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Are Health Insurers Killing The Goose That Laid Its Golden Egg?

Ann Braly, WellPoint’s CEO, launched a new offensive to protect the vested interests of the healthcare insurance industry now that Obamacare seems to be dead.

The healthcare insurance offensive began with her op-ed article in the Wall Street journal on February 7, 2010. Readers will have a deeper understanding of the offensive if they follow the underlined historical links in this article.

It will destroy President Obama’s credibility, the practice of medicine, patient access to care and increase the number of uninsured. It will bankrupt the country if her offensive is successful.

The healthcare insurance industry is killing the goose that laid its golden egg.

WellPoint is the largest U.S. commercial health insurer by membership. Wellpoint’s affiliated health plans are in 14 states and insure over 34 million people or 11.1% of the population.

Wellpoint also has reimbursement contracts with 82% of the nation’s primary-care physicians, 84% of specialists, and 94% of hospitals.

Anthem Blue Cross is California’s largest for-profit insurer and is an affiliate of Wellpoint. Anthem insures 800,000 people.

Four days after Ms. Braly’s article blamed all the other stakeholders for the rising cost of healthcare insurance, Antham announced it will raise member premiums by as much as 39% on March 1.

The parent company, Wellpoint had a net profit of $2.7 billion in the last quarter of 2009 alone.

Since the healthcare insurance industry has an antitrust exemption I expect every other healthcare insurance company will raise its premiums. Extrapolating the profit to the entire population insured, the total net profit in the healthcare insurance industry would be 144 billion dollars. This does not include the inflated and wasted administrative expenses.

Somewhere between 35-65 cents of every healthcare dollar goes to administrative expenses. Assume that 50 cents of every healthcare dollar is expenses plus net profit to the healthcare insurance industry. The healthcare system consumes $2.5 trillion dollars. That means $1.25 trillion dollars goes toward expenses and profit. The profit is distributed to employees and stock holders.

President Obama says;

“I mean, to be fair, the status quo is working for the insurance industry, but it’s not working for the American people,” Mr. Obama said recently.”

Ann Braly CEO of Wellpoint says;

It’s hard to see how WellPoint could be to blame for surging health spending, Mrs. Braly says, when 85 cents out of every premium dollar or more “is paid out in the actual cost of care, doctors, hospitals, suppliers, drugs, devices.” Confiscating the 2009 profits of the entire insurance industry would pay for two days of U.S. health care.”

The question is who is incorrect? Are Wellpoint’s financial statements incorrect or is Ann Braly’s sound byte incorrect? I think everyone would agree that $2.7 billion dollars net profit in the last quarter of 2009 is not shabby.

Wellpoint is using a well worn public relations technique by pointing a finger at the other stakeholders. All its administrative costs, additional reserves, and investment costs are included in the “85 cents out of every premium dollar figure.”

Wellpoint makes money on the money withheld from physicians for reimbursement. Wellpoint has held back reimbursement to physicians often. When it was sued in California (at an extra cost to the healthcare system) the settlement was for a fraction of the reimbursement owed. The settlement was a pretty good way of making money.

“You don’t need to be an economist to understand that any middleman interposed between seller and buyer raises the price of a given service or product. Some intermediaries justify this by providing benefits, such as salesmanship, advertising or transport. Others offer physical facilities, such as warehouses. A third group, organized crime, utilizes fear and intimidation to muscle its way into the provider-consumer chain, raking in hefty profits and bloating cost, without providing any benefit at all.”

The healthcare insurance industry is the middleman that controls the healthcare system. The government through Medicare depends on the healthcare insurance industry to be the third party administrator for Medicare. The healthcare insurance industry sets the prices and the benefits using an unscientific social science called actuarial science.

“The health insurance model is closest to the parasitic relationship imposed by the Mafia. Insurance companies provide nothing other than an ambiguous, shifty notion of “protection.

In order to control the healthcare system the healthcare insurance industry has managed to control the process of authorized treatment and reimbursement for the government and private insurance.

Mrs. Braly says;

To actually be fair, the insurance industry was a cheerleader for the plan, at least until the policy substance congealed sometime in September.”

“Obviously, we’ve been involved in this discussion for a while—more than a year—and if you think about it we came to the table early, early on and said we’re going to be advocates for responsible, sustainable health-care reform done right. We really do have to get at the underlying question of health-care costs.”

It is certainly to Wellpoint’s and Mrs. Braly’s advantage to have universal healthcare that is mandated and subsided by the government. Prior to September the healthcare insurance industry had it all set up with President Obama.

Universal healthcare would provide more customers and more premiums. The healthcare insurance industry also worked out a deal with the government to increase the deductibles from 20% to 30% so they could provide affordable healthcare insurance at a lower price.

The $2.7 billion dollars in profit for the last quarter drove me to look at the salaries and stock options posted on the web for officers of Wellpoint. Mrs. Braly’s salary was not available.

CEO, Divisional/Presidents’ salary was 1.18 million and 8.4 million dollars a year.

The CEO and Chairman of the Board made 23.9 milliona year .

Executive VP/CFOs’ made 8.42 million dollars a year.

Geographical CEO/Geographical President/Executive VPs’ made between 15.56- 6.39 per year

The stock options awarded are even higher.

In a March 2007 post I stated that “ UnitedHealthcare claims that costs are out of control. Why? Who paid their CEO $1.8 billion dollars over 8 years? The amount equals $300 million dollars a year or $821,917 a day in salary and benefits to one person. What are the other top executives at UnitedHealthcare receiving in salary and benefits? Do you think these salaries affect the cost of insurance?”

Consumers only realize that health insurance increases yearly. In November 2006 I wrote;

“No leader has the courage to step forward and do something about it. I have emphasized much of the leadership can be exerted at the state level by state boards that license the insurance industry, hospitals and physicians. No one has organized the people to protest. The excuse is that the healthcare system cannot be fixed. It is impossible to control physicians. I believe all these excuses are smoke to cloud the solution. The facilitator stakeholders are simply holding on to what they falsely perceive is their vested interest.

“A theory of limits applies here. In a voluntary market, healthcare purchasers–employers or taxpayers–will tolerate only so much cost growth. Then they’ll recede. It is preposterous to believe the well won’t run dry.”

All of these pricing mismatches and excess non medical value added costs can be eliminated by permitting patients to be in control of their healthcare dollar and selling pure insurance that is fairly priced. The Ideal Medical Savings Account system represents pure insurance in the form of high deductible health insurance and motivation for the patient to become an informed consumer.

The cost of processing claims could be eliminated completely. The service claims could be adjudicated instantly with a credit card. Thousands of diverse businesses adjudicate claims on purchases instantly daily at a low cost. The use of credit cards to pay for Medical Savings Accounts could provide an instant savings of $150 billion dollars in costs in the healthcare system. The losers will be the non competitive insurance companies. The winner will be the bright flexible company that puts the correct 21st century system in place.

*This blog post was originally published at Repairing the Healthcare System*


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