Medical Insurance Death Spiral

Private medical insurance seems to be going into a death spiral. While Congress and state legislatures failed to act, Adam Smith's Invisible Hand decided to act on its own.

Even before the headlines came out, I got my family (Jan and my) medical insurance bill from "Anthem Blue Cross," which is really WellPoint once you break through the corporate unaccountability firewalls. It went up to $541 per month, from $408 per month, a 33% increase. It is a pretty minimal plan, far worse, for instance, than the one our local public school teachers have (I know from past service on the local school board for 8 years). We've had it around fifteen years, and it has never actually paid for anything, but it does limit how much we get reamed by medical service providers. In my case part of my increase may be because I recently had my 55th birthday.

Jan and I are fighting now about what to do. I am for dumping the insurance entirely, she wants to see if there is an even-higher deductible option. But she can't find out because it is a three day weekend.

The recession was the initial cause of the problem, apparently, but that does not mean that as the economy recovers rates will go back down.

Two things happened. With so many people unemployed, or trying to reduce their monthly budgets even if employed, many simply dropped their insurance. Of course, healthy people dropped; sick people did not. So there is a smaller pool of fools like me paying in to cover the sick people. In addition, many people already had the talk Jan and I had today, and already increased their deductibles. In the short run that just means WellPoint has less dollars coming in, without any significant decrease in immediate expense.

Of course the WellPoint management is not willing to forego profits for a year to break the downward cycle. In 2009 WellPoint made $2.7 billion in net income (profit for shareholders) on insurance premium revenues of $14 billion, per their January 27, 2010 press release.

But what about the future? You can depend on the politicians to do nothing. You can figure that numerous people like Jan and I are going to drop or diminish our coverage. WellPoint will increase their rates again as soon as possible. Then more people will drop out. At some point only the sick will no longer be subsidized by premiums from the well. WellPoint will take out 30% for profits and administrative costs, the maximum allowed by the state of California. So even the sick, as a group, will need to pay premiums 30% of their collective costs of care just to keep WellPoint in business.

I would not think WellPoint would be in business much longer; a few years at most. Except they have at least one other option: stop paying claims. Start rejecting claims for any and all reasons. Or, the more systemic equivalent, send out policy renewals redlining out most benefits. "For a claim to be valid, the patient must first see a doctor in our Paris, France office. Surgery is now classified as Acupuncture and is not covered if it requires sharp cutting instruments other than acupuncture needles."

In other words, a wise person would now plan for paying for your medicine as you go, unless you are a welfare bum on Medicaid or a senior citizen on Medicare. Expect nothing from the Democratic Party or the Republican Party except heartache.

Once enough of those of us who have tried working for a living, and failed, are on Medicaid, that system will collapse too. If not of itself, with the inability of the Federal Government to endlessly increase the national debt.

Of course, you could try to figure out a way to put me in charge. I would execute a few insurance company executives and owners. I would take pack all the payouts to stockholders WellPoint has made in the past ten years as fraudulent transfers, and use that money to get medical services started again. What would you do?