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Good Insurance Companies--an Oxymoron?

Continuing the discussion on health care -- and the lessons of 1994 -- Matthew Yglesias wonders why progressives keep talking about beating up on the insurance companies:

In reality, the main measures by which people are proposing to achieve universality -- forcing people to purchase health insurance and providing government subsidies to help people buy insurance -- aren't contrary to the interests of insurance companies at all. ... Similarly, the main measures on the table that are contrary to the interests of health insurance companies -- community rating, guaranteed issue, and public-private competition -- don't achieve universality (as Barack Obama's critics will hasten to tell you). Under the circumstances, the easiest way to get universal health care may be to not fight the insurance companies at all: just give them the mandates and subsidies they crave with none of the regulation. ... After all, a program for "universal car ownership" isn't something you'd expect to achieve by fighting the car companies.

Matt's packing a few ideas in there, but I think it's worth considering why -- in fact -- we talk about "fighting" the insurance companies at all.

The answer starts witht he fact that not all insurers are the same.  Progressives (myself included) frequently use "the insurance lobby" reference as shorthand for what is actually a very diverse set of interests.  You have large insurers and small insurers, for-profits and non-profits, companies that simply pay bills (frequently using somebody else's money) and those that get heavily involved in organizing medical care.  Not surprisingly, their attitudes about reform vary enormously. 

On one end of the spectrum, you have small, for-profit carriers whose business model basically boils down to gaming the system -- targetting relatively healthy individuals and small groups, offering them coverage at cheaper rates than they can find elsewhere, then finding ways to dump customers who run up high expenses.  These businesses absolutely hate reforms because, in a system that required community rating (charging all customers the same rates) and guaranteed issue (no exclusions for pre-existing conditions), they simply couldn't survive.

On the other end you have some large non-profits -- like Kaiser Permanente -- that have invested heavily in managing care.  And by managing care, I don't mean simply denying approval for expensive treatments, the way some large commercial carriers frequently do.  I mean trying to emphasize prevention and cost-effective treatment, while trying to take care of both the sick and the healthy. 

The trouble for Kaiser, historically, has been that it must compete with insurers who aren't so idealistic -- and so, in order to stay afloat, it's had to compromise on some of its ideals.  If you're investing heavily in preventative care while taking on all customers, you're going to have higher premiums than a company with skimpy benefits that excludes high-risk beneficiaries -- and so, inevitably, you'll lose your healthier customers to them, which will make you lose money.  A reformed system would level the playing field -- and, in theory, reward an organization like Kaiser for its good practices.

That's why, relatively speaking, groups like Kaiser have generally been pretty friendly to reform -- and, in return, reformers have been friendly to them.  Even a lot of single-payer advocates would be happy to let organizations like Kaiser continue to operate, as long as they were genuinely involved in managing care rather than simply pushing money around.

In between these extremes you have a bunch of insurers who profit from the system but could probably get along fine in a reformed one, as well.  But that doesn't mean they'll go for reform. They might hesitate for ideological reasons.  Commercial carriers are part of the business community and so, like so many other businesses, they are naturally skeptical of government intervention.  What's more, Wall Street is constantly demanding these insurers deliver high profits -- and while providing high-quality care might be profitable in some cases, it's not likely to be as profitable as gaming the system the way companies typically do now.  (My friend Matthew Holt has some good background on this here.)

At the end of the day, then, it's quite possible that the majority of insurers will be somewhere between ambivalent and downright opposed to reform.  That is why folks like me talk constantly about the need for fighting them (if only as leverage for bringing some of them to the bargaining table).

--Jonathan Cohn