Is Not For Profit Health Insurance the Answer?

All of the rhetoric about health insurance reform seems to eventually come down to an argument about  . . . PROFIT. I seriously doubt those who say a profit motive is what is driving up the cost of health care, and health insurance premiums, have any real understanding of the economics of profit. If they have a college degree at all it is most likely in liberal arts. To them, profit is a four letter word, but if they have a job, or run a business, then they owe their livelihood to someone making a profit.

But let’s clear the air on one thing. Even not for profit organizations make profits. Rather than paying out those profits to stockholders they reinvest those profits directly in the business.

Churches, hospitals, schools, charities that fall under the umbrella of not for profit status all have a goal of bringing in more income than they pay out in expenses. If they fail to accomplish this they close their doors.

A fellow I know is constantly railing against the current health insurance system because he can’t afford health insurance for his wife. She has a minor heart condition that, if not for the medication, she could easily find coverage. Since her doctor chose to write a prescription as a “precaution” finding coverage is almost impossible. I did find a plan in the $350/month range but he could not afford it so she has nothing. He constantly blames the “for profit” big insurance companies when in fact there is no one to blame but himself. If she were to go off the medication (subject to doctors approval) for 12 months there would be more plans available and at lower premiums.

But it is easier to complain and blame the system.

He provided me with a link to “prove” his argument against for profit health insurance companies.

Supporters envision the public option as a nonprofit insurance company that would offer lower-cost health coverage.

If that sounds vaguely familiar, there’s a good reason: For decades, most Americans got health benefits through just such a company. It enrolled everyone who applied, something it considered part of its social mission.

It used what’s called “community rating” to set reasonable rates for all. And it offered the same standard benefit package across the country.

For those not familiar with this concept and the company, the article describes the original Blue Cross model.

All of the original Blue plans were not for profit organizations that did indeed charge the same rate for everyone in the “community” regardless of age or health. You were a member, not a policyholder. The plan operated much like a co-op.

According to the article, things changed as evil, for profit insurance companies came in to the picture.

When commercial insurance companies got into the market after World War II, they used a different system based on actuarial tables, like life and casualty insurance. They tried to identify who was most likely to get sick and charged them higher rates.

While nonprofit Blues made money by enrolling more people, for-profit companies found they could make more by excluding people who were more likely to become sick. That left someone else – relatives, hospitals and eventually the federal Medicaid program – to cover the sick and the poor.

Market segmentation eventually spelled trouble for Blue Cross. Unless it also segmented markets and excluded the sick, it couldn’t match prices charged by other insurance companies.

For profit insurance companies were able to deliver a better value by charging rates based on risk vs. a one-size-fits-all approach and this is considered . . . bad.

Community rating of individual health insurance policies still exists by mandate in states like NY, ME & VT. Each of those states have only a handful of health insurance companies offering individual major medical and the premiums are astronomical. It really begs the question, why is Congress hellbent on moving the entire country toward a business model of higher premiums when we have real world examples of how one-price-for-all doesn’t work?

And if profits are so bad, why is that for profit health insurance companies are able to deliver a better product at a lower price than their not for profit counterparts?

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