Health Insurance Is a Racket

People who get insurance through their jobs often think the premiums deducted from their paychecks are the entire cost of their insurance.  Or, they might dimly understand that their employer chips in part of the cost, too.

But the reality is something else entirely.

This guy explains it pretty well. Note that he’s talking about his own employee benefit health insurance:

My family’s generous health insurance costs about $20,000 a year, of which we pay only $4,000 in premiums. The rest is subsidized by taxpayers. You read that right. Like virtually everyone else on my block who isn’t old enough for Medicare or employed by the government, my family is covered by private health insurance subsidized by taxpayers at a stupendous public cost. Well over 90% of white households earning over the white median income (about $75,000carried health insurance even before the Affordable Care Act. White socialism is nice if you can get it.

Companies can deduct the cost of their employees’ health insurance while employees are not required to report that benefit as income. That results in roughly a $400 billion annual transfer of funds from state and federal treasuries to insurers to provide coverage for the Americans least in need of assistance. This is one of the defining features of white socialism, the most generous benefits go to those who are best suited to provide for themselves.

This has been going on since the post World War II years, and because The System hides the real cost of insurance from most Americans, they have no idea how expensive it really is.

There’s a thing called the Milliman Medical Index that figures out how much health insurance costs. “In 2016, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $25,826,” the Milliman Medical Index says. And this was the lowest increase in premium cost they’ve seen for many years. The lowest, mind you.

So how come everyone was squawking about insurance going up last year? Milliman noted that employees share of cost took a leap last year, pushing up their health care paycheck deductions while employers gave themselves a break. If you were paying for private insurance purchased on an exchange, I understand that the insurance companies decided to crank up their prices for this year because they’d been lowballing in previous years.

In other words, Obamacare didn’t do anything to make insurance more expensive. This was the insurance companies’ doing, or your employer, or both.

It gets better. It’s hard to find anyone who actually likes the Republican’s Obamacare replacement plan. But the plan has one enthusiastic supporter — Anthem, the country’s second largest insurer. Here’s why.

Anthem, which is based in Indiana, is already the largest insurer in California, Kentucky, Virginia and elsewhere. Two years ago, its chief executive, Joseph Swedish, made a big bet. He decided to put public pressure on Cigna, another major insurer, to accept a merger. Eventually, Swedish succeeded, and Anthem agreed to pay $48 billion to buy its rival.

But the Obama administration’s Justice Department filed suit against the merger, arguing that it would force consumers to pay higher prices. Last month, a federal judge agreed and blocked the merger. Cigna isn’t happy with the deal anymore either and has filed a $14 billion lawsuit against Anthem. None of it makes Swedish look good.

Anthem’s best remaining hope for the deal is probably to persuade the Trump administration to take a different view of the merger and unblock it.

Against this backdrop, Swedish wrote a carefully worded letter last week to Congress praising the Republican health bill. He stopped short of supporting the entire bill, as Jordan Weissmann of Slate has noted. Rather, Swedish lauded a few provisions (which would clearly help Anthem’s bottom line) and offered enough kind words that the White House could claim Anthem supported the bill.

“The time to act is now,” Swedish wrote. The bill, he added, “will ensure more affordable health plan choices for consumers in the short term.” More objective evaluators of the bill — like the Congressional Budget Office — are less sanguine.

Regardless of its accuracy, though, the letter seemed to make the White House happy. “Progress on repeal & replace: Major insurer supportive,” Kellyanne Conway tweeted, linking to Politico’s story about the letter.

More significantly, President Trump and Tom Price, the Health and Human Services secretary, granted Swedish a private meeting this week. At it, Swedish lobbied for changes to the bill that would benefit Anthem, according to reports in Bloomberg and Modern Healthcare.

Anthem’s chief financial officer, John Gallina, all but bragged the next day at an industry conference about the meeting’s success: “We feel very good, very encouraged, by the fact that the president and his team are listening and actually making changes based on feedback that the industry is providing.”

Translation: We’re going to kiss Trump’s ass, and he’ll see to it we get our merger.

Of course, health care itself is expensive. There are few more naive than a young person who has never had to pay a hospital bill. Such as:

It’s lunchtime at the Main Street Grill. The place has a rusted metal sign swinging above the front door. There’s a TV that plays Fox News a lot. On the wall, there’s a sign from the original Ellaville High School and photos of teens who worked here before going off to the military.

Blake Yelverton is taking a break with a burger that doesn’t cut any corners. Cheese and bacon and everything. He’s 23, a burly young man with a big red beard, and he works on his father’s cow farm.

