Doug Allan | CUPE Research 

A new study from the Canadian Medical Association Journal shows sharply increasing inefficiency in the Canadian for-profit health care insurance industry.

The study indicates that a smaller portion of the premiums in employer health insurance plans are paid out in benefits by the for-profit insurance industry. The amount paid out has declined from 92 per cent in 1991 to 74 per cent in 2011, with the remaining amount going towards profits, administration, and other such items. 

This benefit pay out level is less than the one required by U.S. law. South of the border, companies are required to pay out 80 to 85 per cent of health insurance premiums to clinical care and quality improvement. While the benefit pay out level in employer plans is bad, plans purchased from for-profit insurance corporations by individuals do much worse. In these cases, benefits paid declined from 46 to 38 per cent of premiums. 

In contrast, plans under which employers self-insure (an arrangement that sees employers pay claims and purchase only processing services from insurance companies) do much better. Under such plans, benefits amount to 95 per cent of premiums. This rate has even increased slightly from the 94 per cent paid out in 1991.

The study’s authors suggest that increasing administrative costs, growing reserves, or innovative methods to reduce service costs are not the likely cause of the decline in benefit pay out by the for-profit industry. Instead, they point to changes to Canadian insurance law in 1997 that opened the door to company ownership by shareholders seeking profits, rather than by insurance policy holders. 

Looking for solutions, the authors propose stronger regulation of the insurance industry and more public insurance. Better methods of insurance would allow workers much stronger health care protection for the same dollars. They would also help employers who are paying more than they need to for the health services provided because of the inefficient insurance from the for-profit industry. These same employers are getting less bang for their buck with almost every passing year. 

Public health insurance is already helping, covering 70 per cent of health care costs. But that still leaves private payments to account for the remainder, running in the tens of billions of dollars. Private insurance plans achieved through employment and collective bargaining play a major role in these payment and cost increases have created challenges for both sides in collective bargaining. In fact, for the past 20 years, private health insurance payments per household have increased by 7.2 per cent each year.

Broader public health insurance for everyone, like a national pharmacare program, is the best solution, but it may take some time to achieve. In the interim, self-insurance by employers leads to a significantly better return on premiums than insurance through the for-profit insurance industry.