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Sharp decline in for-profit health insurance efficiency

For-profit health care insurance in Canada is becoming increasingly inefficient



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 less and less of the  premiums in employer health insurance plans are paid out in benefits by the for-profit insurance industry.  Since 1991, the amount paid out in benefits has declined from 92% to 74% in 2011.  The rest goes for profits, administration, and other items.    

The benefit pay-out is less than required by US law - - which now requires that 80% to 85% of health insurance premiums are paid out in clinical care and quality improvement.  

While this is bad, plans purchased from for-profit insurance corporations by individuals do much worse, with benefits paid declining from 46% to 38% of premiums.  

In contrast, employers that self-insure (where employers pay claims themselves and purchase only processing services from insurance companies) do much better – with benefits equal to 95% of premiums.  In fact this is up slightly from the 94% in 1991, possibly due to increased administrative efficiency associated with information and communication technology.

The authors suggest the decline in benefit pay-out by the for-profit industry is not likely explained by increasing administrative costs, increasing reserves, or innovative methods to reduce service costs. 

They do note however that the reduction in benefit pay-out was more marked when the insurance companies demutualized (after changes to Canadian insurance law in 1997) and became owned by shareholders seeking profits rather than by insurance policy holders.  

The authors consider stronger regulation of the insurance industry and more public insurance as possible solutions.

Better methods of insurance would allow workers much stronger health care protection for the same dollars.  For employers, this inefficient insurance from the for-profit industry means they are paying much more than they need to for the health services provided.  Moreover, they are getting less and less bang for the buck with  almost every passing year.


The more efficient public health care insurance system covers 70% of health care costs. But private payments account for the remainder, tens of billions of dollars.  Private insurance achieved through employment and collective bargaining plays a very major role in these payments. 

Cost increases for employer paid private insurance have created significant challenges for employers -- and for unions in collective bargaining. 

While broader public health insurance for everyone is the best solution, that may take a while for working people to achieve.  In the interim, it is notable that self-insurance by employers leads to a much better return on premiums than insurance through the for-profit insurance industry.  

Indeed, the difference in value for money that has arisen between employer self-insured plans and for-profit insurance is nothing less than shocking.  

Photo: Steve Rhodes: Health care for all protest outside health insurance conference

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