Non-profit health insurance already dominates market

September 21st, 2009 | by Brian Schwartz |

John Lott makes excellent points (emphasis added):

Given all the attacks on profit-making insurance companies, what is possibly more surprising is that by far the dominant players in the “full” insurance market are non-profits. Indeed, one of the motives of the government insurance option is to take profits out of the picture. “But having a public plan out there that also shows that maybe if you take some of the profit motive out, maybe if you are reducing some of the administrative costs, that you can get an even better deal, that’s going to incentivize the private sector to do even better. And that’s a good thing,” President Obama told the nation during his July 22nd press conference.

Yet, in 29 of the 43 states that data are available for in the American Medical Association report mentioned earlier, the dominant company in the “full” insurance market is a non-profit company. In state after state, Blue Cross and Blue Shield hold the largest market share. On average, the largest non-profit hold over half of the “full” market share in those 29 states. Why add another non-profit operation to the mix?

Getting rid of profits wouldn’t make costs go down – they would go up, because without profits there would no longer be the same incentive to hold down costs. Profits are the reward that firms get for figuring out what customers want. Earl Grinols, Distinguished Professor of Economics at Baylor University and author of a new book from Cambridge University Press entitled “Health Care for Us All,” argues that “profit maximization combined with competition is the only reliable way that we know to keep costs low.”

Non-profits obtain the success they do largely because of tax and regulatory advantages offered to them by the government (e.g., somewhat higher federal taxes on for-profit corporations).

So much of the debate focuses on the supposed heavy concentration in the insurance industry and the supposed greed, costs, and inefficiencies of for-profit companies. Private insurance medical insurance is neither very concentrated nor largely for-profit.

Read the whole article: Obama’s Top 2 Most Outrageous Health Care Myths. Lott also discusses how companies that self-insure. Good to know.

(via John Goodman, NCPA)

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  • Brian Schwartz
    Response to Robert Steele McCLeary: One difference between a corporation and a government is freedom of exit. You can find a different employer without having to uproot and change where you live, etc. With a corporation you explicitly sign an agreement to work for it, and can also terminate the relationship. Not so with governments.

    On a related note it's possible to have freedom w/o democracy. For example, see this blog post:
    http://econlog.econlib.org/archives/2009/08/exi...
  • Robert Steele McCLeary
    I find it funny and ironic that many people compare some efforts by the government as "communism".
    I am reading "The Russians" by Hendrick Smith. The former communist USSR resembles life inside a modern corporation much more than life under liberal governments: Lack of free speech (confidentiality clauses), being told where to work (transfers), being spied on, unable to tell the truth about their corporation (whistle blowers and their problems), who to love. The similarities are many and disturbing. Communist china is the ultimate corporation. Government in their pocket, no unions to worry about, no regulations. Just make money.
    Liberal government, even socialism, is not as big a threat to freedom as the growing influence of corporations. They are making Constitutional freedoms irrelevant.
  • Russ Bonny
    I live in the US and have lived in Canada and the UK. That experience has allowed me to understand the tragic condition of the US health care system. I'll try to simplify this for you.

    In America I pay $300 less taxes and $300 more insurance premiums each month, aging more rapidly under the stress of never really knowing if I'm actually insured, and fearing the worst should I get sick and receive a bill that will force me to dispose of assets to pay for it. Every December I go through a bizarre process of selecting coverage for next year that is slightly worse than this year because my employer can no longer afford this year's plan.

    In Canada and the UK I pay $300 more taxes and $300 less insurance each month, and have nothing more to think about. If I get sick, there is a small co-pay, I get treatment and I never see a bill. The simple fact is that on average the British and Canadians live 3 to 5 years longer than Americans, while spending only 60% as much on health care.

    Contrary to the claims of conservative radio talk show hosts there are no long waits for essential or emergency care in Canada. There are wait times for elective services - and there should be because it reduces abuse and keeps costs down.

    I am not saying that the mythical single payer system is the answer. (For the record, no country in the world actually has a true single payer system.) Singapore has a 70% privately funded system that leaves Canada, the UK and the US in the dust. What I am saying is that Americans need to drop this arrogant facade of clinging to a free market system, that is anything but free due to a very high level of concentration, just because it is "the American way."

    Such hubris is reprehensible. There are fifty countries doing a better job of delivering health care to their citizens than America. Put aside the foolish pride and ask them for advice.
  • Brian Schwartz
    [I really should put a better comment system in place so I can reply to a specific post. Anyway...)
    Scott writes (Jan 20, 2010)

    The free market has not worked in health care to keep costs down in percentage of GDP going to health care or in preventing bankruptcies among those WHO DO HAVE HEALTH CARE.


