Thoughts on Healthcare: Private Health Insurance

Preface

Healthcare in America is something that greatly bothers me. As one of the world's superpower and one of the strongest country in the world, USA manages to perform three remarkable feats:

• Have one of the worst average wellness and lifespan among the developed countries.
• Have one of the highest government spending per capita on healthcare.
• Have one of the highest individual payer cost on healthcare.

These three factors seem almost self-contradicting and paradoxical. What is going on here? I wanted to list my thoughts on what issues may be present, and what can be done. (You can read more in detail at The Commonwealth Fund)

I decided to focus my first post on the Private Health Insurance, and what problems may be stemming from that.

Private Health Insurance

It always bothered me that health insurance in America is run by private corporations looking to make profits rather than the government. Why should it be ok that profits are made here when it doesn't actually provide any global value? All insurances do is aggregate and distribute the money, not provide more services and heal people. It feels to me that the government has a larger stake in keeping the population healthy while private corporations have larger stakes in strictly making profit.

All of the factors below make me believe that having universal healthcare system would be beneficial to the country, as shown to be working in various other parts of the developed world.

Profit margins on private health insurance

First thought, it seemed best to analyze how much profit is being made in the health insurance industry. To start, I looked up the top health insurance companies by market share, as I believe that would most accurately portray the amount of net income made by the companies.

Here are the top 11 health insurance companies by market share, which cover 50.14% of America in 2015.

Company	Market Share	Net Income 2015 (in millions USD)
UNITEDHEALTH GRP	12.20%	5,813
KAISER FOUNDATION GRP	7.51%	1,900
ANTHEM INC GRP	6.13%	2,560
HUMANA GRP	5.67%	1,276
AETNA GRP	5.60%	2,390
HCSC GRP	3.58%	1,009
CIGNA HLTH GRP	2.51%	2,077
CENTENE CORP GRP	2.10%	356
BLUE CROSS OF CALIFORNIA	1.64%	*Seems to be subset of Anthem Inc
HIGHMARK GRP	1.63%	294
MOLINA HEALTHCARE INC GRP	1.56%	143
TOTAL	50.14%	17,818

These 11 companies, covering ~50% of the population, make a net income of around 17.8 billion dollars. That may not be a lot of money by government standards, but it is definitely not an insignificant amount.

Healthcare Administrative Costs

Due to the sheer number of private health insurance companies in the US, the government spends 31% of it's healthcare expenditure on healthcare administration. That is in stark contrast to Canada, which spends only 16.7% percent of it's healthcare expenditure on the issue. As Canada's expenditure is lower in general, the discrepancy in money spent per capita is huge.

Also, the health insurance companies themselves have huge extra operating costs, far outweighing the profit made by the companies. For example, United Health had total revenue of 157 billion dollars, with operating cost of 24 billion dollars. That is over 4 times their net income, and is a significant portion of their revenue. If the health insurance companies are consolidated, we should be able to significantly reduce the operating costs, as the redundant administrative costs would be removed.

Negotiation On Pharmacy and Healthcare Costs

Another issue with having numerous small insurance companies without one collective insurance agency is the lack of bargaining power. To put simply, medical bills themselves are extremely high in America compared to the rest of the world. For the same exact treatment, Americans spend a lot more than most other countries. Here is a news article that addresses the point. 

If the health insurance and medical fees were regulated by the government, or controlled by the government, then the fees can be reduced to be more inline with the rest of the developed world.

Some argue that having expensive healthcare in America is the only way for medical research to progress, and I disagree. If that really was the case, if the money was the only reason the medical researches have been progressing so fast, then why do medical researchers not get paid so highly? Here is the reports of median salary of medical scientists, which isn't particularly high compared to other medical or engineering professions. This causes me to believe that the profit generated are sent into the pockets of investors and higher administration rather than the researchers themselves.

Conclusion

It seems to me that just by removing the healthcare companies (removing the administrative costs and applying the revenue to further treatments) we would have tens of billions of dollars, possibly even hundreds of billions of dollars (accounting for administrative costs in all the insurance companies, not just one) that can be used to treat people better and cover more people. It could also greatly alleviate the medical cost gap America has with the rest of the developed world, by allowing the country to bid for pharmacy costs more in line with them.

This is my personal opinion: it is not in the interest of the insurance companies to improve the well-being of the people. It is, however, in the interest of a country to improve the well-being of the people. I believe that something as crucial as insurance or health should be handled by a body that is interested in improving the well-being of the people. I'm not viewing the corporate as evil nor government as angelic. It merely makes sense from selfish interest point of view, that a government wants a healthy populace to become stronger, while a corporation has no such desires.