Insurance Industry Seeks Reform, but Queries How Spiraling Health Care Expenses Are Due in Part to the Hefty Adminstration Costs of Insurers

Article excerpt

THERE is a perceived "bad guy" in America's health care crisis - the health insurance industry.

Hundreds of thousands of people complain of coverage dropped, prices hiked, or policies refused when needed. Doctors and hospitals bemoan the industry's morass of rules and regulations. And businesses of all sizes say the high cost of health insurance makes it difficult to compete.

The insurance industry itself points to the spiraling costs of health care, and then joins the call for reform.

"Nobody's arguing for the status quo," says Richard Coorsh of the Health Insurance Association of America (HIAA), a trade group that represents 270 commercial insurers. "We're all after the same thing, cradle-to-grave coverage for all Americans."

To accomplish that, most industry analysts agree, the health insurance industry will have to undergo a major transformation. Of the nation's estimated 1,500 health insurers, only a few hundred larger companies are expected to survive in the fiercely competitive system proposed by the Clinton administration.

"I think the bigger question is not whether the little companies will get hurt, but whether retaining them in a new system holds any advantages," says Mark Schlesinger of the Yale School of Medicine.

According to the HIAA, 277 commercial insurers, or about 20 percent of the total number, account for more than 94 percent of the $270 billion dollars spent annually on health insurance.

The remaining smaller companies fall into two main categories, neither of which is well suited to compete in a system that emphasizes managed care and universal access.

The biggest potential losers are known as "boutique insurers." These are companies that specialize in what is called "creaming." They aggressively recruit younger, healthier people into lower cost plans and shun older, potential claim filers. In that way the companies limit their own liabilities. But they increase costs to other insurers by leaving the other companies with only those more likely to file claims.

"I don't know what social utility {the boutique insurers} serve," says Edward Howard, president of the Alliance for Health Reform. "They might provide a specific service to specific people, but they create a market distortion."

Other companies expected to lose out are in the "niche" market. They offered health along with life, casualty, and other insurance. The policies are based on the fee- for-service model, where people are reimbursed whenever they get medical care.

As health care costs sky-rocketed, such traditional policies became less profitable. These companies then began questioning policy holder's medical expenses, imposing new restrictions, and increasing rates to almost anyone who made claims.

The practices helped create the web of rules and regulations that fuel administrative costs. …