Philadelphia Reflections

Heath Insurance Companies Reach for the Brass Ring

In the light of future developments, we might someday look back on the University of Pittsburgh as the place health insurance stepped over a line and merged group practices with health insurance companies. It's true that was somewhat the way the first Blue Cross in Houston, Texas, had been organized, although it eventually split into component parts. It's the thought running through closed-panel insurance that this might be an easy way to circumvent antitrust laws because vertical integration is no longer considered a per se violation. Although, as mentioned earlier, it isn't necessarily a good thing either, and it isn't immune to a trial of the facts.

It has certainly aroused violent discomfort among excluded competitors in allied industries, to allow mediation control to fall into the hands of a corporation which could profit from the favoritism. Better to conduct arms-length transactions; the regulator should not profit from its own decisions. No law exactly says this should be so; the customers just like it better. And indeed Pittsburgh was the location of the defining court case, decades ago, where non-profit organizations were declared exempt from antitrust suits, just as Philadelphia had the first case which declared an end to charitable immunity. Until someone re-litigates these cases in a changing environment, these old court decisions retain a particularly large impact on local thinking.

Red tape is always expensive, and right now high costs are a challenging problem. Furthermore, big business is currently paying the bill, and big business would like to be satisfied on the point. That raises another historical point. Henry Kaiser gets credit for inventing the employer-based tax exemption, but the issue was rampant in all of the steel industry, which was often the leader in such innovations. The steel industry has pretty well abandoned America and gone to the Far East except for steel made out of scrap. The health insurance companies traditionally jumped at the command of the big employers, but maybe there is an opportunity for a revision of leadership in the industrial unions, particularly in steel. But while it may well be true this political vacuum has been filled with new leadership, it is likely some old traditions persist. The bitterness of the Molly Maguire era was thought to have ended a century ago, but if your ancestor was hanged or assassinated, the legend lives on. Sounds sort of like the Balkans, doesn't it? Some people in Bosnia are still endorsing genocide in retaliation for Thirteenth-century church burnings.

Red tape is always expensive.

Based on reasonings of this sort, it is fair to conclude that even if the big business (or big government) changes its mind about the ultimate outcome, this kind of behavior may or may not change. Uncertain of the eventual outcome, both providers and vendors of care may think it is better to leave the matter alone. And if someone else pays the bill, someone else may decide to change the system of utilization control. Through a convoluted history in several steps, the University of Pittsburgh has formed a large salaried group practice and merged it with the captive teaching hospital at one end, and the captive health insurance company at the other. Pennsylvania is a large state with rather wide sociological and industrial differences, but it is only natural that the other medical schools, hospitals, physician groups, and insurance companies would worry that this system might migrate into their neighboring territories. At the very least, rearrangements on such a large scale would be expensive and complicated. And not necessarily beneficial to the common good.

In case the reasoning isn't clear, let us restate the argument which was persuasive to the United States Supreme Court in the case of State Oil v. Kahn . As conglomerates acquire new businesses, they find they are not particularly good at managing a few parts of the whole. It is a failure in those defective components, which brings the whole conglomerate enterprise, down.

Companies may merge across traditional occupational boundaries, for a variety of reasons. One of the most questionable reasons to merge is to eliminate an unwelcome constraint on your plans, such as a new invention. Another would be to eliminate a critic whose views thwart you for reasons you do not understand. In the present situation, a medical school which supplies new physicians to a region should not be allowed to favor or control its graduates, or to enhance, protect or destroy their environment, particularly if the public suffers from the effects of it. When a medical conglomerate is allowed to profit in some of its divisions, in spite of losing money in others, the interests of the conglomerate may not be parallel with the interests of the public, in their choices of winners and losers. A mixture of taxable and non-taxable activities offer many opportunities for this to be the result.

Originally published: Sunday, April 12, 2015; most-recently modified: Tuesday, May 21, 2019