Be Grateful for Your Health-Insurance Company

It has the thankless job of saying ‘no.’ But policing claims allows you to get better benefits.

By Chris Pope of the Manhattan Institute. Excerpts:

"Private Medicare Advantage plans receive a lump-sum payment for covering the standard Medicare benefit, adjusted for the medical needs of enrollees. Their bids average 10% less than the cost at which the government would cover the same package of benefits under traditional Medicare. The savings they generate relative to a benchmark help private plans fund extra benefits, such as prescription drug coverage, reduced deductibles, and dental care—which together are worth an average of $1,284 per Medicare beneficiary a year. In other words, by saying “no” to wasteful claims more frequently, Medicare Advantage can offer better benefits overall.

In 2017 Americans spent $3.3 trillion on health-care services ($10,200 per capita), of which 34% was on hospitals, 28% on physician services, 13% on nursing care and 11% on prescription drugs. Because there is so much money to be made from claiming reimbursement for medical services, health-care spending is subject to enormous risk of fraud or waste. Private insurance regulates those claims closely. Dealing with insurer oversight is never fun, but few people would want to fork over more than $1,000 a year to avoid the nuisance."

"Some Democrats hope that eliminating or dramatically reducing patient cost-sharing under single-payer would save administrative costs. Yet a 2014 study of Medigap supplemental plans that eliminate Medicare coinsurance and deductibles found that they increased the program’s medical costs by 27% as patients increasingly visited costly specialist physicians.

Private insurers also manage costs by developing networks of preferred providers they trust and whom they can reward for delivering care in a cost-effective way. They can experiment with benefit designs uninhibited by political pushback from medical providers who stand to lose revenue. Private insurers also have a profit incentive to develop and provide additional preventive-care services to enrollees if these can help avoid costly hospitalizations.

Democrats depict private insurers as hugely profitable and grossly inefficient. Yet in 38 states the largest insurer on the individual market is a nonprofit organization. Profits of publicly traded insurers have averaged only 3% of revenues over recent decades, compared with the 9% average across the economy. Taxes imposed by state and federal governments constitute the largest element of health insurers’ administrative costs."

"regulations and taxes are structured to make privately financed plans bear a disproportionate share of hospital overhead costs."