Inside the Insurance Industry

August 19, 2009
Posted by Jay Livingston

Is just the threat of a public option changing the way insurance companies do business? I had to call my insurer yesterday to find out if an MRI at the place designated by my doctor would be covered. The MRI lab is in New York, my coverage is in New Jersey, so it wasn’t clear and simple. The guy I talked to was incredibly polite and helpful, checking every way he could, explaining the problem, asking if it was all right to put me on hold while he checked. He might as well have been saying, “We really, really want to keep your business.”

Meanwhile, if you had any doubts that the structural forces of the market affect health care, and not always for the benefit of the patient, check out this long interview with Wendell Potter. Potter is the former Cigna head of “corporate communications” who has been telling tales out of school, revealing what insurance companies actually do – how and why. (The “loss ratio” he refers to is the percent that the insurance company pays out to cover medical expenses. The lower the loss ratio, the higher the company’s profit. See this earlier SocioBlog post. )

As recently as fifteen years ago, the medical-loss ratio in this country was 95 percent. Since then, there’s been great industry consolidation to the point that now there are seven companies that dominate. They’re all for-profit. During the time that this consolidation, this shift to for-profit occurred, the medical-loss ratio has continued to drop. Now it’s around 80 percent. That means twenty cents of every dollar goes to something other than paying medical claims. Just fifteen years ago, ninety-five cents of every dollar went to paying medical claims. This trend is due to pressure from Wall Street. If a company misses Wall Street’s expectations—if the medical-loss ratio starts to inch up—the company will suffer. I’ve seen companies lose 20 percent of their stock value in one day by disappointing Wall Street with their medical-loss ratio.

Sightseers on the sociology tour bus will come across other points of interest in this interview.

• Social movements? The role of corporate PR in the “grassroots” reaction against health care reform. (“They’re skilled at setting up front groups to spread disinformation.” )
  
  
• Ideology? The relation between the insurance industry and Congress (“The industry has contributed so heavily to the Republicans over the years that they are pretty much assured that every single Republican in Congress will vote exactly the way they want.”)
  
  
• Social psychology? How the structure of insurance executives’ lives shapes their perceptions and misperceptions (“you get a very skewed understanding of America.”)

Potter also cites the events that led to his own apostasy (“Sicko,” a free health care expo at a fairgrounds in Virginia (“hundreds of people waiting in the rain while physicians attended to patients in animal stalls . . . ‘Is this the United States?’ ”).