What Vegas Can Teach Congress
Even Mob-run casinos knew enough to give a high percentage of their take back to the players. Sally Denton on why health insurance is a bigger ripoff than the slots.
The nation’s health-insurance industry—long a behemoth if not an outright monopoly—is now an unabashed racket, surpassing even the trillion-dollar worldwide gambling industry. Among the many startling revelations in Bill Moyers’ recent blockbuster interviews with longtime Cigna executive Wendell Potter was the fact that insurance companies are conspiring to reduce their “payouts” on medical claims. This medical loss ratio is a “measure that tells investors or anyone else how much of a premium dollar is used by the insurance industry to actually pay medical claims,” Potter said in the July 10 televised interview.
Not even the old Mob that founded Las Vegas gambling would have deigned to be so greedy as the insurance companies now stacking the deck against a health-care overhaul.
As recently as the early 1990s, 95 cents out of every dollar paid to insurance companies in premiums was used to pay claims, according to Potter, who spent more than 20 years of his professional career as an industry insider. In 2008, that percentage had dropped to “just slightly above 80 percent.” As if that 20 percent profit were not staggering enough, the Senate Finance Committee last spring was considering a 76 percent average reimbursement rate until, after fierce lobbying by insurance giant UnitedHealth Group, it settled on what Business Week has called “ a more friendly industry ratio” of 65 percent. Though the final percentage is still being debated, the possibility that 35 cents on every premium dollar might go toward corporate profits does not signal reform that favors the consumer.
Not even the old Mob that founded Las Vegas gambling would have deigned to be so greedy. While Potter is right that the medical loss ratio is “unique to the health-insurance industry,” it has a parallel in what is known in the gambling business as the payback percentage. And whether set by the Syndicate of the 1930s, ’40s, and ‘50s, or by what Nevada historian Michael Green calls “the three-piece suit Mob that has taken over” Vegas in contemporary times, anything less than 80 percent is considered cheating. In the gambling business, it is the kiss of death to get the reputation for being “a flat store,” as one old-time Nevadan called casinos that chisel. Nevada gaming authorities, eager to convince customers that the game is fair (in relative terms), set the payback ratio and even go so far as to require that the percentage be made public. Slot machines “must theoretically pay out a mathematically demonstrable percentage of all amounts wagered, which must not be less than 75 percent for each wager available for play on the device,” according to the regulations of the Nevada Gaming Control Board. (In New Jersey, the legal percentage is set at 83 percent.) Ironically, early gambling operators welcomed state regulation because it was crucial to their business to be perceived as running an honest game. “If one joint cheated, it made them all look bad,” Green said. “And they didn’t want to kill the goose that laid the golden egg.”
“Word of mouth” about generous payouts often determines the success of a gambling casino, according to Las Vegas journalist Jeff Burbank, author of License to Steal. “Customers are going to go where there are better payouts.” In the Old West, if one town’s gambling saloons were flat stores, the customer went on to the next town looking for a game on the square. In the current state of the health-care industry, there is no next town, no competition. The entire game is rigged in favor of the “house.” It is hardly a surprise, then, that the health cartel is spending more than $1.5 million a day to kill a government-run public option that would directly compete with the private sector. “They don’t want any more competition period,” Potter told Moyers. “They certainly don’t want it from a government plan that might be operating more efficiently than they are.”
Like gambling, insurance is a game of risk with a payout determined by odds. Like the bookie that sets the odds and takes the risk, the insurance underwriter calculates the odds and orchestrates the transference of risk. “There’s no such thing as a lucky gambler, there are just winners and losers,” notorious Mob boss/financial wizard Meyer Lansky said. “The winners are those who control the game…all the rest are suckers.” But the gambling analogy can only go so far, for the “players” are not gamblers but Americans facing life and death issues.
Ironically, the American insurance industry began not as a racket but as benevolent organizations to help sick people get medical treatment. In 1929, as scientific advances in disease were occurring at the same time that doctors and hospitals were charging more than most Depression-era individuals could afford, the first modern health-insurance plan was created. Baylor Hospital in Dallas formed a system that provided medical services to local organizations in exchange for a fee. The forerunner to Blue Cross, the “Blues” as it was called during the 1930s, “charged everyone the same premium, regardless of age, sex, or pre-existing conditions,” journalist Timothy Noah wrote in Slate. What began as a “quasi-philanthropic” organization has evolved into one of the most rapacious, powerful, and unregulated industries in America. “As private insurers entered the market…they rejiggered premiums by calculating relative risk, and avoided the riskiest potential customers altogether,” according to Noah.
Now, it would seem, those who are “controlling the game,” in Lansky’s parlance—the corporate executives profiting at the expense of American health—are more than willing to clean everyone out. And it’s why the “house” is throwing all its lobbyists and campaign contributions on the table in a massive bet against a health-care overhaul.
Sally Denton is a writer based in Santa Fe, N.M., and author of six books, including The Money and the Power: The Making of Las Vegas and Its Hold on America and the forthcoming The Pink Lady: The Many Lives of Helen Gahagan Douglas (Bloomsbury Press).