Most of us are using the venacular "health insurance industry" when it is not really insurance at all. I argue that the industry has become so corrupted that it cannot be called insurance anymore. A more descriptive term would be a scam or outright fraud.
Sadly for all Americans, the health insurance has become a scam. It is the equivalent of the numbers and gambling rackets of organized crime syndicates. And just like those syndicates we need to go after the thugs running outfits like UnitedHealth, etc.
While the GOP is trying to cloud the issue of health care reform with lies and distortions, we need to revisit what insurance is supposed to be versus what it is today. Greed has perverted the industry and it has become a parasitic racket through the actions of insurance executives and their enablers in congress. Forgive me if I make this too simple, but I think it is required. Also, I am not an insurance expert so if I miss the mark in some technical matters bear with me.
The concept behind insurance of any kind is the pooling or aggregation of risk. It could be any kind of risk. According to Wiki it started at the dawn of man, but the type of insurance we are generally familiar with started with merchants in the Renaissance period. Basically, the merchants would contribute to a fund that would be used in the event of a loss of a ship and its contents, etc. If a loss occurred, the fund which would be used to re-imburse the damaged party for his loss. It was adopted because each contributor (subscriber in today’s terms) knew that if he suffered a catastrophic loss, he could be completely wiped out, so it made sense to cooperate in sharing risk. In other words, each member of a large group paying a small amount of money to protect against being completely wiped out was seen as being a good thing. This was usually done within a guild, or other organization, that had some reason to exist as a community and where protection of certain public goods was recognized as an important contributor to its overall health. In the US the first type of insurance was for the risk of fire. Ben Franklin actually engaged in setting up a fire insurance company in Philadelphia called a contributorship.
In essence, pure insurance of any kind is by its very nature done within a collective and is intended as a public good to protect against risks to the members of that collective. And here is the first really interesting feature of insurance. In it purest form, it is communal in the sense that the members of a collective are contributing to the general welfare of the community so that no member of that community is suffering the full burden of some loss and the monetary fund is controlled by the collective. Eventually associations were formed to collect and disburse funds on behalf of the members or shareholders, to assess risks, and to use specialists to advise members on how to reduce risks. The members made policy and administered the organization. There are still groups that operate this way. For example, some fraternal organizations, and religious sects do this. The notion of profit is not a consideration in these organizations nor should it be.
Eventually, of course, health insurance companies came into being. Most of them were non-profit shareholder based entities, and the corporate arrangement was used for convenience. As long as the shareholders were the same people as the subscribers, these were not too problematic since there were no conflicts of interest. An example is the old Blue Cross. The subscribers and the shareholders are the same people so the organization is run for the exclusive benefit of the subscribers.
When I was growing up, I was enrolled in numerous health insurance plans through my parents and eventually on my own. And for most of that time these companies have been non profit entities, like Blue Cross. In fact, Blue Cross was a great success which attracted the attention of private, for profit companies looking at the health care sector as an opportunity. But unlike Blue Cross (and others) who charged the same rate for all subscribers which was genuine risk pooling, they began segmenting the market by perceived risk to their bottom line and priced their product accordingly. They began targeting young people and companies populated with younger people who are at low risk of serious illness with lower rates. This in turn started forcing the non-profits to play the same game as more people moved to private plans. Of course, that meant that people who were sick or at risk began having to pay higher rates. The real problems were just beginning and were the direct result of interests of the subscribers (who were expecting reasonable rates and reliable coverage) being in competition with the interests of shareholders (who were increasingly institutional investors, and not individuals) demanding ever increasing profits.
It was no contest once stock options became the main form of compensation for insurance executives who began putting their self interest ahead of everything else. The words health insurance are now a misnomer and what is currently going on has nothing to do with real insurance or the original purpose of insurance. The activity of taking premiums paid in good faith from subscribers in order to pay clerks to find ways to deny coverage is now a scam, run by greedy executives, who sole interest is to line their pockets by minimizing what they call medical loss ratio. This is the ratio of total claims paid to total premiums paid. This index is used by wall street to judge the effectiveness of management in the "health insurance" industry. In other words, they are judged by how effective they are at screwing subscribers. And they have been successful. The medical loss ratios have gone from 95 percent in the mid-90’s to less than 80 percent today. That means that out of every dollar paid in premiums these "insurance"companies used to pay out 95 cents in claims. And now, they pay out less than 80 cents.
What happened to the other 15 cents you ask? Part of it is the millions paid to lobbyists that are ginning up the teabagger protests at townhalls. Part of it is the bonuses being paid to the clerks for denying care. And of course a big part of it is the executive pay. A good example of the latter is William McGuire former CEO of UnitedHealth. He was paid a total of $1.7 billion in compensation during his tenure of about 14 years until he became an embarrassment by fraudulently backdating stock options to benefit himself even more and left the company in 2006. That’s about $60,000 per hour based on a normal work week. Another use of the extra money gained by denying claims was cash used to acquire other companies many of which were former non-profits like Blue Cross and Blue Shield. Now the industry is dominated by for profit companies. In fact, seven of them account for the majority of the activity and in many states there are only two or three companies to choose from. This is not "insurance". In polite terms, it is a parasitic monopoly run by thugs who are every bit as brutal as Al Capone was in his day. They use bribery to get congress to protect them, they use lies and intimidation to muck up the debate process, they use the free market to justify their greed. One difference is they don’t use guns to kill. They use spread sheets for that. How do we tolerate the existence of these companies? No wonder every other industrialized country has adopted other ways of protecting their people from loss resulting from sickness or accident.