Friday, March 24, 2017

The Casino and the Resort

Each US health insurance provider is in business for many more reasons than to only make money. Those different aspects of their business model are much easier to understand with an analogy I’ve been playing around with this morning. Imagine a typical casino with a hotel/restaurant included. The multiple restaurants include a cocktail lounge and live entertainment. The hotel includes swimming pools, tennis courts, golf courses and spa facilities. There is a large staff serving the individual patrons and aiming to deliver exceptional customer service. There is a lot happening besides the gambling operation. 

On the surface, it appears the patrons are gambling their own money at tables and slot machines. A deeper look reveals the casino is gambling on the number of patrons who lose money compared to those who win, as well as how big those wins and losses will be. They maintain tight security to insure that no one is gaming the system and changing the odds. For the casino to make money, the odds have to favor the House. 

Health insurance companies resemble these casino/resort operations. Here’s some of the facets which match the food service, lodging and resort operations:
  • processing payments for premiums due periodically from enrollees
  • processing claims from patients who have received medical services
  • reimbursing the medical service providers for their services rendered
  • assisting new applicants in choosing among different plans, levels of protection, etc.
  • processing applications and payment setups for new enrollees
  • terminating enrollees for reaching policy maximums, violating policy terms or falling behind on payments
Each of these services thrive in the private sector with market competition to lower costs, improve services and inspire innovations. There is no hidden harm, delayed damage or unintended consequences from these business operations conducted in a free and fair market. A government bureaucracy would have fewer or no incentives to improve. 

Health insurance companies also resemble casino operations:
  • luring more healthy people (losers) to enroll in order to offset the cost of sick people (winners)
  • lobbying Congress and State Insurance Commissions to not require more coverage (winning) or lower premiums, copays, deductibles (winning) without improving the profitability (losing)
  • reducing the schedule of benefits to insure more profitability and management rewards (losing) at the expense of enrollee protections, guarantees (winning)
  • colluding with other insurers to fix prices and actuarial odds so none of the rivals gain an “unfair” competitive advantage in luring the healthy people (losers) to change insurers
  • increasing the size of the entire insurance operation to better aggregate risk (diluting winners with more losers), to realize “economies of scale” and to lessen the impacts of catastrophic illnesses (big wins) 
The 27 countries that have “single payer” programs in place have shut down these casino operations in health insurance. Their private insurance companies continue to run the resort operations and compete on customer service measures to attract more patrons. It is now illegal to profit from citizens’ wellness and compromise care for financial gain. The public sector is the only casino in the entire country. The government aggregates all the healthcare risk for the entire nation. It can breakeven by balancing benefits and enrollee costs. Eliminating the expense of six or seven figure salaries and huge bonuses among insurance executives contributes to lower costs for premiums, copays and deductibles.

Germany has kept private insurance for 15% of their wealthiest citizens. Everyone that does not qualify for the private insurance is enrolled in the public, single payer system. This works well because all customers are not the same. There are little differences between insurance buyers like those who want maternity benefits or nursing home benefits. There is also a big difference between customers who believe:
  • “you get what you pay for and the more you pay - the more you get”
  • “you don’t get more tangible benefit by paying more and paying more amounts to paying too much” 
Private insurance works well for those who want to pay more to get more. They are not looking for bargains, guarantees or protection from ripoffs. They also appreciate HSA’s (health savings accounts) to aggregate their personal risk and level-out their spending. Public insurance works well for everyone else. It’s a win/win arrangement that realizes the best of both in a hybrid solution. 

The big problem with the ACA (Obamacare) is the perpetuation of private casino operations for everyone not on Medicare, Medicaid or VA benefits. The market incentives to gamble with citizens health are getting thoroughly exposed by the recent debates on the “Repeat & Replace” agenda. It’s clearly time to make health insurance “casino operations” illegal for everyone or for all but the wealthiest citizens.

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