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Is This The End of the Health Insurance Industry?

An interesting opinion piece in the New York Times predicts that a little known provision of the health care reform act will mean that American health insurance companies will go the way of the dinosaurs by the year 2020.

The provision in question sets up Accountable Care Organizations (ACOs), which are paid not for preforming procedures and tests like our current insurance reimbursed doctors and hospitals, but for keeping patients healthy.

It sounds like a good idea. In fact, such a good idea that it already exists in Health Maintenance Organizations (HMOs). Aware of this, the article devotes a paragraph to explaining how ACOs are not the same thing as HMOs.

I want to believe, but I’m not sure.

It isn’t that I disagree with the article’s basic premise — that the health insurance industry is already largely superfluous. In fact, it is hardly providing insurance at all. Sixty percent of people with employer-provided health insurance work for companies that are self-insured, where the company assumes the risk of providing the insurance part of the equation. In this case, which is most of the time, health insurance companies are acting as glorified billing claim processors. And that doesn’t even include all the people who are on Medicare or Medicaid.

For individuals and small business, health insurance companies do actually assume the risk, but again they are not acting as providers of true insurance where risks are spread out evenly over a population since they cherry-pick healthy people to insure and exclude unhealthy people from coverage.

And they aren’t even very good at processing health care claims. They are not only expensive themselves, but they increase costs for doctors, hospitals, patients, and also often stand in the way of treating people for simple health problems that later become expensive problems. No wonder our health care system is so expensive and has such poor results.

So, will ACOs actually solve this problem? Or will they fall prey to the same issues that plagued HMOs?



  1. Dan wrote:

    I read somewhere that the CEO of United Health Care received about $750 million in compensation his first 5 years on the job. That was before 2008 when his company could still boost earning by dropping people at will. Medicare for all, supplemental insurance would be a perk to entice good employee recruitment. Pay for it all with a national sales tax. Lower costs for companies building goods here, while raising the cost of goods from China. Offset with a larger EIC.

    Thursday, February 2, 2012 at 2:19 am | Permalink
  2. ebdoug wrote:

    Dan, pay for it all by taxing the rich. Romney can certainly afford to pay more than his 15% on his 22 million a year. The money has to be taken from the rich and recirculted.

    Tiny dot on my nose. Wait six months until regular check up. “I’m sure it is nothing, but I’ll take a biopsy.” Precancerous, but still I want to go to dermatologist. Always a risk as I get asthma attacks from cigarette smoke. Receptionist at GP says “I faxed everything to dermatologist.” I wait a month before appointment. Dermatologist has a cold. The biopsy was not part of ‘everything’ faxed over so the appointment was a waste of time on my part and for my insurance. Dermatologist calls in his nurse to look for biopsy. Must be she just put down her cigarette, she brought in waves of cigarette smoke. I returned home and slept the rest of the afternoon in frustration. There is nothing right about our health care in this country.

    Thursday, February 2, 2012 at 5:58 am | Permalink
  3. Dan, I can’t agree about the idea of a national sales tax (or any kind of simple flat tax). Basic necessities need to be bought by everyone. But the poor use far more of their income to make those purchases. A simple, presumably flat, tax would disproportionally impact the poor. That’s not fair: the rich simply have more money to spend and are receiving more benefits from the infrastructure/stable society that we live in (they are rich in it).

    What would be a fairer, more simple set up would be to not tax necessities at all (from potatoes to toilet paper, from basic coats to cheap vehicles (for those areas without mass transit)). Create another tier of most goods that would be taxed. Create a final tier that would be luxury goods. It’s still not truly fair, because it’s flattened. But it could be basically fair, and more simplified.

    But frankly, I would not like to have any sort of emphasis on a sales tax. Again, the rich have the means to shop in areas that don’t have such taxes, so it’s still going to mainly impact the poor and middle class. And, as I’ve shown, I’m progressive enough to want the rich to pay the lion’s share of the taxes because they have received the lion’s share of living in our country. (If you live high on the hog, you pay high on the hog. If you’re living on the bottom, you pay nearly nothing. That seems fair to me.)

    Thursday, February 2, 2012 at 9:16 am | Permalink
  4. Iron Knee wrote:

    I’m against a national sales tax as well. I live in a state with no sales tax and I think it is great. Sales taxes are regressive, are very expensive to collect (both for the government and businesses), and penalize something that you want to encourage (economic activity) and thus hurt the economy. We should be encouraging the economy and penalizing things we don’t want (like products that pollute or use up natural resources). I’d way prefer a national carbon tax to a national sales tax.

    Thursday, February 2, 2012 at 11:14 am | Permalink
  5. IK: I’m not sure about a national carbon tax, mainly because the poor end up using poorly maintained, often older cars. If those were taxed in some way to penalize the use, then it could undermine those poorer people who are trying to get to jobs and get moved up in the economy. I also wouldn’t penalize mass transit, though older-style buses can be heavily reliant on carbon. Also, some areas of the country have more/better mass transit, and so those areas might be given benefits from such a tax: but, those areas are often ones that are doing better anyway.

    Other than those sorts of concerns (that such a tax could penalize some players that we instead need to support), I can see your idea.

    Thursday, February 2, 2012 at 1:50 pm | Permalink
  6. PATRIOTSGT wrote:

    For Health Care, I think we should have a payroll tax just like SS and medicare. But, eliminate the cap like in SS. The more you earn, the more you pay. That can certainly be offset for lower incomes by reducing the income tax. Similarly, real estate taxes work the same, individuals who own more expensive property pay more and that tax pays for everything from education to police officers regardless of weather or not the service is used (as in the case of education).
    On the capital gains income, leave that at 15%, but after 1 million in capital gain, dividend income it gets taxed as regular income unless it is immediatley reinvested, ie starting up a business or reinvesting.

    Thursday, February 2, 2012 at 4:28 pm | Permalink