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Creating Incentives

Reuters reports on the latest Government intrusion into the efficient processes of profits, pricing and capitalism (emphasis mine):

WASHINGTON (Reuters) - For-profit insurance companies use a smaller amount of premium dollars on medical claims than consumers are being told, according to a Senate analysis of data filed with insurance regulators.

The analysis was released late on Monday by a top Democratic senator who has been pressing Cigna Corp and 14 other large health insurance companies for information about how much of premiums go toward medical care.

Senate Commerce, Science and Transportation Committee Chairman John Rockefeller, in a letter to Cigna, demanded that the company immediately clarify the amount of premiums it receives and the amount of the claims it pays for group health insurance products.

Private ("for profit") organizations offer us life-improving goods and services (like health insurance) because they make a profit on the exchange. Without that profit, there'd be absolutely no incentive for those companies to invest billions of dollars to bring us those goods and services. Without those goods and services, we all suffer.

How much profit a company makes is directly related to what it costs that company to bring their particular goods and services to market. In a free market, if a company is charging "too much" for their product, their competitors will quickly let them know by offering that same product to the public at cheaper prices. The chief beneficiary of this market efficiency is of course the consumer, who ends up receiving the best possible products at the least possible prices. Companies that continue to take "too much" profit expire from inefficiency.

So what's Senator Rockefeller doing?

Consider this recent study by the AP:

Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.

If health insurers are making "too much" profit, the quickest way for Senator Rockefeller to "correct" that would be for him to remove the federal and state restrictions which prohibit free competition among health insurers. He should permit these companies to compete across state lines and remove state mandates on coverage that bloat premiums excessively. The result would be to force these companies to offer us the best products at the best prices.

Instead, he seeks to remove the already small incentive that private health insurers have for bringing us quality products at affordable prices by penalizing profits. Doesn't he realize that this will drive insurers from the market and ultimately HARM consumers?

Of course he does. And he can't wait for it to happen.

Obama and his Liberal pals are not dumb. They know their plans won't "work" (if by "work" you mean to "fix" in any real sense). Their real goal is for it all to fail and for them to come in and soak up the mess with a big government mop.


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Comments (11)

VIO: "Profits in the billio... (Below threshold)
JustRuss IT1(SW) USN [reitred]:

VIO: "Profits in the billions is evil!"

I remember having this conversation. Profit Margins are DIRECTLY PROPORTIONAL to the amount of money put into the business. Yes they may make billions in profit BUT they invest 10 or 100 times that much to get that return, and for their trouble they get a measley 6% return. You can beat that return in some high yield Savings accounts and CD's.

Profit is a word characterized as evil, by those who wish to steal what others have earned rather than make money themselves.

Why is it that the governme... (Below threshold)
Mark W:

Why is it that the government demonizes the insurance industry for making money out of the premiums they charge for health insurance? That money compensates the people that make the insurance companies work. Are we to believe that the same government that gives us the post office and the dmv can spend less money on administrators than the insurance companies do? You may choose to believe that would happen, but practical experience with government employees tells all rational people that the problem would be far worse if the government was in charge.

You're missing the point, R... (Below threshold)

You're missing the point, Rockefeller isn't attacking insurance company profits as much as he's using the dollars spent on administrative costs to suggest that individual policy holders are getting screwed by their insurance company, thus making these people more skeptical of reports coming from insurance companies and more receptive to whatever the Democrats are offering.

Administrative costs are almost always higher on a per-person basis for small customers than for larger customers, a result of being able to spread admin costs over a larger base (as well as some of the automated aspects of large groups). So when Rockefeller uses these numbers to make individual policyholders think they're getting screwed, when in fact their lower recovery is just a consequence of their lower buying power.

And of course, this would alleviate itself if individuals and small companies were able to group themselves... but that isn't something the Democrats will ever agree to do.

As an aside, the left demon... (Below threshold)
JustRuss IT1(SW) USN [reitred]:

As an aside, the left demonizes OIL profits and proposes windfall taxes...however the Government makes double or more "profit" in taxes what the Oil companies do and make zero investment and take zero risk.


Insurance companies could o... (Below threshold)
Mark W:

Insurance companies could operate with much lower premiums if all their employees worked for free. That is ridiculous though, and will never happen. The government will not be able to take over the role of the insurance companies and eliminate that issue. In fact, the government will make the problem FAR WORSE. Once those government employees are entrenched into their positions, they will be far less productive than anyone in the private sector, and they will be impossible to remove. This happens in every government endeavor, so it would happen in the health industry too. Once again, the government would take over a sector of the economy with the stated goal of alleviating problems that they themselves created while actually exacerbating the problems.

Democrats are not intereste... (Below threshold)

Democrats are not interested in 'reform', they want 'control'.

Health care reform:
1. Allow interstate sales
2. Tort reform
3. Get rid of 'mandated coverage'. Allow the consumer to select the coverage. An 86 year old woman does not need "maternity care" in a one-size-fits-all package.
4. Government subsidized insurance for the "uninsurable" AKA pre-exiting conditions.

What would that take? Maybe 10 pages at most?

10 pages? But the Constitut... (Below threshold)
JustRuss IT1(SW) USN [reitred]:

10 pages? But the Constitution is only 10 pages and we all know how flawed the Libs think it is! You must have at least 1000 pages so you can hide things in it!

Comments #6 and #8 - How tr... (Below threshold)

Comments #6 and #8 - How true. You really nailed it. If only our elected officials would read this post and pay attention.

IIRC, this Rockefeller is o... (Below threshold)

IIRC, this Rockefeller is one of THE Rockefellers, and reasonably wealthy. Where does he think that fortune came from? If he wants to maintain his ideological purity, he can send me a check for his net worth.

What's good for the goose i... (Below threshold)

What's good for the goose is good for the gander.

Since it's apparently much more likely that we will have to spend the rest of our lives under a government insurance program than Cigna, I think it's only fair to demand the same analysis of Medicare or Medicaid.

Something I've never seen in all the bullshit coming out of Worshington is just how much it will cost the government to administer the public option Leviathan. How many federal employees will be required to run the Great Obama Death Star? In the UK, the NHS comprises 1.4 million people, making it the third largest employer in the world. It's the single largest item in the British national budget. But that's OK -- our Healthcare System For A Brighter Tomorrow will be free, somehow.

Something else I never hear about is just what the Congress plans to do about the enormous cost of routine fraud in Medicare and Medicaid.The Office of the Inspector General currently has 1,500 employees investigating fraud on an ongoing basis. From HHS testimony before Congress: "The National Health Care Anti-Fraud Association estimates conservatively that at least 3 percent [of $2 trillion annual healthcare costs] or more than $60 billion each year--is lost to fraud."

No, save all that for later. In the meantime, just two numbers will suffice:

1. How much is the TOTAL cost of Medicare and Medicaid this year?

2. How much, exactly, did the government pay out in real money for actual medical care, for doctors, hospital costs, procedures, surgery, drugs, therapy and so on?

Ignoring all of the other anciliary costs buried elsewhere in the federal budget, the difference between the two is the price of government incompetence in administering anything.

Incentive was an interestin... (Below threshold)

Incentive was an interesting choice of words.

For profit health insurance companies have an incontestable financial incentive to deny claims.

Every dollar saved is a dollar added to their bottom line.






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