“I don’t believe it’s the federal government’s job to provide health care,” he said. “It’s communism, socialism anyway.”

Yelverton hopes Trump trashes the whole thing, and he’s not too fond of the GOP plan being discussed in Congress either. “They’re doing a lesser evil of Obamacare,” he said.

His insurance?

“I’m on my parents’ plan,” he said.

So, Yelverton, it turns out, benefits from Obamacare. That’s because the law allows parents to keep kids on their insurance until age 26 — a widely-popular element of Barack Obama’s signature health law that Republicans intend to keep in their replacement plan.

Confronted with that information, he pauses for a moment.

“I haven’t been to the doctor in four or five years,” he said.

The young folks often don’t see the point of insurance because they have absolutely no idea how ruinously expensive medical care is. This kid has no clue that only the extremely wealthy can pay for it out of their own pockets. The rest need tax subsidies, whether we’re getting them directly through the exchanges or indirectly through an employee benefit plan.

But it’s becoming increasingly clear that the health insurance companies aren’t adding any value to this system even as they take their own cut.

And then there’s Paul Ryan, the absolutely useless dimwit and chief author of the Republican plan, who said that insurance cannot work if healthy people have to pay more to subsidize the sick. Which, um, is exactly how insurance works. The healthy pay for the sick. The people who didn’t crash their car into a tree pay for the one that did. The guy whose house burned down will get a new house paid by the homeowners who never filed a claim. That’s how it works.

Maybe we should send the whole country to night school to study how health insurance works before we continue to shoot ourselves in the foot with stupid health care plans.

16 thoughts on “Health Insurance Is a Racket

  1. “Maybe we should send the whole country to night school to study how health insurance works before we continue to shoot ourselves in the foot with stupid health care plans.”

    I think everyone needs this education. I’m not sure how to get there, but I do think it’s possible.

    I see people arguing that it’s people’s own problem if they don’t understand. Clearly it’s not their own problem. It’s all our problem. We’re all in this together, and we all pay for it one way or another.

    And make no mistake, I know that loads of people who wanted obamacare repeal really really believe that somebody’s going to do a replacement that really does make healthcare cheap. They just don’t understand at all. They really believe somehow if there’s no “intervention” that somehow they’ll all be able to go out and buy comprehensive plans for $50 per month or something like that. That they don’t understand is not their fault when this has been all hidden from everyone for so long. And not just the uneducated, under-educated, and the learning disabled either. Otherwise smart people just don’t understand. Worse, they believe that politicians have been rigging things to benefit the insurance companies – and the worst part about that is that they’re not really wrong, and that only confuses the issue worse.
    Even more surprising I think to many of the educated, is many people honestly want Medicare for All, and don’t think of that as intervention!

    The confusion, some deliberate I think, is so seriously crazy that nobody ever realizes what other people are thinking about this stuff.

    Anyhow, I can’t thank you enough for continuing to write these things. I reference several of your explainers often. You write well and in plain language and that’s heaps good stuff. Thank you thank you thank you.

  2. When I posted the Forbes article on this topic of how white privilege got insurance for white folks/men/unions, only 3 people liked it. They were 3 of my more serious-minded FB friends, but still, only 3. For an article that is incendiary in burning down polite structures to expose the actual working out of our current situation and the motives behind the supporters of the status quo. I don’t think they fully realize all this.

  3. I read an article many decades ago about how the railroad industry and their greed drove themselves out of business and created the trucking industry. The failure by the RR people was the drive for greater efficiency which meant every train had to run to capacity. Perishable products rotted in sidecars and the contracts absolved the RR company of liability. From this greed was the trucking industry and highway system born.

    Insurance companies have done nothing but pass on the limitless greed of the medical device companies, prescription companies, hospitals, etc. There was no limit to what people would pay for life itself. Where the cost was/is excessively burdensome, much of the time was shifted to employers and the government. Now they are refusing the load.

    The bubble is going to burst – republicans are going to withdraw the mandate. That’s a fatal wound by itself because it will drive up premiums. But more and more, the cost People are going to realize they are dying of treatable illnesses that are prohibitively expensive only because of excessive greed at the top. “Price Controls” will not seem like blasphemy to speak aloud after you have buried a loved one sacrificed at the altar of corporate greed.

    As the system goes out of control, look for the tourism industry to fill the gap, sending Americans to countries – possibly medical “resorts” built in Mexico and Europe to provide services which an uninsured middle class can’t buy here.

