It was as if he had decreed a new health care program for the US, and that was it!! What really disturbed me was his rather unemotional discussion of ceasing tests and treatments for those who are elderly and ‘terminal’. He even had the audacity to use his own grandmother as an example!! Are we seeing an Obama
Euthanasia program in the plans – a plan by which he can save MEDICARE AND SOCIAL SECURITY payments with ‘one stone’??

Is this the kind of medical care you want in the future – from your ‘Friendly Government’??
http://www.chicagotribune.com/news/nationworld/sns-ap-us-va-hospital-error,0,2658719.story

I can now understand why many doctors – true to the
Hippocratic Oath – are looking to change careers.

FOLKS, WE SHOULD BE CONCERNED!! WHERE IS AARP??

Posted by: wheeljc | June 25, 2009 4:18 PM | Report abuse

The fundamental problem is that people have come to assume that health insurance, which was largely provided by employers as an incentive to lure workers in World War II while wages were frozen, is a birthright. It is not a God-given right, and no one is entitled to medical insurance just because. Americans today have much more access to far better health care than they did generations ago; think about the procedures now considered routine that would have been considered extravagent, unnecessary, or even impossible, as recently as the '60s. We've grown used to having what we want, and when we hit the limits of what a profitable business can provide, we run to government for a solution. The free market is fine. When we actually value our health over our HDTV's, our PlayStations, our cell phones, and our SUV's, we'll have it. What we really want is to be able to have it all, but life doesn't really work like that. If we let government ("brought to you by the folks who brought you the DMV, Pentagon procurement, VA hospitals, and the Post Office") run things, we won't have anything.

Posted by: INTJ | June 25, 2009 4:37 PM | Report abuse

It seems to me that the first major problem with for-profit health insurance companies is the asymmetry of information in the marketplace. Healthy people generally know they're healthy, and have little incentive to pay average health premiums, which would make them lose money on average. The second major problem is that premiums are generally payed in advance of need - this gives insurers incentive to accept customers, and then later try to deny supplying the coverage contracted.

I'm not sure how relevant all this should be to the "Health Care Reform" debate. First, what is the percent of Americans covered by "private health insurance", vs. employer-payed health coverage? My employer pays an insurance company to administer its plan, but is actually self-insured; it just pays my medical bills. I can't recall any squabbles about what is covered or not, and the insurance company can't drop me because I'm not their customer.

Second, using "insurance" to pay for routine medical bills is absurd - it's only done now because (1) employer-paid health expenses have a tax advantage, and (2) some state insurance laws mandate coverage of certain items. We don't use auto insurance to pay for oil changes, and we don't use homeowner's insurance to pay for painting or landscaping. Health insurance should cover accidents and unexpected expenses, not doctor visits, prescriptions, or specialist care.

Making patients directly responsible for at least a significant portion of the cost of their care is also the best way to address the cost issue. As long as "some one else pays", patients have incentive to use as much care as might help. Other approaches, like incentivizing doctors, put doctors in the position of benefiting by reducing patients' care - I won't want to see a doctor under that system.

Posted by: CTObserver | June 25, 2009 5:11 PM | Report abuse

Many years ago, when I was fresh out of college and starting work with a major semiconductor manufacturer, my boss told me, "We're here for one reason only, to make money. If we could get away with it, we'd just print it ourselves." Likewise, insurance companies exist for the purpose of collecting premiums. Paying claims is merely a means to that end, and is something that the companies will do their best to avoid.

Posted by: msieving | June 25, 2009 5:15 PM | Report abuse

There is god and bad in the Insurance business like any other business and government. Buyer Beware!

Posted by: rrdn96 | June 25, 2009 5:23 PM | Report abuse

Until you have dealt with Medicare, you don't know what evil is. When you are talking into the phone to someone there, there's this sense of utter hopelessness. It's like trying to reason with a Cyborg.

I will gladly contend with the business model of private insurers instead of Medicare's model, because Medicare's insolvent, fiscal-train-wreck model is what we're going to get.

