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.
Float and the public option
Insurance companies fought the public option because it could reduce profits by adding competition to their near-monopolies, which have protection from anti-trust laws. Brand- name drug makers did not want it because they have fought for years to stop the government from directly negotiating with them to bring our drug prices down to the level of almost every other industrialized country. Only the government can rein in the drug monopolies, which it creates, protects and indirectly funds through public research. Hospital associations fought the public option because they know from Medicare that the government does a much better job of negotiating lower prices than the private insurance companies do.
But another big player that did not want the public option was Wall Street–waiting to get its hands on all those reserves.
The modest public option in the House bill was projected to cover only six million customers, but that still means it would have roughly $300 billion in revenue over seven years. Now that the public option has been killed, that money will instead be on private insurance companies’ books. With a public option, the funds would go directly from the government to the hospitals and doctors.
If the public option had proved to be popular and dominated the exchanges, or if Congress had made the cost-effective decision to provide a Medicare-like public program, the amount of direct government subsidies and government-mandated premiums would have been roughly $1.5 trillion. Instead, the money will alight on the books of private companies, where it will earn interest and fees.
This is why I think it will be incredibly difficult to get a public option after 2014, when the exchange system is put in place. Once Wall Street gets its hands on all the government-guaranteed investment money, it will not want to let go. Ironically, it might be Wall Street and not progressives that kills the current private insurance companies.
Future reforms
In the future, reforms and regulations will stop the insurance companies’ bad behavior by taking away all their discretion. These include risk-adjustment mechanisms to stop cherry-picking, and reforms like stronger third-party claim review.
The law fails to control cost, though, and we will need to bring down health care spending before it crushes our economy. Cost control may come in the form of single-payer or a strong public option to cut out the unneeded middlemen. But the most likely solution will be the “free market compromise” of a centralized provider-reimbursement negotiator, all-payer. This compromise will leave huge amounts of money on private books while transferring one of the last bits of the insurance companies’ work to the government.
Health insurance companies become glorified bank accounts
After adopting all-payer and tougher regulations, the private insurance companies (except integrated-care HMOs) will be left with almost no actual function. The government will provide the funding, assume the risk, negotiate the reimbursement rates and set the terms. All the money being put into the private health insurance companies by the government is now pure float. The insurance companies will be nothing more than glorified bank accounts that hold and invest government money meant for someone else.
That is when the Wall Street firms, banks, credit unions and retirement fund managers will move in to crowd out the current private insurers. There are plenty of financial institutions that already have customer service functions and would like to get in on a boring but profitable racket. Nothing sounds better than making money off investing a government-guaranteed source of revenue, while the government has taken over providing and managing the health insurance.
The great float grab
This is what I call the float grab or corporate middlemen welfare system. It starts by finding expensive things the government is doing or should be doing. The plan is to leave the government with most of the work, but come up with a way to transfer the cash from the government books to a private middleman. The idea is never to let the government directly hand money to the people and businesses that deserve it.
Therefore, the middlemen can profit from investing other people’s money and skimming some off the top. This is the basis of Medicare part D and the new health care law. With Medicare part D, instead of the government directly buying drugs from the manufacturers, it gave piles of money to private insurance companies, which then bought the drugs.
The proposed privatization of Social Security was an attempt to do this, too. Instead of the government directly paying seniors, the feds would give money to private investment companies. They’d hold onto it for a while, then turn it over to retirees. Similarly, the
hedge manger’s charter schools tax break scam is another way of making profit off of becoming an unneeded middleman for a traditional government function.
If the health-care exchanges are ever truly reformed into a working all-payer system, you will know why some start pushing for “continual coverage” for those turning 65, so they can “keep their current plans.” It will be an effort to phase out Medicare so that another big pile of potential customers can be slowly and unnecessarily put on the books of a private investment entity while leaving the government to provide the money.