Truthout, May 25, 2009
Blue Cross Millionaires Are Scared to Compete With a Public Plan
By Dean Baker
May 25, 2009, Truthout
See article on original website
The boys running the show at Blue Cross in North Carolina are running scared. They’re worried that President Obama is going to treat them like autoworkers and make them actually compete in the market. The Blue Cross boys think that they belong in the same league as the Wall Street bankers and should just be allowed to collect their multi-million dollar salaries without being forced to worry about things like competition.
The basic story is that Blue Cross of North Carolina decided to jump the gun on President Obama and Congress and start running television ads telling people how awful a public health care plan would be. According to the ads, people enrolled in the public health care plan wouldn’t have a choice of doctors, would face long waiting periods for appointments and procedures, and would not even be able to get a clerk to answer questions on billing.
That sounds pretty awful, but if it were true, you have to wonder why Blue Cross of North Carolina is so worried. After all, President Obama is not proposing that anyone would be forced to join a public plan. He just proposed that people have the option to buy into a public plan. Is Blue Cross of North Carolina really that terrified about being unable to compete with a public plan that doesn’t let patients chose their doctor, subjects them to long waits, and doesn’t answer questions about billing?
Of course if the ads being planned by Blue Cross of North Carolina were accurate then they would not be concerned about a public plan. The reason that Blue Cross of North Carolina is running the ads is that they know the ads are not true. There is no reason to think that a public plan will offer less choice, require longer waits, or provide poorer service than a private plan, like Blue Cross of North Carolina. And there are reasons for believing that a public plan might cost considerably less.
Specifically, the administrative expenses of a public plan like Medicare are far lower than the expenses for Blue Cross of North Carolina. According to its Annual Report, Blue Cross of North Carolina spent almost 15 percent of its premiums on administrative expenses in 2008. That came to more than $1.8 billion. This money would have been enough to cover the costs of insuring almost 600,000 kids through the State Children’s Health Insurance Program (SCHIP). Just five years earlier Blue Cross of North Carolina spent more than 22 percent of premiums on administrative expenses.
By comparison, Medicare spends only about 2 percent of its revenue on administrative expenses. Unlike Blue Cross of North Carolina, Medicare doesn’t earn profits and doesn’t pay high salaries to its top executives. According to the Raleigh News and Observer, Robert J. Greczyn Jr., the chief executive of Blue Cross of North Carolina, earned $3.2 million in 2007. That’s enough to pay for about 1,000 SCHIP kid years. Other top executives also drew salaries well in excess of $1 million, a pay range that exceeds the top levels in the public sector by an order of magnitude.
Given the high salaries that Blue Cross of North Carolina pays it top executives and the other administrative expenses that it bears as a result of being a private sector plan with high overhead, it is not surprising that it would be afraid of a public plan. A public plan would likely charge much lower prices, thereby pulling away a large share of Blue Cross of North Carolina’s business. Insofar as it was able to hold on to its patients, Blue Cross of North Carolina would probably be forced to lower its prices – slashing its profit margins—in order to be able to compete. This is not a happy picture for any business: fewer customers and lower profit margins.
The answer of course is tough love. We just have to tell Blue Cross of North Carolina than they will have to learn to compete. If they can’t beat out a public plan in market competition, then the public and the economy would be better served if they went into another line of business.
Bankers may have enough political power so that they can milk the government without limits. However, this may not prove to be true for the health insurers. If President Obama continues to push for a public plan, the good folks running Blue Cross of North Carolina and the other insurers may actually have to work for their paychecks.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.