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Insurance PRopaganda: Selling stupid

True story: Early in my career I worked for a life insurance company as a policyholder service representative. My specific area of expertise (and what led me into the pension business) was annuities and IRAs. The vast majority of my day was spent explaining to (justifiably) angry policyholders why their annuity was worth $225.00 or so at the end of the first year, despite the fact that they had put in $1,500.00. The explanation was simple: The policy had a front-end load of 85% of the first-year deposit. Oh, I had charts and numbers to show them that they’d actually recover that 85% in year 35 or so, and had developed quite the standard pitch for why it was actually *better* for them to eat the charges in the first year and accumulate for their retirement future.

Honestly, I believed what I told them. I had bought the company line that an 85% loss in the first year would be recovered before they retired, and that extra one-tenth of one-percent earnings credit would be worth every point of the 85% first-year load.

Anyone with a lick of financial sense will tell you this is utter nonsense. It was a money grab for a fairly young company (not going to tell you which one it was). To make things uglier, this particular product was sold to young military families who thought they were being responsible and saving for retirement. They also thought they’d have the funds available to them if they had to take them out. They did, of course. 15% of them, anyway.

What insurance companies are great at: selling stupid. They write the book on it. They work hard at it, invest a lot of money into it, and not simply to sell customers, but the public in general. They will sell you just about whatever they think you’ll buy, and if there’s any doubt that you won’t buy it, they’ll sweeten the pot with something to make you think you should buy it. Not all that different from other companies, except that insurers are dealing with serious life, death, and health decisions that affect us all on a daily basis. If you buy a crummy TV because the TV salesman convinced you it was a good deal, it just means you don’t have some bells and whistles that other TVs have. But if you invest retirement dollars, or health care dollars into a crummy product, it’s another thing entirely.

Because of my own experience, I find it very difficult to take stories like this one in today’s New York Times seriously. Evidently employees of Humana are offended that insurers are being singled out as villains in the health care reform battle.

Lisa A. Toombs, 40, a technology project manager and mother of three, said she had been taken aback by the attacks. “The way I see it,” she said, “the people who work for the insurance companies are average people. We’re not crazy lunatics running around trying to get at people.”

Well, true enough. They’re not. But they are enslaved to the policies of the company who signs their paycheck, and to be clear here, they’re also a marketing target. After all, they need buy-in from their employees on their practices, and they also use their leverage as a large employer to spread their message:

“You hear the horror stories about individuals having coverage denied, not getting full coverage, C.E.O.’s getting golden parachutes,” said Napoleon Dobbins, 57, a manager of Humana’s Medicare call center. “You don’t hear about the good, only the bad.”

The workers said they found the political attacks surprising given the insurance industry’s engagement in this year’s debate. The companies have agreed to stop rejecting applicants with pre-existing health conditions if the government will mandate health coverage, creating vast new markets.

Beyond their trumpeting of the party line (a not-so-carefully disguised agreement to take on tens of millions of captive policyholders), there is also a fear that changing the status quo will put them out of a job. This fear is reinforced by company management, who uses subtle, yet effective techniques to let employees know that any change or challenge to their ascendant place will put their own livelihood at risk.

Insurance companies always land on their feet, even when they’re playing both ends of the risk game, like AIG. There is always a new product, a new way to get a piece of the action, and they know this. As the article points out, Medicare Advantage has profited them well over the past six years.

Humana’s profit margin was 2.2 percent in 2008 on revenues of nearly $29 billion. Its revenues have more than doubled since 2004, with almost all of the growth coming from the sale of privately administered Medicare Advantage plans. Those plans now account for the vast majority of Humana’s business, a real vulnerability if Mr. Obama succeeds in cutting Medicare Advantage because of its comparatively high administrative costs.

Medicare Advantage was the Bush Administration end-run around Medicare. After failing to privatize Social Security (a disaster narrowly averted), they went for Medicare with the Part D expansion as cover for the privatization effort. Humana’s profits on Medicare Advantage aren’t unique. Every insurer credits Medicare Advantage for the larger and larger profit numbers they’re reporting. So yeah, of course they don’t want to see those reforms happen.

After all of the confusion and crazy allegations, there is this: The health-insurance-for-profit model works against the interests of individuals. The virtual lock insurers have on the “markets” work against the interests of employers, who want to provide benefits to their employees at the lowest possible cost. The healthy bottom lines of companies like Humana depend on putting a large segment of citizens in this country at their mercy. There are many models for increasing health care efficiency, while decreasing costs that don’t include padding the bottom line of large corporations. Doctors spend extraordinary amounts of money and time dealing with claims issues, from having to fill out justification for a particular prescription in triplicate to fighting for their decision to refer a patient for testing.

The purpose of this article is to gin up sympathy for the employees of these companies, who feel demonized by the debate. My attitude is that they’re victimized right alongside everyone else. They’re underpaid, overworked, stressed, and get to watch the CEO carry home millions while they struggle to make ends meet in their own homes, while receiving messages every day that reforms will cost them their jobs. It’s workplace abuse, delivered legally and subtly. While I have sympathy for them, I also have hope that they’ll be able to see beyond the messaging to what’s true.

The messengers, in this case, carry the message their handlers have given them to carry. They’ll back it up with facts and figures, just like I did. But eventually, they’ll step away and realize that the message they’re carrying is a bundle of smoke and mirrors.

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