[Dialogue] The Health Care Racket

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Op-Ed Columnist  
The Health Care Racket 
By _PAUL KRUGMAN_ 
(http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html?inline=nyt-per) 
Published: February 16, 2007
 
Is the health insurance business a racket? Yes, literally — or so say two New 
 York hospitals, which have filed a racketeering lawsuit against UnitedHealth 
 Group and several of its affiliates.  
 
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I don’t know how the case will turn out. But whatever happens in court, the  
lawsuit illustrates perfectly the dysfunctional nature of our health insurance 
 system, a system in which resources that could have been used to pay for 
medical  care are instead wasted in a zero-sum struggle over who ends up with the 
 bill. 
The two hospitals accuse UnitedHealth of operating a “rogue business plan”  
designed to avoid paying clients’ medical bills. For example, the suit alleges 
 that patients were falsely told that Flushing Hospital was “not a network  
provider” so UnitedHealth did not pay the full network rate. UnitedHealth has  
already settled charges of misleading clients about providers’ status brought 
by  New York’s attorney general: the company paid restitution to plan members, 
while  attributing the problem to computer errors.  
The legal outcome will presumably turn on whether there was deception as well 
 as denial — on whether it can be proved that UnitedHealth deliberately 
misled  plan members. But it’s a fact that insurers spend a lot of money looking 
for  ways to reject insurance claims. And health care providers, in turn, spend  
billions on “denial management,” employing specialist firms — including 
Ingenix,  a subsidiary of, yes, UnitedHealth — to fight the insurers.  
So it’s an arms race between insurers, who deploy software and manpower  
trying to find claims they can reject, and doctors and hospitals, who deploy  
their own forces in an effort to outsmart or challenge the insurers. And the  cost 
of this arms race ends up being borne by the public, in the form of higher  
health care prices and higher insurance premiums. 
Of course, rejecting claims is a clumsy way to deny coverage. The best way  
for an insurer to avoid paying medical bills is to avoid selling insurance to  
people who really need it. An insurance company can accomplish this in two 
ways,  through marketing that targets the healthy, and through underwriting: 
rejecting  the sick or charging them higher premiums.  
Like denial management, however, marketing and underwriting cost a lot of  
money. McKinsey & Company, the consulting firm, recently released an  important 
report dissecting the reasons America spends so much more on health  care than 
other wealthy nations. One major factor is that we spend $98 billion a  year 
in excess administrative costs, with more than half of the total accounted  
for by marketing and underwriting — costs that don’t exist in single-payer  
systems.  
And this is just part of the story. McKinsey’s estimate of excess  
administrative costs counts only the costs of insurers. It doesn’t, as the  report 
concedes, include other “important consequences of the multipayor  system,” like 
the extra costs imposed on providers. The sums doctors pay to  denial 
management specialists are just one example. 
Incidentally, while insurers are very good at saying no to doctors, hospitals 
 and patients, they’re not very good at saying no to more powerful players. 
Drug  companies, in particular, charge much higher prices in the United States 
than  they do in countries like Canada, where the government health care 
system does  the bargaining. McKinsey estimates that the United States pays $66 
billion a  year in excess drug costs, and overpays for medical devices like knee 
and hip  implants, too. 
To put these numbers in perspective: McKinsey estimates the cost of providing 
 full medical care to all of America’s uninsured at $77 billion a year. 
Either  eliminating the excess administrative costs of private health insurers, or  
paying what the rest of the world pays for drugs and medical devices, would 
by  itself more or less pay the cost of covering all the uninsured. And that 
doesn’t  count the many other costs imposed by the fragmentation of our health 
care  system.  
Which brings us back to the racketeering lawsuit. If UnitedHealth can be  
shown to have broken the law — and let’s just say that this company, which is  
America’s second-largest health insurer, has a reputation for playing even  
rougher than its competitors — by all means, let’s see justice done. But the  
larger problem isn’t the behavior of any individual company. It’s the ugly  
incentives provided by a system in which giving care is punished, while denying  
it is rewarded.  
_Next Article  in Opinion (5 of 13) »_ 
(http://select.nytimes.com/2007/02/16/opinion/16friedman.html) 


 
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