The Great Float Grab: How Healthcare Reform Puts Your Money in Wall Street’s Pocket

Fire Dog Lake ^ | 13 May 2010 | Jon Walker

[Lorianne]

Float is someone else’s money. It is money that should go to someone but is held temporarily by a company until it gets to the person who deserves the money. For example, when you deposit a check and the funds are not immediately available, that’s float. While temporarily holding this float, companies can make serious profits from investing it.

The federal government provides a lot of money to individuals and companies for a range of services. A big goal of the current corporate welfare system in Washington is to find new ways to inject middlemen into what should be a direct transfer of money from the government to individuals and businesses. These unneeded middlemen not only skim money off the top from the system as “fees,” they also transfer huge amounts of government money onto their books which they temporarily hold, leverage and invest until eventually sending it to the correct recipient. This process of getting the government to move large amounts of money onto a middleman’s books is the great float grab.

How the new health care law promotes float

Under this new system, health insurance companies are no longer really insurance companies. Insurance companies manage risk over a large group of payers, but this is no longer happening. Community rating, guaranteed issue, exchange-wide risk-adjustment mechanisms and the individual mandate help to take away the health insurance companies’ risk-management function. Everyone can get insurance regardless of their health status.

The government is now responsible for all the money going to the health insurance companies. This is either through direct subsidies or requirements that people and companies buy their product. Having the government say you must hand over premiums to an insurance company is essentially the same as the government taxing you an amount equal to those premiums and then giving the money to the insurance company.

The insurance companies are also no longer even spreading risk over their pool of customers. The government is doing that. Yet, instead of just handing the money to doctors and hospitals to pay for medical treatment, the new law hands it to private health insurance middlemen, who hold it and then give it to the doctors and hospitals, after skimming off the top.

Failure to negotiate lower prices

Since the health insurers are no longer dealing with risk, they could potentially justify their existence as middlemen by negotiating for lower prices from doctors, drug makers and hospitals. This is a potentially important function that should hold down cost, but even the private insurance companies have admitted they have completely failed at it. Private insurance companies simply can’t or don’t want to use their market power to negotiate. This is not completely their fault, because you can’t easily negotiate with monopolies, which predominate in the health business. There are some de facto monopolies, like a single hospital in non-urban areas that can’t economically support two similar facilities. There are also government-created monopolies, like patent-protected brand-name drugs.

Reserve management and float

So what are the private health insurance companies doing, now that they no longer manage risk?

They perform some customer service functions, fraud detection and bill processing. But most important, they hold on to and invest huge amounts of money. While recently much has been made about how the health insurance industry has invested in fast-food companies, the big story is the staggering amount of money they have to invest. Hundreds of billions of dollars are at least temporarily on the insurance companies’ books.

In a private business, this money is called reserves, but remember that private health insurance companies are no longer really insurance companies. The government is providing the sole source of funding, and the government is the one spreading the risk. So, effectively, the insurance companies are middlemen temporarily holding someone else’s money.

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[Lorianne]

Now this guy supports single payer government healthcare, but he's right about the current bill and its flaws.