If a single payer system is such the model of efficiency, why does it Medicare have a $74 TRILLION unfunded liability? That's trillion, with a "t", not billion. To put that in perspective, our GDP is $14 trillion.

And now we're going to add 200 million people to Medicare.

There are unintended consequences we can't yet imagine. One is the sudden retirement around 2013 of many MD's, those who refuse to accept Medicare patients today. When everyone's on Medicare, they'll retire or find some other line of work.

Another is exponential growth in utilization because Medicare premiums, co-pays, and deductibles will all be set TOO LOW. This will cause extreme demand for services, and shortly thereafter, restrictions and rationing.

You can complain all day long about private health care companies, but if you haven't dealt with Medicare you don't know what you're in for.

Posted by: BostonShepherd | June 25, 2009 5:41 PM | Report abuse

Health care is a pseudo-market. No transparency in pricing, very little information dissemination about providers and treatments, huge switching costs, no real ability to shop around, and of course the only real profit in the system comes from risk-shifting and treating the most affluent patients. On top of which, the consumer typically is not the purchaser of insurance; it's negotiated by his employer. End the fiction of the health care "market". Single payer, now.

Posted by: thibaud | June 25, 2009 5:57 PM | Report abuse

Can we get the truth about Trial Lawyers? Who works for insurance companies -- people. An overwhelming majority of Americans are happy with their insurance companies. As someone who was told by government doctors "go home, your having a miscarriage", I know my insurance company MetLife gave me reasonable COBRA and directed me to an OB who helped save my baby and probably my life. There is no motive for efficiency in the US government. Medicaid is rampant with fraud and abuse -- there is little in private insurance because of all the safeguards.

I don't work for an insurance company, but the people I know who do are good people. Ezra Klein's continued propaganda and bias to further his and Obama's political agenda is truly pathetic.

Posted by: Cornell1984 | June 25, 2009 6:45 PM | Report abuse

The Insurance industry cannot be trusted to underwrite anything that has an element of social responsibility to it. The two are incomensurable. In R.I. in 1991 we had the private comp insurers thretaten to leave the state if they didn't get an enormous rate increasw, they claimed to be "losing" over 100% of their premiums. They were denied the increase, a state run "competitive fund was started, "Beacon Mutual Insurance", and it was assigned the risk pool which was at that time everybody. In effect Beacon became the only workers Comp insurer in the state at the time. As of last year It was still insuring over 80% of the market, charging the 1987 rates discounted by an average of 40% and making a very good profit. All it did was carry out common sense business practice along with its responsibilites to injured workes under the law. Beacon is the model for health care. The Insurance industry is corrupt to the core.

Posted by: wtammelleo | June 25, 2009 7:27 PM | Report abuse

The thing is, though, that I have far more success with my private insurer, which can be difficult, than I have ever had with our government, which is impossible

Posted by: Steve851 | June 25, 2009 8:18 PM | Report abuse

When, oh when, will the voters wake up?

Posted by: brownehn | June 25, 2009 9:12 PM | Report abuse

"do we want insurance or do we want health care? I think we want health care..." -atlmom

I can't imagine any one actually wanting to deal with the blood-sucking vipers in the insurance industry. Competition in the market place is good when buying a TV, but it's a disaster to have a profit motive as the driver for something like health care.

I don't want my premiums to be used for paying CEO bonuses. I don't want my premium to be used to pay bonuses to claims agents based on how successful they are on denying claims. That's what we have now. The don't deliver health care, they deliver profits to investors.

It's no wonder we are ranked 37th by the WHO.

Posted by: rakehell | June 25, 2009 9:20 PM | Report abuse

rakehell,


you are so out of touch with reality its disgusting. Claims agents that are bonused on not paying claims? I think you're watching too many movies. i work in the industry and i speak to claims reps all the time and they don't care one way or the other about it. Its a paycheck to them and they're doing their job. To make outlandish statements like that is just irresponsible. But hey why do you need proof to back up your claims, right?

Posted by: visionbrkr | June 25, 2009 9:39 PM | Report abuse

Obama is doing his best to put a bait and switch over on the American people. He is claiming folks can keep their doctors and insurance plans. A few days ago he said that if private insurerers were so good, then they need now worry about competetion from a public option.

