Commentary

The Best Health ‘Reform’ Money Can Buy

healthcare-reformWhen the White House or Democrats in Congress talk about health care reform, and about wanting to preserve the central role of the private insurance industry in health care, it pays to look at just what it is that they they’re so anxious to preserve.

According to the Health and Human Service’s department’s National Health Expenditures report, private insurers will pay out $854 billion in medical claims for health insurance policyholders this year. That represents about one-third of the nation’s estimated $2.5-trillion medical care bill for this year. But that’s not the whole story.

The premiums paid for those claims payments will total $1.2 trillion, which includes $179 billion in “administrative” costs (21 percent or over $1 out of every $5 dollars spent on health care) and another 150 billion in profits (a tidy 15 percent return). That is money that was paid out in premiums by individuals and by employers  (who every year are shifting more of the cost of health coverage onto employees).

A big part of that $179 billion you and your employer pay for insurance company “administrative expenses” goes to fund private “death panels” whose job, as insurance company whistleblower Wendell Potter has testified in Congress, to deny coverage to sick policyholders.

And that $179 billion wasted on administration (Medicare, a federally-run program, only devotes 4 percent of costs to administration by way of comparison), isn’t all. Doctors, hospitals and pharmacies also spend a similar sum on administrative expenses, much of it devoted to fighting to get paid by those same insurance companies.

How many of us have spent hours struggling over claims forms, and getting signatures from physicians in order to get reimbursed for care, or on the phone arguing with insurance company “customer service” people on the phone? Doctors, hospital administrators and pharmacists do the same thing. That’s why your doctor’s office has such a large staff of people who aren’t there to take your pulse or blood pressure—just to work with paper.

Insurance companies, in their discussions with investment analysts, actually refer to their payouts for patient care vs. their premium take as their “medical loss ratio,” a figure which they vow to improve by clamping down on “losses” (meaning benefits paid).

I took a look at the latest 10-Q financial statement filed by Aetna, one of the nation’s largest private health insurers. Through June 30, Aetna took in $14 billion in premiums, $10.7 billion of that amount from employers and employees, $2.9 billion more from Medicare recipients who bought a supplemental insurance plan to cover the gap in what Medicare covers, and another $400 million for handling Medicaid claims.  Aetna reports that it paid out $11.9 billion in health care reimbursements, and $2.3 billion in administrative expenses (20 percent).

By the way, this same Aetna is headed by CEO Ronald A. Williams, who earned 24.3 million in 2008 according to Forbes magazine (about the norm for insurance CEOs), as well as another $296,639 as a board member of American Express. Williams also has unexercised options on Aetna stock worth $194.5 million, according to Forbes. He owns a palatial home in Farmington, CT assessed at $1.7 million. According to Opensecrets.org, Williams has spent close to $10 million on lobbying activity for his company and the insurance industry since 2005.

Somebody tell me why this is a system we not only want to keep, but that, under proposals working their way through House and Senate, would force another 40-50 million currently uninsured people, most of them low-income, to pay into under threat of being assessed a $3800 tax penalty by the IRS.

Common sense says that if this insurance intermediary were removed from the process, besides Williams and the other industry CEOs and other executives losing their fat paychecks and bloated homes, planes and portfolios, the whole American healthcare system would run a lot more smoothly and cheaply.

I remember back in 1990, when I was working on my book Marketplace Medicine (Bantam 1992) about the for-profit hospital industry, talking to the administrator of a Canadian hospital in Ontario. He told me he had formerly worked as a hospital administrator in the US.  He reported that back then, when new less-invasive technologies, as well as reforms introduced to Medicare, had begun reducing the amount of time people were spending in hospital beds, his hospital had been able to shut an entire wing because of a declining patient census.

“But one year later, we had to reopen it to accommodate all the staff needed to deal with paperwork from the insurance industry,” he said.  That problem has only gotten worse over the ensuing two decades.  Meanwhile, this same administrator told me, “In Canada, I have only three people doing paperwork for the whole hospital: one for Canadians, and two to deal with paperwork for the occasional American tourist who gets sick or injured.”

Let’s be clear. The only reason Congress and the White House are pushing a plan that relies on the private insurance industry is that the private insurance industry is flooding the capital with money. It’s a great investment for them. If health insurers are collectively earning $150 billion in profits in a year, and it only costs them perhaps $50 million in legal bribes to keep their scam operating, they’re earning a 3000 percent return on investment!

We would all be far better off if Congress just passed Rep. John Conyers’ bill, HR 676, to expand Medicare to cover everyone. As I have explained in an earlier article, expanding Medicare would result in no net increase in taxes, and because it would eliminate insurance premiums, workers’ comp and public employee health expenses while also lowering car insurance rates, not to mention lowering the prices charged by doctors, hospitals and pharmaceutical companies, also a substantial savings for all Americans.

