Health and Wealth BY JAMES RIDGEWAY Washington, D.C. ACCORDING TO THOSE in the know, the health care reform that Bill and Hillary Clinton are moving toward is some sort of “managed competition” formula. By tilting this way, they have won the seriously concerned attention of the big insurance companies, and with good reason: Managed competition means a bigger, better and subsidized market for them. There are many different versions of managed competition. But the basic idea is that instead of operating on their own and being reimbursed by an insurance company, health care providers under managed competition would be grouped together into networks or health maintenance organizations based in a single facility where most of their income is paid by an insurance company that collects premiums from a group of members. Thus, under managed competition, the insurance company inserts itself into the control of medical decisions, ostensibly in order to keep costs down. Medical treatments have to conform to the company’s concept of an appropriate cost/benefit ratio to be prescribed. The number of health maintenance orgahas exploded in the last decade; nevertheless health care costs have skyrocketed over this same period. One study showed the more competitors a hospital had, the higher their costs became. Two University of California researchers found that medical costs were 26 percent higher for hospitals in highly competitive areas than they were in hospitals with no neighbors. Another, more practical, problem is that if the government mandates managed competition, insurance companies will become another layer of bureaucracy. Suddenly there’s a group of people running the managed care facility, overseeing the doctors, and they are joined by yet another level of bureaucrats who oversee the bureaucrats who oversee the bureaucrats who are overseeing the doctors. So if there is a national system of managed competition there will be more health care dollars going to more administrators rather than actually providing care. A study by the Public Citizen watchdog group and a division of Harvard Medical School, which appeared in the New England James Ridgeway is a staff writer of the Village Voice, in which this originally appeared. Additional reporting by Jimmie Briggs Jr. Journal of Medicine in 1991, concluded that the United States wastes more on the health care bureaucracy than it would cost to provide health care for all uninsured Americans. For the big insurance companies, this “managed” system offers substantial benefits, primary among them a federally mandated product with federal subsidies. It’s reminiscent of the oil business: When, in the early part of this century, the infant industry was faced with a glut and declining prices, it sought federal regulation to control the surplus. The result was the oil depletion allowance, granting tax breaks for oil the companies had already sold, cheap leases for federal lands, and a small set of national policies that drove small, independent operators out of business. For the insurance business, the prospect is so enticing that it has fueled discussion within the industry of either changing or abandoning the McCarran Ferguson Act, which exempts insurance companies from federal regulation. Today the insurance industry is faced with a chaotic market. If the federal government can be persuaded to organize the market on the terms of the giants in the business, and in that process subsidize it, then what have the companies to lose? Moreover, the chances are that managed competition will drive out the little companies and further consolidate the industry. While health insurance is a small part of the overall business, for some time industry giants have not been making the money they once did by offering major medical insurance. Instead, they are busy get . ting involved in another aspect of the medical business, the profitable one of owning and operating HMOs. Although the life insurance companies were a stone’s throw from Wall Street during the great days of capital in the late 19th century, nobody gave much thought of tapping their growing wealth until the birth of the trusts. It was then that the masters of capital J.P. Morgan, E.H. Harriman, J.J. Hill, and the rest pillaged the insurance kitties to make immense private fortunes, turning the once-staid insurance companies into just another speculative sack of loot. The companies have remained locked together ever since, enduring a series of investigations and the elaborate charade of state and federal laws. In the 1930s and even as recently as the 1960s, when the late Wright Patman, chair of the House Banking Committee, made the last vain and truly populist attempt to stave off the revival of a trust movement in the form of bank monopolization, the insurance companies have remained cheek by jowl with the big banks. Through stock holdings and interlocking directorships, they were joined like fingers into a fist. Today Prudential, the largest life insurance company with assets of $148 billion, $700 billion worth of policies, and nearly 70,000 employees is also the largest health insurance company, the largest private owner of real estate, one of the largest real estate brokerages, and through its ownership of Prudential Bache, among the largest securities firms. It has been said that Prudential has so much money corning in that every day it has to figure out how to invest $100 million. The number-two life insurance company, Metropolitan Life, has $96 billion in assets and much of the same sort of spread of activities, owning a realty brokerage Century 21 along with a money management firm, an international investment bank, and health care subsidiaries. Even after the S&L scandal, we still don’t talk about who monopolizes the world of finance and how. Since Patman’s effort to publicize the workings of modern finance there’s not been a murmur from Congress or the administration Republican or Democrat. Instead, the S&L bailout changed the language: What once we called monopoly we now refer to as competition, meanwhile humbly paying out the cash to reward the scam artists who stole the money in the first place. There are nearly 6,000 insurance companies operating in the United States, about one-third of them offering life and health insurance. Despite the growing number of companies, the business is highly concentrated, with 10 large life insurance firms controlling more than $400 billion in assets, or about half of the entire industry’s assets. Insurance is such a huge sprawling business that it is difficult to comprehend. At the end of 1986 insurance companies held more than $1.3 trillion in total assets. \(Of that parison, the entire commercial banking industry held $2.1 trillion in assets. Insurance ranked fourth among all economic sectors in asset holdings, and provides over $100 billion in new funds to money and capital markets, not far behind commercial banks and federal loan agencies. Because of the unusual accounting methods employed in the insurance industry, it’s difficult to judge the profitability of the business. But according to the Insurance THE TEXAS OBSERVER 13
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