What he avoids discussing is the obvious fact that the public option will be funded by taxpayers, the same taxpayers who would also purchase private insurance. Why would anybody want to pay twice for health insurance, as would be the case with the public option?

What Obama is banking on is that people will not understand this and will be fooled by his salesmanship. Obama wants it done quickly for just this reason: the longer the debate goes on the better folks understand the ruse.

Posted by: rodhug | June 25, 2009 10:06 PM | Report abuse

It is an easy matter to calculate how much rationing will occur with the Obama plan.

Multiply the per-capita cost of healtcare in America times 330 million population and subract Obama's estimate of cost. The calculation shows that the total cost is $3.3 trillion. Obama's team estimated $1.6 trillion. 3.3 - 1. 6 = 1.7. There would be about $1.7 trillion of rationing. That is, $1.7 trillion of healthcare would be denied.

About half the services Americans now get would be denied.

Posted by: rodhug | June 25, 2009 10:21 PM | Report abuse

Just to get this straight: You think an applicant for medical insurance should be allowed to lie about their medical history to get lower rates and you think the insurance company (whose business model requires it to make money for its shareholders) should simply have to pay up for that lie. Wonderful. What makes you think that the US Government's action would be LESS benign than insurance company's? I dare say the government would likely put the sick person in jail. And it appears you would support that notion also.

Posted by: jahles1 | June 25, 2009 10:31 PM | Report abuse

The GAO had found that Medicare Advantage plans can cost beneficiaries more than traditional Medicare. I would gather that the GAO would eventually find that single-profiteer health care plans would cost more than a public option health care plan.

Only about 20 - 25 percent of the the 43 million Medicare beneficiaries had enrolled in Medicare Advantage. What real advantage were they to switch? So it would go without saying, there will be numerous people who have single-profiteer health care plans opting out to the public option plan. The private insurance industry is so huge, you think they would walk away from this market?

The porous policies of the private market: imposing preexisting condition exclusions, insurance rates that vary by health status, gender, class of business, or claims experience, and levy lifetime or annual limits on benefits and limit the cost sharing for certain preventive services and immunizations, have cost this nation billions of dollars of uneeded health care costs.

Posted by: gdpawel | June 26, 2009 12:08 AM | Report abuse

I live in Michigan, a state dominated (for now) by nonprofit insurers and hospitals. We still have problems with high health care costs and the large numbers of uninsured adults, but we seem to dodge some of the problems facing consumers in other states. I'd be interested in some analysis of states dominated by nonprofits versus states dominated by for-profit insurers and providers.

Posted by: jason734 | June 26, 2009 6:57 AM | Report abuse

Great piece Ezra Klein. Thanks! Also see Paul Krugman column today (Fri 27 June) in NY Times. My contribution is as follows-

Obama's base is watching health care reform very carefully. As one of those, I believe the President and his White House team know this and will rise to the occassion.Also I believe they need and want to do the right thing for the nation.

Using his extraordinary power of personality and his still high popularity, combined with a restless citizenry on this issue, he will drag a weak and cowardly Congress (with some notable exceptions) across the goal line kicking and screaming all the way.

We WILL see meaningful US health care reform in 2009 and it WILL include a public health option.

Posted by: DrRickLippin | June 26, 2009 8:09 AM | Report abuse

"The issue isn't that insurance companies are evil. It's that they need to be profitable. They have a fiduciary responsibility to maximize profit for shareholders."

You are lumping in non-profit insurers with for-profit in this statement, and this is misleading - non-profits do not have a duty to maximize profit. Any successful public/private option solution will find the non-profit insurers critical to long term success.

