5 reasons not to (solely) blame insurance companies for what ails US healthcare

As this midterm-election year barrels toward decision day, health insurers continue taking punches from both political parties. In fact the two regularly accuse each other of being too cozy with U.S. healthcare’s private payers. 

Examples: 

• Senate Democrats: “Americans are asking for a fair shake. They don’t want to be nickeled and dimed or buried in red tape by the same companies that collect thousands of dollars in premiums from them each year. They also want to know that, if they get sick, they will be protected from financial ruin by insurance conglomerates that spend millions on executive compensation and billions on stock buybacks. Republicans have ignored these calls, but Democrats will not.” 
   
• Republican White House: “Since the passage of the ‘Unaffordable Care Act,’ sometimes referred to as Obamacare, big insurance companies have gotten rich—it was meant for the insurance companies, not for the people—with our Government giving them hundreds and hundreds of billions of dollars a year as their stock prices soared 1,000, 1,200, 1,400, even 1,700 percent—like nothing else. … I want to stop all payments to big insurance companies and instead give that money directly to the people so they can buy their own healthcare, which will be better healthcare at a much lower cost.”

As the game rages on, one expert in the business side of healthcare is calling timeout and examining facts obscured by the noise of the rivalry. 

“Are health insurers at the root of our health system’s problems?” asks KFF executive VP Larry Levitt, MPP, before beginning to answer his own question:

“As usual, the answer is complicated.”

Levitt has worked in healthcare economics and health policy for more than 30 years. JAMA Health Forum published his thoughts on the topic at hand April 23. Here are his five top takes.   
 

1. High health insurance premiums are largely driven by high underlying healthcare costs. 

Hospitals account for the largest share of total health spending at about one-third, driving 40% of the increase in recent years, Levitt points out. “Hospital costs are most acute in the private insurance market,” he writes. “The prices paid by private insurers to hospitals are more than double those paid by Medicare, and private insurance prices have increased faster than Medicare and Medicaid rates.”
 

2. Health insurers don’t raise premiums to be mean, greedy or otherwise uncaring. 

Insurers cite hospital consolidation as a key driver of costliness—and say rising premiums reflect the results, Levitt reminds. “And that is a valid point,” he states before referencing a KFF analysis showing 97% of metro areas have highly concentrated markets for inpatient hospital care. Further, in most of these areas, 83%, one or two health systems account for more than three-quarters of all inpatient discharges.
 

3. As a share of premium revenues, health insurers’ profit margins are generally modest.

They’re typically no more than a few percentage points, Levitt shows. Of course, “that can add up to a substantial dollar amount in total,” he acknowledges. Still, compare those slim margins with those earned by private Medicare Advantage suppliers, which can enjoy premium margins of as much as 10%, Levitt notes. Meanwhile, he adds, traditional Medicare keeps spending down for hospital care and physician services by setting prices through regulation.
 

4. Prior authorization: A necessary ‘evil’ without which things would be worse. 

Healthcare spending equals cost times volume—and the main way insurers seek to control volume is by requiring enrollees to seek prior authorization before receiving care, Levitt writes. “Without prior authorization, insurers might create other mechanisms to limit healthcare use, and health spending and premiums would be higher,” he maintains. Levitt refers readers to a recent KFF survey showing prior auth as their single biggest non-cost healthcare burden. 
 

5. There’s enough blame to go around. 

“Health insurers often get blamed for our system’s ills—in some cases fairly and in other cases not so much,” Levitt writes. “Employers and consumers get angry at costly health insurance premiums, but those premiums are high mainly because of spending for hospital care, physician services and drugs.” 

Though they may not excel at everything they do, Levitt argues, health insurers collectively act as a not-ineffective “counterweight” to “a consolidated hospital industry that uses its market power to charge higher prices.”
 

Read the rest.