Hear that great sucking sound? That’s the profits flowing out of the healthcare industry into the insurance companies’ CEO’s and manager’s coffers.

Health Care for America Now cites the American Medical Association as stating that 94 percent of insurance markets in the United States are now highly concentrated, and insurers are thriving in the anti-competitive marketplace, raking in enormous profits and paying out huge CEO salaries. Profits at 10 of the country’s largest publicly traded health insurance companies rose 428 percent from 2000 to 2007.

When I was employed in a managed care environment we were responsible for, in addition to patient care, tight “words for controlling expenses as patients traveled within or, more importantly, outside utilization review,” the code the managed care network. I didn’t personally witness many of the abuses that have made headlines. Our department had a strong and well-connected chief, followed the study-based medical guidelines of the time, and were pretty cost-effective, so the powers-that-be generally acceded to our decisions and didn’t often apply the “red pen.” The company, in exchange for accepting the risk of fixed payments (so-called “capitation”), received a fixed, age-based two-tier payment for each member per month and agreed to provide all medical care. They made their money by having substantial payments from a large number of healthy patients who didn’t access the system, as in traditional indemnity insurance. However, they had the fixed overhead of providing the offices and hospitals, most of the equipment associated with these enterprises, and a large multidisciplinary medical group with guaranteed salaries. They reduced their risk by the utilization review process mentioned above and by discounting physician salaries in exchange for providing a turn-key practice with some attractive benefits. They handled all the administrative and billing headaches and, theoretically at least, offered more predictable hours. On the down side, an extensive network of managers who might or might not be effective cost managers and who directly contributed no revenue of their own were needed to run the system. All those managers’ salaries and benefits came out of the same pool of cash generated by the physician in the battlefield at the bottom of the food chain. While the hospital staff was stymied in hiring additional hospital-based physicians by budgetary constraints, I heard of millions of dollars being pocketed by individuals in business transaction as parts of the company were sold. The yearly cost of one or two doctors would have been a small fraction of the purported profits skimmed from the system. To be fair, in its heyday in the 1980s and 1990s, managed care did help constrain some of the practice costs by resetting certain expensive and unnecessary practice patterns in existence at the time.

The percentage of patients enrolled in managed care was about 28% of all insured patients in 2001 and about 20% in 2007. It doesn’t seem likely that our salvation should or will be coming from that quarter.


NEXT: More on the insurers with a sidebar on Big Pharma


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