Posted by: capitaldistrictny | June 26, 2009 12:14 PM | Report abuse

It may be beneficial to contrast the for-profit model with the government model, which is a for-loss model.
At least when profits are the gauge, we can see whether or not a model is sustainable.
Obviously, the for-profit model is not sustainable, unless they operate differently.
The government model is not sustainable either.
Just consider the unfunded liabilities of Medicare and Social Security.
Also consider that both the premiums paid in and the investments made in the trust funds are leveraged to pay for general governmental expenses. The reason the trust fund reserves earn interest is not due to the investment return of Treasury securities. The interest is loan interest, paid because the trust fund reserves are loaned to the Treasury to pay for expenses other than Medicare and Social Security.
Is that any way to run a not-for-profit insurer?
Don Levit

Posted by: donaldlevit | June 26, 2009 12:31 PM | Report abuse

Ezra,

Every time your blog moves I hope you get the services of an editor, sadly it once again looks like they let you publish any made up BS you please. Is it official WaPo position that blogs don’t need to worry about facts or they just can’t afford to baby-sit you?

“That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits."

No it is not, it is the ratio of what they collect in premium to what they pay out in claims. It’s a simple fact but if he can’t even get that right what else is he wrong about?

Seeing as how carriers are legally required to report their Loss ratio its difficult to arbitrarily change the term. When every state in the US requires you complete a form telling them what your loss ratio is how do you suggest they change it for good PR? The accurate question then becomes why does the government require carriers to track and report how much they lose by actually paying for care. Doesn’t flow with your political bias nearly as well does it?

“The best way to drive down "medical-loss," explains Potter, is to stop insuring unhealthy people.”

Once again Potter is wrong and shows how little he knows about the insurance industry. The easiest way to improve your loss ratio is to charge more. It cost money to replace policies even if the new policies are healthier. Further you also have IBNR and statutory reserve requirements that look terrible when you lose or sell chunks of business. Charging a fair price is the best and desired way of maintaining an acceptable loss ratio.

“Rep. Bart Stupak, the committee chairman, asked three insurance industry executives if they would commit to ending rescission except in cases of intentional fraud. "No," they each said.”

What you fail to discuss is the fact that state government and law enforcement has refused to prosecute individuals that knowingly lie to obtain insurance with false information. When the government refuses to do their job insurers are left with no option but to protect themselves for the good of the company and honest policy holders. I would be pissed to find out my insurance company is charging me inflated rates because they are allowing dishonest people to game the system. Why do you leave this out?

You further fail to mention this only applies to the individual market, which is 10-15 million people, this is not happening in the group market which is 10 times larger, meaning this hardly effects anyone, and only those that lie.

“They have a fiduciary responsibility to maximize profit for shareholders.”

Once again a lie by omission, half of those covered are insured by non profit insurance companies meaning most people are not subject to the demands of shareholders.

Like I have frequently told you before when correcting your numerous mistakes you really need to take up food blogging full time.

Posted by: NateO | June 26, 2009 1:21 PM | Report abuse

Ezra when the State of New York requires you to file an annual

FORM 1 - NEW YORK STATE INSURANCE DEPARTMENT
LOSS RATIO REPORT

What would you like the carriers to do cross it out and write in a more PC term? I would hope a journalist writinbg about loss ratios would also be aware the state has a minimum loss ratio, it's not like carriers can just cut away as many unhealthy people as they like and pocket 40% margins. You also forgot to include State Premium tax in your list of things carriers pay.

Posted by: NateO | June 26, 2009 1:44 PM | Report abuse

Let's reframe this thing: Ezra Klein and most people commenting here believe that people who save their money and choose to invest some of it in companies that supplement premiums paid by policyholders should not be compensated for providing their capital to support the solvency of the policies.

That sentence might be too long for people to understand but I struggle to make it simpler, because capital markets are complex things. Perhaps another way to frame it would be to ask: How are for-profit insurers able to compete in a market that was invented by non-profit insurers in the 1930s? Medical costs rose to a degree that insurers needed to raise capital in excess of premiums and remain solvent. (Read the economic literature about bankruptcies in health insurers and conversion to for-profit status.)

Of course, the government does not need to remain solvent by raising capital from voluntary investors, it can conscript capital involuntarily from our children and grandchildren. Hence, the unfunded liability.

Posted by: marincanuck | July 1, 2009 1:38 AM | Report abuse

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