The Health Insurance Death Spiral

Health insurance companies are easy targets at a time when everyone is looking for someone to blame.  Who among those fortunate enough to have insurance hasn’t had a nasty disagreement with their health insurance company at some point?  These companies always seem to be headquartered in lavish buildings, and many of their executives appear to enjoy opulent lifestyles.  A New York Times editorial recently reported, “America’s five largest health insurers made a total profit of $12.2 billion last year; that was 56 percent higher than in 2008, according to a report from Health Care for America Now.”  I would guess health insurance executives have popularity ratings comparable to politicians, bureaucrats, and bankers at the moment.

Insurers probably deserve a good share of the blame for rising health care costs, but targeting the companies as the only culprits is a mistake.  The City of Albany’s premium payments over the past three years have been substantially less than the claims paid by our insurer.  The total premium amount collected by our insurer from the beginning of fiscal year 2008 through last month was $11,046,695, while claims during the same period totaled $12,250,954.  No insurance company can stay in business very long if it is paying out more in claims than it is collecting in premiums.

Paul Krugman, a Nobel Prize winning economist, recently called attention to what he describes as the “California death spiral.”  He explained in a recent column, “…cash-strapped Californians have been dropping their policies or shifting into less-comprehensive plans.  Those retaining coverage tend to be people with high current medical expenses.  And the result, says the company [WellPoint], is a drastically worsening risk pool:  in effect, a death spiral.”  Krugman suggests universal coverage is the best solution to the problem.

Higher claims and reduced premium revenue are obviously not unique to California.  The same problem is playing out on a smaller scale in Albany and will not change unless there is a substantial increase in the number of people who have health insurance coverage or a significant reduction in demand for medical service.  The problem would likely persist, however, even if both conditions were satisfied.

Medical costs continue to increase at a much higher rate than general inflation.  During the past decade, the average annual rate of increase for health care was 4.3 percent, while the Consumer Price Index (CPI) went up at an annual rate of only 2.6 percent according to the Bureau of Labor Statistics.  While costs have increased, health care outcomes have not necessarily gotten better.

Healthier lifestyle choices, a more effective insurance system, and better utilization of health care resources may all be necessary to stop the death spiral and make possible high quality, sustainable health care for all of us.

What Makes a Crisis?

I received a copy of an e-mail yesterday referring to the City’s current financial “crisis” and realized that I have not thought of our situation that way.  We have a financial problem brought about by personnel costs increasing faster than revenues over the past two years.  The problem is being addressed by cutting various, but not all, expenses and by reducing the size of our workforce.

Our current situation is not a surprise.  In a budget message I wrote three years ago, I made the following observation:  “I believe the most critical financial issue the City faces is a virtually fixed rate of growth for expenditures that exceeds the likely future growth rate in revenue in several of our funds.  My greatest concern is with the General Fund, where increasing personnel costs are pushing expenses up at a rate of something close to eight percent annually before new positions are even considered ….  We are projecting revenue growth in the General Fund of ten percent or more in this budget (2007-8); so the challenge we face is not immediate.  The problem will become serious when local construction declines.”  The action that was taken at that time increased the size of our General Fund reserves to over 20 percent of expenses, which is why, unlike many cities, we have largely avoided layoffs.

Many of the negative effects of budget reductions on employees have been and are being mitigated by voluntary retirements and unrepresented employees not receiving cost-of-living adjustments.  As I have stated and written on a number of occasions, my goal is to avoid layoffs and provide the best possible service to Albany residents with the resources we have.

It should not be surprising that almost any spending decision the City makes during a protracted recession will be questioned and criticized.  Inevitably, what some people view as frivolous, others see as essential.  We have long-established processes for resolving these differences, and we have the means to change processes we don’t like.

I can accept characterizing our current situation as a “crisis” if we acknowledge the Merriam-Webster’s Collegiate Thesaurus choice of the word “juncture” as the first synonym.  We are at a juncture that was anticipated several years ago, and we can positively influence what happens in the future with calm decision making today.  A crisis mentality that raises stress levels, sacrifices accuracy, and promotes suspicion or distrust serves no one’s best interests.

The Worst in All of Us

I learned this morning that someone has posted a video on YouTube purporting to show two contract workers “destroying” an Albany City park.  What the video really shows are two workers on riding mowers cutting the grass under very wet conditions.  Not surprisingly, there are visible muddy patches when the work is completed.  Our contractor has done a good job for the City over the past five years, and my opinion of our parks is that they are well maintained.

Nearly every day, an ever increasing number of public media are used by someone to make somebody else look bad.  In the old days, people were limited to word of mouth or perhaps a letter to the editor when they felt the need to point out the worst in someone else.  The media explosion certainly carries the benefit of bringing wrongdoing to public attention, but it also enables more sophisticated manipulation and outright deceit.

A recent video making the rounds on the Internet supposedly shows people inside a doomed jetliner following a collision with another aircraft.  The image would be horrific if it was anything other than the hoax it turned out to be.  The clip actually came from an episode of a popular, fictional television show.

Last week, a friend sent me a moving story he had apparently received in an e-mail.  I did a quick check on and found that while part of the story was true, its main point was completely undermined by additional information.

Many people, though not most in my opinion, have an interest in making government look bad.  Given the many things we ask government at all levels to do, it’s not hard to find examples of problems and failures.  It’s equally simple to illustrate the worst of business or people in general if someone is motivated to do it.  We shouldn’t ignore reports or examples of bad behavior, but we should be careful in drawing conclusions, particularly when someone is leading us to them.

I don’t know the full story of the grass cutting incident at Hackleman Park yet.  The video I saw on YouTube clearly was made with the intention of criticizing the contract workers and showing how tax dollars are wasted by government.  The person who made the video added comments, titles, and music to lead viewers to his or her point of view.  If the video were shown without commentary, I wonder how many people would share that perspective.

If the video truly documents poor performance or wrongdoing, I’m confident our Parks Department management staff will address the problem.  I also know whatever actions they take will be guided by their best efforts to see the whole picture.