Much attention has rightly been paid to the millions of people whose loss of employment this year also meant a loss of health insurance, a terrible thing to happen at any time but especially during a pandemic. The flip side of the story is that health insurance is often terrible and expensive even for those who do have it. The Kaiser Family Foundation’s annual survey of employer-provided health insurance, published this week, found that premiums for family plans reached $21,342 this year, 4 percent higher than last year; workers pay an average of $5,588 toward that. Things are roughly as bad as they were last year, when they clearly needed to get much better, very fast. The situation is unsustainable—save for the fact that it is being sustained, by an enormous amount of pain.
But the pain is not being felt by health insurers. Even as the nation has been plunged into immiseration, the titans of the health insurance industry have been absolutely rolling in it this year, in the style of Scrooge McDuck backstroking around his infinity pool on an ocean of coin. Every time you open a door at Blue Cross headquarters, a heavy pile of money falls on your head, and you have to spend all day fishing dollars out of your suit. Since the pandemic began, health insurers have been the beneficiaries of a huge drop in the amount of medical care that people are seeking, while the premiums keep the good times coming: The New York Times reports that several major health insurers’ second-quarter earnings were double last year’s.
Despite all the uncertainty of the pandemic and the obvious need to return unspent premiums to needy consumers, health insurance companies are eager to act as if we’re living in normal times. In March, Cigna told investors that it might “have the resources to take over rivals or buy back its own stock,” according to ProPublica; at the same time, the company was begging Congress for a bailout through its lobbying group. Anthem, the third-largest health insurer in the United States, announced at the end of July that it had resumed its stock buyback program, having paused it the previous quarter, and expected to repurchase more than $1.5 billion in stock over the next year. (Stock buybacks are often a huge financial boon to company executives, at the expense of long-term investors.) Anthem’s CEO, Gail Boudreaux, was paid more than $15 million in 2019. Good thing no one else needs any money.
Health insurance companies may defend this unseemly situation by pointing to a rule called the medical loss ratio, or MLR. Insurers are bound by the Affordable Care Act to spend at least 80 percent of their premium revenue on actual medical claims, or 85 percent for large employer plans; any profits over that amount must be returned to consumers. Health insurers will have to rebate a percentage of the fat stacks they have continued to extract this year, from Americans who aren’t using the coverage they pay for, to employers or individuals who purchased policies. If you buy your insurance on the ACA exchange, you may get a few hundred dollars from your insurer—a windfall that likely won’t let you meet your deductible. (You also might not reap the full benefit until 2023: Rebates are based on a three-year period.)
But this rule also means that health insurers are incentivized not to bother negotiating lower costs with providers, and so American health care will keep on resolutely getting more expensive. Think of it this way: If you take in $100 in premiums and spend $80 on care, you keep $20. But if you take in $200 in premiums, you wouldn’t be bothered if the care you provided now cost $160, because you’d get to keep $40 for yourself. This is especially true in areas where little competition between insurers reduces the pressure on premiums. A 2017 paper from the National Bureau of Economic Research found that the MLR rule did not lower premiums, and, in fact, insurers complied with the standard through increases in “claims costs, not premium reductions,” likely “from a combination of more comprehensive coverage and reduced cost-containment effort.” Essentially, instead of lowering premiums to meet the ratio, they simply paid for more health care. Premiums have increased dramatically since 2010. Health care kept getting more expensive—but 20 percent of a bigger number is still more money. That doesn’t help consumers.
Regardless of the reason why, premiums keep going up, as evidenced by the KFF report. Health care costs keep increasing, and insurance companies are not able or willing to contain them. They have not stopped hospitals from charging inflated, arbitrary prices for procedures, or drug companies from charging thousands more for drugs in the U.S. than in other countries. Insulin costs nine times as much in the U.S. as it does in the United Kingdom, where every prescription, from ibuprofen to Humira, costs the patient £9, or $12. (Most prescriptions end up being filled for free in the U.K. because many groups of people, like the elderly and disabled, don’t have to pay. Even this low charge discourages low-income people from filling their prescriptions.)
Insurers are enjoying these boom times, but there is no guarantee that premiums will be lower next year. In some areas, they will likely be higher. In California, final rates will be approximately 0.6 percent higher next year. This is much lower than the average increase of 8.5 percent between 2015 and 2019, but it varies by region and plan: Rates for the Valley Health Plan, based in the Bay Area, where hospital concentration keeps prices high, will increase by 9 percent. In an August briefing, the Center for American Progress cheerfully reported that insurers expected to “increase premiums only modestly in 2021 coverage.” Great news: Your unaffordable health insurance that you haven’t even been able to use is only going to get slightly more unaffordable, instead of drastically more unaffordable.
Why should rates stay mostly the same when insurance companies are paying out so much less in claims? Health insurers have suggested this year that they simply cannot know what’s going to happen next year and that claims may increase in 2021 as people seek care they deferred this year, or as vaccines are administered. This is a fine argument for a profit-seeking corporation to make to shareholders and regulators: It is true that the future is unknowable, more so than ever with the pandemic, and that insurance companies’ existence depends on being able to semi-successfully predict the future. But this is equally a good argument for why health insurance companies should not exist.
A person living in the U.S. needs health insurance. (The fact that millions of people don’t have it doesn’t mean they don’t need it; it means this need has been unmet.) Because health insurance is necessary, premiums are just a regressive tax that we pay to health insurance companies instead of the government. But when you pay taxes to the government, you’re getting a squarer deal. Just imagine if the government followed the health insurance model: It would be constantly stringing you along by insisting that it couldn’t be sure if it was going to cut your taxes by 10 percent or raise them by 10 percent; it wouldn’t tell you how much your next year’s tax bill would be until October; if you couldn’t afford the surprise increase, you were out of luck; and this would happen every year until the sun goes supernova. All of this blather about uncertainty might make for good actuarial policy. But it doesn’t mean much to patients, who cannot control whether or not they have a heart attack or get hit by a bus in response to market fluctuations.
Luckily, none of these are immutable facts of the universe. We don’t have to throw up our hands and wonder why insurance companies can’t control health care costs, or why some hospitals charge 10 times as much as others, or why drug companies don’t give a shit that people keep dying because they can’t afford their medications. We don’t have to simply shrug and say, well, that’s just how insurance works. We have a very powerful machine that would allow us to fix these problems. It is called the government. We pay for it with taxes and, in principle at least, we choose the people who run it. The government can pay for health care instead of making people buy their own care—the price of which is set by a whole load of complicated financial wrangling, regulations, subsidies, rebates, and Other Bullshit—and leaving them to die if they don’t. Just pay the hospitals to provide the care with taxes, and let people go to the doctor for free. You don’t need a Wall Street Guy formula to tell you why that works.