    Scott, when did you come to believe that there is a free market in health care or insurance in the U.S.? I have a few posts about this topic:
    http://www.patientpowernow.org/tag/unfree-market/

    Surely there's a market for health care and insurance, but it's not free. Free from political controls, mandates, and prohibitions, that is.

    As for bankruptcies, some literature about the relationship between health care costs and bankruptcies, see:
    http://www.ncpa.org/pub/health-care-reform-do-o...

    A section says:
    A study claiming that more than half of all bankruptcies are caused by medical debt54 is often cited, but the claim conflicts with four decades of economic research. The label “medical bankruptcy” was applied if out-of-pocket medical bills exceeded $1,000, even though out-of-pocket expenses of the average US household were $2,182 in the year studied.55 Recalculating the study’s data, Dranove and Millenson conclude that only 17% of the sample “had medical expenditure bankruptcies.”56 Well-designed economic studies have found no statistical link between bankruptcies and health problems.57 In fact, household consumption is largely unchanged even in the face of very large medical bills.58


    In any case, I think health care and insurance are so expensive in the U.S. because of political meddling in markets, not for lack of it.
  • Scott Nolan
    The free market has not worked in health care to keep costs down in percentage of GDP going to health care or in preventing bankruptcies among those WHO DO HAVE HEALTH CARE. Asking the free-market to solve what is ultimately a social problem is 1. unrealistic and 2. not aligned with the fiduciary obligation of a corporation to its stockholders. Government involvement in health care is not "communism" and is less "socialism" than government having an exclusive right to sell spirits as it does in NC, NH and other states. Most likely in the wake of the election in MA the solution will be government action at the state level and non-profit co-op models acting without the aid of government.
  • As a physician, I know the insurance abuses. I submitted an insurance plan to the governor of my state and to president Obama that explains the problems and proposes a rather easy fix. It is obvious they don't want a fix private insurance. They are after control. They want communism.
  • Brian Schwartz
    Jay writes: "why don’t we just visit and research all the succefuly heath care plans in the world i.e. France Germany Japan Canada etc and pick and choose from them. At that time we can claim that the richest country in the world also has a heath plan that works for all citizens"

    In short, because people have the right to trade with others to obtain medical care and insurance in any way they please, so long as the transactions are voluntary. That's what a free market is: one free from mandates and prohibitions on how people may trade or relate to one another.

    In a free market a group of people could start a non-profit "Canada-style" health plan, and others could sign up if they chose. But no one would be forced to participate.
  • "Butterwell", I do not think it's that simple. I went to the Wikipedia page for Blue Cross. It says (on Nov 14 2009):
    Since the Tax Reform Act of 1986, organizations administering Blue Cross Blue Shield plans lost their full tax-exempt status. They became 501(m) organizations, subject to federal taxation but entitled to "special tax benefits.
    If you go to the reference, a Consumers Union page, you'll find:
    The new I.R.C. category subjected BCBS plans to federal taxation but recognized the unique role BCBS plans play. Under I.R.C. 5833 the BCBS plans, unlike commercial for-profit insurers, are entitled to special tax benefits.


    BC/BS's status is somewhat odd, though. A recent op-ed says:
    Blue Cross is a nonprofit, and a somewhat unique nonprofit at that.

    Plenty of nonprofits try to shape public policy and engage in lobbying. For some, that's their only purpose.

    Most, though, are supported by grants, donations or membership dues. Typically, donors and/or members make up boards that direct policy.

    Blue Cross differs from those nonprofits because its revenue comes from customers. It's a business nonprofit, and at least since the 1980s, has acted a lot like a privately held or publicly traded company.


    Then there's WellPoint. Its Wikipedia entry says "WellPoint is an independent licensee of the Blue Cross and Blue Shield Association." It looks for-profit to me, as here's an article about its profits.

    Maybe the for-profit status is on a state-wise basis. Here's a blog post about BC/BS in NJ's proposed conversion to for-profit status.

    Also, many Blue Cross/Blue Shield affiliates are members of the Alliance for Advancing Nonprofit Health Care.
  • jay brown
    Instead of listening to people with agenda pro and con why don't we just visit and research all the succefuly heath care plans in the world i.e. France Germany Japan Canada etc and pick and choose from them. At that time we can claim that the richest country in the world also has a heath plan that works for all citizens
  • Butterwell
    Blue Cross and Blue Shield have not been non-profits since the Tax Reform Act of 1986. Saying that they still are is simply incorrect.
  • Universal healthcare. More gov't control. Increased taxes. Sure sounds like communism. I'd have to say this is the sole reason my family of Drs left Canada and moved to the USA. I trust it never happens.
  • Everybody should be able to get health insurance. It is so important to be covered.
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