"Health Care Gang of Five" Published July 25,1993 New York Sunday Times

To the Editor: Leonard Orland ("Health Reform Runs Antitrust Risk," Viewpoints, July 11) clearly cautions all of us about the importance of antitrust laws.

The economic incentives that allowed the "Gang of Five" large national insurance companies -- Aetna, Cigna, Metropolitan Life, Prudential and Travelers -- to gain wealth and power during the last 30 years are precisely those that have placed many of our citizens at unacceptable financial risk when seeking health care today. When health care costs were 3 percent of wages or less, individuals and businesses did not pay attention to the way benefits were designed or paid for by insurance companies.

Health insurance traditionally consisted of two parts: the retention and the cost of claims. The retention, in insurance language, is the amount needed to administer the program and to provide profit. The claims are the amounts paid out in benefits.The retention, for the most part, has been based on the amount of claims paid. If the retention is 10 percent of paid claims, and paid claims increase, the insurer collects more money and makes more profit. The clear incentive of the Gang of Five and others, then, was to write policies that would stimulate employers and patients to spend more.

Think back to when insurance programs insisted that the patient go to the hospital to receive benefits for simple tests like upper GI series, barium enemas and gall bladder X-rays.The hospital, insurers and doctors all benefited. The percentage of wages spent on health care increased. The insurers made more money. The Gang of Five paid doctors so generously that it was common for physicians to accept whatever they were offered, frequently forgoing co-insurance or deductibles because the payment schedules were so rich. Physicians were not told what fees would be paid. They were told only to keep billing until the fees hit the top. Then the insurer would revise fees upward to "keep pace with inflation."

The percentage of wages devoted to health care continued to grow. Certain large employers began to balk, asking for preferential treatment. The insurers saw one more opportunity -- they would move from community rating to experience rating of premiums. This meant breaking up the large insurance pools. Bigger employers would pay less, smaller employers would pay more. Eventually, everyone would pay their own actual cost and the insurer would avoid all risk. The insurance companies became very expensive administrators and cash managers, no longer willing or able to provide insurance. H.M.O.'s then came along, skimmed the healthier employees, and shifted the real cost of health care to the sicker patients who remained in the now-fragmented traditional "insurance" programs, making costs rise for everyone.

President Clinton and his advisers now seek to reward these thieves by turning over to them the management of our health. What a terrible proposal! It could permit the Gang of Five to seal the tragic demise of the finest health system in the world in only 30 short years.

STEPHEN A. KARDOS Monmouth Beach, N.J., July 13 Dr. Kardos is chief executive of Health Network America Inc., a health management firm.

This article was “on the money” in 1993 and it still is! Profit must be based on performance, not medical inflation.

The Health Gadfly