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Rates up, Profits up, What's up?

Health Care Service Corporation Enjoys Large Profits

Well, it’s good to be a Blue. Or, more specifically, the parent company of some of the Blues – Health Care Services Corp. Economic growth is at a standstill for a majority of the country’s businesses, but Health Care Service Corp. saw profits double from 2009 to 2010, and it looks like 2011 will be equally as profitable, if not more so. I don’t have a problem with a company making a profit. We are a free enterprise society. What I question that they are making such large profits and still able to continually raise premiums at a rate faster than inflation and the medical component consumer price index.

Health Care Service Corporation & Health Insurance Inflation

Cumulative Growth of Health Insurance Premiums

Health Insurance Inflation – Why?

I have to wonder if the increasing lack of competition in the insurance industry is somehow related to the health insurance inflation. In the past 13 years there have been more than 400 corporate healthcare mergers. In the same period of time we have seen a significant decrease in HMOs. The American Medical Association reports that 94% of markets are ‘highly concentrated’ without market competition. This lack of competition has led to near monopolies in many markets. For the smaller plans to compete, often their only option is to partner with the big players. In this type of market it is easy to understand how the dominant players can increase premiums without fear of competition. However, of further interest, in some states even large market players find it difficult to compete.

From 2000 to 2008, the top health insurers increased premiums 97%, and their profits increased 249%.  Big increases on the insurer side, however I have yet to read about a big increase in healthcare customer satisfaction.

Perhaps this lack of competition can also explain the decrease in the ‘cents on the dollars’ spent on actual benefits (medical loss ratio) since 1993.  In 1993, the medical loss ratio was 95%. Today the national medical loss ratio is close to 80%, in Texas it is 64.4%. One would think customers would have the benefit of reduced rates as a result of the consolidation, not reduced service.

In their defense, the insurers have said the profits are due to 1) a decrease in number of people covered as a result of an aging population converting to Medicare, employers cutting back on benefits, and those who lost jobs and were forced to enroll in Medicaid, and 2) a decrease in claims as cost-conscious consumers put off going to the Doctor. However, is it possible that the decision of the consumer to not seek healthcare is more a direct result of the health insurance inflation – the increased premiums, co-payments and deductibles?

Without being privy to the contracts and agreements of all the market players, I can’t confidently speculate the exact reasons for either the premium hikes or the huge profits. However, I can confidently offer what I learned in Econ 101 – competition is good for everything. The more competition, the lower the price. As long as there is limited competition in a healthcare market, I predict we will continue to see increases. One way to increase the competition would be to allow insurance companies to sell healthcare policies across state lines. Look what deregulation of the airline industry did for ticket prices. With the increased competition, flying became affordable for the average American, it was no longer a luxury of the rich. Perhaps we can have the same for healthcare.

Thanks for reading!

Healthcare Advocate

Rebecca Busch


adminRates up, Profits up, What's up?

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