It's Time for the End of Health Insurance

My brother is about to lose his job. He'll join the record 16 million who have started down that path in the last three weeks.

It's the only formal job in his household, so he, his wife, and my two nephews are passing through the antechamber of a fragile-by-decree democracy into its great hall.  It's in that room, with the soaring frescoed domes and neolithic stylings, that wealthy America hides its signature trap door.

The trick is failure by and of design.


The American health insurance industry weighs in at ~$1.1 trillion.You know its largest players - names like Cigna, Aetna, and UnitedHealth Group.

Health insurance remains a comfy place to play leader.  In 2017, the veritable kings atop the big 5 insurers pulled down the following digits:

Aetna - Mark Bertolini - $58.7 million
Anthem - Joseph Swedish - $26.4 million
Cigna - David Cordani - $43.9 million
Humana - Bruce Broussard - $34.2 million
UnitedHealth Group - Stephen Hemsley - $19.8 million

Averaging $36.6 million, those executives make just north of $100,000 a day.

Health insurance companies earn money because, ostensibly, they are good at figuring out how to pay for people's healthcare. How does one do that, profitably?  First, insure as many people as possible; the secret of buying risk is volume. You make many small bets selling people refuge from unlikely calamity. You spread those gambles across different geographies and genealogies, avoiding not only the sickest people, but also people grouped by a common vulnerability, whether natural disaster or disease endemic to a certain genetic population.

Then - critically - you require either a government willing to take the leftovers or a population willing to see people die because they're too poor for health insurance. American industry enjoys both.

It's time to see with newly clear eyes.

What do you gain being insured through the other customers at Aetna, as opposed to being insured by all other Americans combined? It's a mathematical near-impossibility that such a feat is cheaper when done by Aetna, unless you leave the sickest and poorest alone.

That the dollar you pay goes through Anthem or UnitedHealth before it goes to your doctor does not make your doctor a better or worse doctor. It makes executives and shareholders at Anthem and UnitedHealth rich, by way of detour.

That's it.

We are foregoing a national health insurance system simply and only to give shareholders a cut of what it costs to care for us.

In other industries, capitalism does it better. Markets make a product better fit your hand or tickle your palate. Markets possess astounding knack for matching buyers to sellers among unfathomably complex option sets.

But capitalism is not, cannot, be better at paying for a nation's healthcare. The nation itself is the ideal insurer.

Medicare and Medicaid are expensive per capita because those programs insure the oldest, sickest, and poorest Americans. And we have those programs exactly because the American health insurance industry depends upon such a failed business model that, by its own measure, it cannot profitably cover those of our neighbors.

There are more than a thousand health insurers, but about half of the United States is covered by the largest five. Of course we can run a health insurance program more cheaply than those insurers. Why? Because, where the art of the insurance game has become denial of payment, the science is volume and diversity. A single private insurer would leap at the opportunity to insure every single American because the economies of scale for such a payment system are unbeatable.

The five largest health insurers have memberships of:

UnitedHealthcare - 70 million people
Anthem - 39.9 million
Aetna - 22.1 million
Cigna Health - 20.4 million
Humana - 16.6 million

That averages to 33 million insured per company for the big 5.  Thus, privately-insured Americans are foregoing economies of scale on the order of 10x for their health insurance, which helps explain the 13% cost savings a single payer program would likely achieve.

That is the failure by design. Health insurers intend to play around with the stunning complexity of algorithmic insurance, designed to parse the cheaply-insured from the not, and leave the rest to government or gutter.

The failure of design is our collective response. The only defense we've managed for ourselves is arbitrarily clustering together. At our work places.

Of those people insured by something other than Medicare, Medicaid, or the military, 88% get it from work.

Don't switch jobs, don't strike out to start a business. And definitely do not work at a place where you must encounter other people in a time of pandemic. Because then - amidst mass unemployment - you will lose your health insurance. Failure by design says it must be so.

The trick depends on the facade of wealth being persuasive. It keeps the eyes up and aspirational so that when you lead your family into that great hall of prosperity, and the floor boards covering that trap door bend so slightly underfoot, you carry on unawares.

This all can be different.



Notes & References
1. Improving the prognosis of healthcare in the U.S., Lancet;
 https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(19)33019-3/fulltext#seccestitle140
2. Where people get their health insurance in America, Kaiser Family Foundation; 
https://www.kff.org/other/state-indicator/total-population/?currentTimeframe=0&selectedDistributions=employer--medicaid--medicare--military--uninsured&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D
3. CEO pay by company, Physicians for a National Health Program; https://pnhp.org/health-industry-ceos-compensation-in-2017/
4. Size of health insurance industry, IBIS; https://www.ibisworld.com/industry-statistics/market-size/health-medical-insurance-united-states/