It has the thankless job of saying ‘no.’ But policing claims allows you to get better benefits.
Private health insurers are punching bags of choice in the Democratic presidential primary. “The insurance companies last year alone sucked $23 billion in profits out of the health-care system,” Elizabeth Warren fulminated in a June debate. Kamala Harris charged in January that “it is inhumane to make people go through a system where they literally cannot receive the benefit of what medical science has to offer because some insurance company has decided it doesn’t meet their bottom line in terms of their profit motivation.”
Insurers are unpopular because their job is to say “no.” They police medical claims for waste and encourage patients to seek care from cost-effective providers. Yet they deliver a real benefit to consumers. The clearest way to observe this is to compare traditional Medicare, where government manages seniors’ claims, with Medicare Advantage, where private insurers do.
Private Medicare Advantage plans receive a lump-sum payment for covering the standard Medicare benefit, adjusted for the medical needs of enrollees. Their bids average 10% less than the cost at which the government would cover the same package of benefits under traditional Medicare. The savings they generate relative to a benchmark help private plans fund extra benefits, such as prescription drug coverage, reduced deductibles, and dental care—which together are worth an average of $1,284 per Medicare beneficiary a year. In other words, by saying “no” to wasteful claims more frequently, Medicare Advantage can offer better benefits overall.