  4. I have to chalk this one up as class privilege; a lot of white folk don’t have jobs that provide insurance.

    That said, that government has been subsidizing private insurance already, to the tune of $400 billion, is a fact (at least for me) that’s been hiding in plain sight. This fact is the perfect response to all the caterwauling from the right about government having no business being involved in health care. If it did, only the 1% could afford health insurance.

    Here’s the solution, especially since private health insurers add no value as middlemen in the system: take the $400 billion, invest it in Medicare, remove the restriction on allowing Medicare to use its bargaining power on drug prices and let anyone who wants to sign up for health insurance under medicare do so, just charge an entry fee and have them pay the monthly premiums, which would be low since there isn’t the overhead of gazillion dollar CEO salaries.

  5. This is succinct and a great way to illustrate how much we lose by having insurance company middle-men who are only looking to protect their own bottom lines. This might be the way for capitalism to stay relevant, but it is a horrible way to provide health care to the entire country.

  6. Insurance is in some ways a bad word and resembles the rackets.  A better term is risk management.  Insurance is a tool of risk management. When we think of having health insurance we should really think of managing the risk of  the cost of health treatments that are expensive, essential, and to some degree improbable. Those three words, expensive, essential, and improbable will need more than the intro course to explain. Let me just say, you will still need to buy adhesive bandages, aromatherapy will probably not be covered, and a massive outbreak of a lethal uncontrollable virus is excluded from any real coverage (in that too many people would probably get it at the same time).  What is covered, and how much of the cost is covered, gets complicated really fast and our elected representatives are getting simpler really fast. This is not a good sign.   

  7. The young folks often don’t see the point of insurance because they have absolutely no idea how ruinously expensive medical care is. This kid has no clue that only the extremely wealthy can pay for it out of their own pockets.

    No it’s more basic than that. Young folks don’t often see the point of insurance because they’re healthy. They don’t need it, for the most part. It’s an old folks thing. They believe they’re never going to become decrepit and in need. They literally don’t understand why all the fuss, and they echo the naivete of the burger eating guy in the example.

    One of the things people haven’t picked up on is how deviously brilliant Ryan was to let people re-enroll for a 30% penalty. This literally pits the healthy (young) against the sick (old). I’m sure there’s lots of young people who think this is the greatest thing – they can opt in when they need insurance, and who cares if a bunch of older sick people can’t afford it – they’re gonna die soon anyway. Leave it to the GOP to fashion a way to pit one segment of the population against another, and moreover, to favor the younger segment who might start warming up to the GOP way of thinking.

  8. Doug: Maybe Gulag had a doctor’s appt. I’m sure he will be very happy to know he’s been missed.

  9. Oh I read it I just do not understand it.  I do not understand either, why when a long list of reputable American organizations, medical and otherwise, have voiced serious objections and the  replacement bill is still on the table. 

  10. Very glad to be missed!

    I was enjoying reliving my youth by watching a House panel investigate our curent POS POTUS.
    We had the FBI and NSA leaders being questioned – but, sadly, they couldn’t say much.

    Ah, Spicy’s coming on now.
    I wonder how he’ll spin what I heard – which was that there’s no evidence that POTUS Obama wiretapped this Cheetos-colored skank.
    And that they’re still looking into ties between t-RUMPLE-Thin-Skin and his minions with Russia.

  11. The deductibility of heath insurance is a funky issue. The IRS says you can deduct reasonable costs of doing business. That’s renting office space, that’s the costs of communicating with clients, that’s employee salaries, and employee benefits.

    One of the problems perceived by economists is that, if you told people “we will pay you $80,000 a year, or, we will pay you $50,000 a year, and give you a health insurance policy worth $30,000 a year that covers you, your spouse, and your three children,” most people will say “…well, how about you pay me $55,000 a year, or $60,000 a year, and give me a less valuable health insurance policy, one worth $25,000 or $20,000?”

    Also: if you paid employees the money, and they then bought a health insurance policy on the individual market (if controlled as it is in the ACA) that would be taxed as income, and for Social Security. And remember, your employer pays half of the social security taxes – which is to say, what you see in your paycheck is half of what the government actually gets.

    What to do about this is difficult to say. But the subsidy isn’t quite as massive as one would make it out to be. It’s real, mind you! But some people make it sound like, just yesterday, the government decided to give away a lot of money to employers who buy, and employees who receive, health insurance. This problem has been growing since the 70s, and maybe earlier.

    It’s the reason for the “Cadillac plan” tax in the ACA – as I mentioned above, most people, if given the money as cash, and offered to defer some to buy health insurance, will tend to buy cheaper policies for themselves than their employers give them, so the goal is to get employers to give the employees more taxable income, and less in untaxed health insurance benefits.


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