HEALTH CARE/Joan Retsinas

Capitalism 101: Lessons from Model T

Mrs. Robinson's friends advised the new graduate: "plastics." Poor advice for this millennium. Today's tip would be: "HMOs."

Consider a few of the wunderkind HMOs (reported in CBS Marketwatch, May 4).

Three years ago WellCare of New York reported a dismal profit of $11,900 -- hardly enough to prompt shareholder joy. Two years ago the company made $3.89 million -- a surge of 35,575%. Aetna of Texas trailed with a 9,721% profit surge; its profit was $4.6 million. Kaiser Foundation of Ohio came in third, with a 3,167% increase.

These are not anomalies. Weiss Ratings, which has tracked more than 500 HMOs' bottom lines since 1995, has charted the kind of curve that thrills shareholders. From 1995 to 1998, HMOs as a whole lost money -- plastics were a much better bet. In 1997, the firms lost $530 million. But 1999 marked a turnaround: Since then, profits have soared. In 2003 those HMOs netted $6.7 billion, compared to $4.4 billion in 2002.

This is good news for investors, and good news for the executives responsible for the meteoric spikes in earnings.

For the rest of us -- patients and would-be patients -- the news is not so good. HMOs have adopted the Mercedes model of capitalism: a luxury product, sold to an elite stratum. The profitable HMOs have been raising premiums, even while risking lower enrollment.

Most workers have noted steadily rising premiums; the unfortunate ones have seen double-digit premium increases over these last few years -- the same years of super-profits for the HMOs. Predictably, the rise in premiums has spurred an exodus of enrollees, as some workers, as well as some firms, have decided that health insurance is too expensive a perk.

American capitalism, however, has thrived under a different model: the Model T. Henry Ford created not just a basic car, but, just as crucially, a basic consumer. Ford's competitors were designing high-price cars that sold to a wealthy stratum. Ford's genius lay in marketing a cheaper car to lots of people. Today's economics texts ho-hum the notion as elasticity of demand. But in Ford's day, the notion of turning ordinary Americans (like those working in Ford plants) into motorists was dramatic.

Most recently, Sam Walton, the father of Wal-Mart, followed in those footsteps. Wal-Mart, and stores like it, sell inexpensive products to the masses -- and because of this merchandising, all Americans, not just the wealthy, belong to the consuming class. While it is fashionable to deplore the employment policies of Wal-Mart, their employees can at least afford to shop there. In contrast, service employees at upscale boutiques can rarely afford to buy anything at their workplaces.

Some praise America as a land of mass-marketing. After all, it is not just the wealthy who can dine at restaurants, spruce up their homes, go on vacations and eat from a cornucopia of produce. The mega-chains -- McDonald's, Home Depot, Motel 6, supermarkets -- have made fortunes by selling inexpensive products to lots of people.

Even plastics, the industry, became extraordinarily profitable because plastics, the product, became extraordinarily cheap.

How disappointing that HMOs have abandoned the Model T, making health insurance into an expensive Mercedes-type product! And how ironic that our Congressional leaders, as well as our president, are so keen for the private sector to manage health insurance for Medicare and Medicaid. If private-sector HMOs get a Congressional green light to make further inroads into Medicare and Medicaid, we will see more ebullient shareholders and more millionaire executives. We will also see higher costs.

Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email

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