Congress is poised to pass sweeping health-care legislation. Every day another politician gets on television telling us how evil health insurance companies are. There are provisions in both the Senate and House versions of the healthcare bill that aimed to prevent health insurance abuses. I like to preface by saying that I do support provisions requiring all Americans to purchase health insurance. This would expand the insurance pool, in turn lowering health insurance costs overall. However, a large portion of health insurance costs are out of the control of the health insurance companies. Much needs to be done to limit frivolous lawsuits that cost the medical industry billions every year. What I would like to talk about in this article is provisions in the health care bill limiting insurance company profits.
The Senate version of the health care bill contains provisions that would limit company profits for health insurance to know more than 20%. This sounds great; however this is designed to satisfy the worries of an educated populace. The truth is that the average profit margin for the insurance industry is 3.4% ranking 86 in profitability. Ironically, the alcoholic beverage brewing industry which is responsible for large portion of our healthcare costs is rated number one in profitability. The truth is that limiting health insurance industry profits to 20% does nothing to actually limit profits.
The next question is whether or health insurance profits truly help drive up the cost of health insurance. When you analyze the numbers, you realize that profits are very small portion of healthcare expenses in America. There are many other factors which contribute far greater to healthcare costs than company profits. The many causes of rising healthcare costs include increased obesity, increased incidence of alcoholism, and poorly managed healthcare.
First I would like to tackle the issue of obesity when it comes to healthcare costs. Many try to compare the healthcare costs per person in the United States with those in other countries. Most industrialized nations spend less per capita for health care than the United States. This may lead people to believe that it is the healthcare system that is at fault. However a large driving force of America’s high healthcare costs is obesity. Every study indicates that Americans by far are more overweight than any other industrialized nation. According to the Centers for Disease Control and Prevention, over $148 billion is spent annually on health care related to the obesity epidemic. The hidden healthcare costs of obesity could be up words of $1 trillion as many studies show that obesity is a leading factor in certain cancers, most heart disease, arthritis, and a whole host of other issues.
Another issue that contributes to rising costs of healthcare is alcoholism. According to the Merin Institute over $22 billion are spent just on alcohol related health expenses. When you account for injuries, deaths, and other issues related to alcoholism, these numbers rise to as much as $175 billion.
Although alcoholism and obesity accounts for a large portion of healthcare costs, by far the largest contributing factor to healthcare costs is healthcare mismanagement. First I must define what healthcare mismanagement is. Healthcare mismanagement is one either preventative measures are not taken, or healthcare services are used unnecessarily. Ironically, the evil insurance companies that Congress seeks to penalize are the entities most suited to fight mismanagement in healthcare. The largest component of healthcare mismanagement is the lack of access to preventative care. Hundreds of billions of dollars a year are spent on unnecessary treatments due to preventable illnesses. Nowhere is this more evident than when it comes to senior healthcare. Straight Medicare does not cover preventative physical examinations. Medicare only pays for one welcome physical at the beginning of coverage. There are severe limits to preventative screenings and exams in Medicare. However, most health insurance plans provide coverage for preventative procedures and examinations. There are entire utilization review departments in health insurance companies devoted to preventing healthcare waste.
Another major contributor to healthcare mismanagement is over utilization. Over utilization is when healthcare services are obtained for otherwise minor issues. The major reason why this would happen is because the lack of health insurance. There are issues that would otherwise be treated by a family physician and a in the emergency room. The fact that emergency rooms cannot turn away anyone regardless of their ability to pay, by default attracts uninsured individuals. This issue could be solved with certain provisions in the bill including mandating the purchase of health insurance. This would drive down the cost of health insurance plans. However limiting health insurance company profits would do nothing to expand health insurance to all.