If you saw President Obama's speech on 9.9.09, you heard him reference the medical insurance situation in the state of Alabama. Here's a rundown of what Obama said with a little analysis from WAAYtv.com:
Here is the quote : "Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, almost 90% is controlled by just one company. Without competition, the price of insurance goes up and the quality goes down."
So what company was the president talking about? And is it true?
According to a report this year from the Government Accountability Office this year, 9 out of 10 insurance holders in Alabama use Blue Cross, Blue Shield. The same report shows less than 10 companies are legally allowed to sell health insurance in Alabama.
But is that a bad thing, as the President implies?
Alabama's Deputy Insurance Commissioner David Parsons doesn't think so. In an interview with insurance industry news site "InsuranceNewsNet.com" last month, Parsons compared BCBS to Wal-Mart, saying "Over time, it's kind of like the Wal-Mart syndrome," "They offer good products at lower prices, and people gravitate to it. They out-competed everybody."
I'm not a healthcare policy wonk. I'm just a VP of HR trying to offer great benefits and keep costs in line. But here are a couple of points for those not familiar with how healthcare works behind the scenes from providers like Blue Cross Blue Shield of Alabama:
-Because BCBS of Alabama owns the market, they are able to get huge price cuts from hospitals and doctors. When I took my first company to self-insured status (for those of you unfamiliar, that means the company pays its own healthcare bills, dollar for dollar, with BCBS serving as the administrator and earning its money through an 8-10% administrative fee), I was shocked to see BCBS paying 40-50% of the retail sticker price for both office visits and procedures. Hospitals and Doctors have to accept BCBS cutting costs in this fashion since they own the market. (Much like WalMart forcing vendors to cut costs that get passed along to consumers in some fashion). If they don't agree, 90% of Alabama won't use them.
-The main grind in this situation is for fully-insured companies (meaning they pay set premiums on behalf of their employees, then face rate renewals annually), especially those with fewer than 500 employees. BCBS uses a pool formula to determine increases, which means you could pay more in premiums than BCBS paid out in claims for your company and still get a hefty increase. Like the doctors and hospitals, you have to take it because there's no one else in the market.
Again, I'm not a heathcare policy wonk, so I don't have the answer for you. I know that those who advocate a single payer healthcare system dream, in part, of having the market power that BCBS enjoys. The scary part? When the system as a whole pays out more than it takes in, someone has to pay. Can that be anyone other than the taxpayer, or the federal deficit if healthcare was nationalized? My experience with BCBS of Alabama, both in a self-insured and a fully-insured environment, says "no".
The alternative is real competition. I'd love to see some real research on what happens to pricing power related to hospital and doctor payment when 50 or more insurance companies are allowed to do business in a single state.Editor's Note: By day, Kris Dunn is the VP of People at DAXKO, a cool software firm dedicated to providing solutions to the best membership-driven organizations in America. At night, he morphs into a blogger at The HR Capitalist and the Founder and Executive Editor of Fistful of Talent. That makes him a career VP of HR, a blogger, a dad and a hoops junkie, the order of which changes based on his mood. Tweet him @kris_dunn...