Tuesday, January 12, 2010


If you are following the health care leviathan as it wends its way to Obama, you are aware the the Senate and House are currently trying to resolve their two bills. One feature that Nancy Pelosi and others are pushing in the final bill is a provision to require insurance companies to spend no more than 15 (or 20) percent of their income on administration:
Additionally, House Democrats want to require insurers to spend a minimum amount of premium income on benefits, thereby limiting what is available for salaries, bonuses, advertising and other items. The House bill sets the floor at 85 percent; the Senate-passed measure lowers it to 80 percent for policies sold to small groups and individuals.

This sounds pretty reasonable, especially if an individual mandate gets through: why should insurance companies, with all their earnings potential, get to keep a ton of this money for themselves when it could do much more good actually paying medical bills?

For one thing, a private insurance company should remain...private, and should be allowed to spend its money how it pleases. If customers don't like how much is being spent on overhead at one company, they can switch to another. Perhaps requiring more transparency in this issue would be helpful so customers could evaluate more easily.

Another reason is that a lot of the money spent on "other items" is really contesting sketchy claims, a major component of keeping cost inflation down. The Congressional Budget Office has indicated that a requirement like this would cause medical costs to go through the roof for this very reason. And insurance folk would have very little incentive to try to reduce costs further because bonuses and profits would be strictly capped, so why try to save money?

The CBO also, for some reason, thinks that requiring a firm to spend 15% or less of its income on overhead might send several insurance companies out of business...


Chick in the Czech said...

Thanks for pointing out this stuff, David! Even though we constantly get lip service from people who support this bill like, "everybody deserves health care, so you should support this," it is healthier to come up with a solution that actually makes sense.

Mrs. Haid said...

Ooooh, I like this one. It seems like you, too, are leaning to the Libertarian side of the political spectrum... and you'll find two alike minds across the street!

My favorite part: "should be allowed to spend its money how it pleases", which is very anti-Robin Hood of me to agree to, but ultimately, how I feel!

Mom said...

Hmmm...This is an interesting point which I never considered. I think if you are going to use big and tricky words like "leviathan" in this blog, you should make a little link to their definition! Or maybe it is a compliment to your faithful blog-readers to assume we already know it means gigantic!

David said...

In this case, not only does it mean "gigantic", but also "menacing" and "monstrous"!

Ashley said...

I appreciate this post. I don't really think we should interfere with some aspects of private business. That said, I'm not sure we can get by without some bit of regulation on such an important industry that really does have the advantage over the average bear.

I don't think it is just lip service to say that everyone deserves health care though. Rather, I think we just will have to work hard over time to develop workable solutions that don't interfere too much with private enterprises, but still manage to reduce costs and increase access for everyone.

I'm actually glad things are slowing down with this bill in particular. Although I didn't always feel this way, it seems ten times more sensible for health care to be changed bit by bit than a complete overhaul.

I hate to say it, but bit by bit, I find myself discovering some libertarian tendencies in myself. Perhaps it is because I find myself dissatisfied with much of the work that is being done in govt. However, I can't completely surrender my livelihood to the good intentions (or lack thereof) of US Citizens... so I'm happy with govt. intervention to a certain point.