Private Health Insurer’s House of Cards

Posted on | April 27, 2009 | Comments Off on Private Health Insurer’s House of Cards

There is a reason we are the only advanced nation in the world with employer-based health insurance. It is the result from a defensive move by GM in the late 40’s, intended to prevent the Toledo-based union from expanding its hold on GM workers by creating health benefits.¹ Within ten years, 70% of all big employers had institutionalized health benefits as part of their compensation package. In the process, they created an enormous new industry sector: private health insurance companies.²

That was then and this is now. Employers and health insurers remain connected at the hip while workers live in fear. Why? Because if you lose your job in America, your family also loses your health insurance, assuming that you were lucky enough to have a job that actually provided health insurance. But now, the worm has turned, and job losses are not just biting employees, they are biting insurers as well.

Wellpoint, the largest health insurer in the country with 35 million members, has lost 500,000 customers since December. Of these, 325,000 were lost because their companies had fired them.³ The Kaiser Family Foundation estimates that for every 1% rise in unemployment nationwide, we increase our uninsured ranks by 1.1 million. Of the 9 million who have lost jobs since December, 4 million today lack health insurance, while 3.6 million have gravitated to Medicaid or other public insurance programs.⁴ This means that the numbers of uninsured, which stood at 45.7 million in 2007, has swollen to 50 million today.⁵

Wellpoint is not alone. UnitedHealth Group lost 900,000 members in the last quarter, with its CEO predicting that it could reach 1.5 million by year’s end.⁶ Tenet Healthcare, the hospital corporation, says its privately insured admitted patients dropped 2% in the first quarter.⁷The American Hospital Association says that one-third of its member hospitals are reporting a decline in elective surgeries.⁵

What we’re seeing is a straight forward reversal of fortunes. For over 50 years, insurers had it easy. They sold policies through large employers who reliably delivered bunches of employees with few questions asked. In the process, employers retained their employees and were mostly profitable. Insurers became very rich, with logos dotting the city landscape on the tallest buildings. But today, in the face of an unprecedented downturn, employers are not simply reneging on their commitments or pushing weak substitute health savings account as a way of getting out from under a crushing obligation. Today, they are not just dumping health plans, they are dumping their employees as well. As they do that, they are severing the employer-insurer lifeline and a significant portion of the health insurance industry’s value proposition. Rocky road ahead.

For Health Commentary, I’m Mike Magee.

References:

1. Blumenthal, D. Employer-Sponsored Health Insurance in the United States: Origins and
Implications. New England Journal of Medicine, 355: 1. 6 July 2006.

2. Magee M. Accidental Health Care.

3. Wall Street Journal Online. Health Plans Lose Members to Layoffs. 23 April 2009.

4. Kaiser Family Foundation. Rising Unemployed, Medicaid and the Uninsured. 9 Jan. 2009.

5. Fuhrmans V. Health Plans Lose Members To Layoffs. Wall Street Journal. B1. 23 April 2009.

6. Trading Markets. United HealthCare First-Quarter Net Falls on Investment, Enrollment Declines. 21 April 2009.

7. Business Week. Tenet Healthcare Corp. 21 April 2009. April 21, 2009.