Private Insurance, Health Care & Corruption

Opening the NY Times this morning I read of record profits reported by the U.S. insurance industry in 2009. The nation's five largest for-profit insurers had a combined profit of $12.2 billion, according to a report by the advocacy group Health Care for American and overall the companies increased their profits by 56 percent in 2009, a year that saw 2.7 million people lose their private coverage.

As a student of economics I appreciate capitalism - but this is no free market scenario. I also understand the theory of insurance as  what it is supposed to be: a form of risk management used to hedge against the risk of a contingent loss. An equitable transfer of the risk of a loss, from one entity (the person) to another (the insurance company), in exchange for a premium. But in health care, from a public good standpoint, can we really continue to allow private companies to take the cream off the top of our imploding health care system ? What is the fear of the public option ? Its about money and corruption.

The insurance companies continue to drive profits up amid rising costs by paying out less and less in claims while charging more for premiums. This is irrefutable. As the PriceWaterhouseCoopers Health Research Report showed, payments for claims as a percentage of premiums have dropped significantly in the past 14 years, while Medicare outlays have stayed at 97% (see graph below).

The true reason the "public option" is so unpopular among some folks , particularly congressional types, is that when a publc option comes to the marketplace the price will be so much more competitive as to render the for profit insurance companies useless.  Its called competition. If one follows the money in the world of Congress, both for democrats and republicans, there is a high correlation between their views and contributions by the existing profiteers of our health care system - the insurance companies among others. Carl Bernstein recently lamented that the debate over and the writing of health care reform legislation has shown us "Congress at its worst."

The concept of author, professor and activist Larence Lessig "Good Soul Corruption" is a good idea to get your head around if you question why, given the huge profits of private insurance companies, many oppose a public option as some form of evil.

Watch the video below and learn how profit interests effect public policy.