Some people worry that if we were all on Medicare, medical research would suffer. But this is a spurious fear. Much of the most important research in medical care and treatment is funded by the federal government through the National Institutes of Health. In fact, arguably, the profit motive leads industry to focus research on highly profitable, but much less urgent things, so we get research on cosmetic uses for Botox, but little or no research on finding a cure for Malaria or drug-resistant TB.

There may be a valid argument for competitive markets, say for cars or food production and distribution. But it should be abundantly clear by this point that when it comes to health care, the market doesn’t work. In fact, it is perverse. The end user—your and me—will never have the information needed to make a wise decision regarding either cost or quality.

Furthermore, unless we were all buying our own insurance and selecting our own doctors unimpeded by “preferred provider” or HMO lists, we are being forced to chose, if we get any choice at all, from a limited selection made available by our employers, who are motivated only by bottom-line concerns. In fact, in countries like Canada or France, which have Medicare-like single-payer systems, people have vastly more choice as to physician and hospital than any American patient.

Some people also worry that a government-run single-payer insurance system, by pushing down the reimbursements to doctors and hospitals through its monopoly position as sole paymaster, would lead to a defunding of hospitals and would drive away the “best” students from choosing the medical profession. But really, if you look at what hospitals in the current “competitive” market spend much of their money on, it turns out to be cosmetic things like fancy building exteriors, pretty rooms, etc.—things that help lure patients, but that do nothing to improve patient care.

As for future doctors, does anyone really think that having people go into medicine because of the prospect of earning millions of dollars and driving fancy sports cars results in better doctors than having people choose a medical career because of a passion to serve humanity, or a passion for research into curing disease? What changes is not the quality of the medical students, but their motivation.

All the sturm and drang in Washington and in the media over the course of health care “reform” in Washington is really much ado about nothing. We are not getting real reform.

In a replay of last year’s to-do over mess in the banking industry, we are watching our dysfunctional and corrupt government simply, to quote President Obama, “kick the can” down the road, leaving the next Congress and the next President to deal with the same disaster.

Meanwhile, tens of thousands of Americans will continue to die needlessly every year because the care they need will be denied to them by insurance companies that are focused on making as much money as possible, and by a government that has sold its soul to the lobbyists.

Dave Lindorff is a Philadelphia-based journalist. He is author of Killing Time: An Investigation into the Death Penalty Case of Mumia Abu-Jamal (Common Courage Press, 2003) and The Case for Impeachment (St. Martin’s Press, 2006). His work is available at thiscantbehappening.net

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5 Responses for “The Best Health ‘Reform’ Money Can Buy”

  1. Angela Olsen says:

    Nothing is going to happen until We, The People, take back our government from the Big Corporations who have bought and paid for it since the Republicans began their rise with the election of Reagan. I know that Democrats are guilty, too, and housecleaning needs to be done there, also.

    It makes me angry to hear our country’s much-needed health care reform phrased in terms of who needs to be sure to secure their seat (read: job) in the next election! It’s time that Congress got busy doing the work of the people and stopped worrying about holding onto their jobs. If we can get our message of why reform is required out loud enough over the lies of the opposition, they will lose their jobs in the next election anyway if they don’t vote for true reform!

  2. Dizzy says:

    As long as old people and government employees have health care, place your bets on the rich CEO’s.

    If all else fails you can beg a “Charity” for help. Eric Cantor (R) Virginia.

  3. Web design says:

    Im not certain that the White House is so much interested in preserving the central role of the insurance companies as it is interested in 1) getting a bill that will at least put us on the *path of reform*, and 2) do so with as little upheaval as possible. Perhaps #2 wouldnt have been a goal if it werent for all the other economic problems were suffering right now. Think about the outcry if we suddenly instituted single payer and all those health insurance industry people were out of a job. It just couldnt be done in our current economy. Im for single payer, btw, but I understand why Obama is hesitant to take that approach right now.

  4. Nathan says:

    I appreciate your article. I disagree with one point. I am a young physician and I firmly believe that patient’s in the 21st century are able and empowered to make the best decision about their healthcare and how their healthcare $ are spent. I would estimate 80% of my primarily elderly patients could make the best decisions on how to spend their money and this would bring common sense back to medical care, rather than the irrational “standard of care” which is highly driven by fear of tort. You see, human biology and its complexities what treatment is best for the patient cannot be determined by the proposed Committee to contain costs in the new healthcare bill, just as the HMOs financial officers do not know what’s best for the patient. It is a decision that must incorporate the patient’s needs and desires and the medical treatment options. I believe that an important part of healthcare reform would to get the patient involved in cost containment. The few patient’s I have with high deductible insurance plans and pay cash use the system very efficiently and with common sense. Creating a system where the patient asks, “Doc, how much is this all going to cost?” in our information age is a key component to incorperate to keep quality high, cost down and the flexibility we all want when we need to go to the doctor. Look at this video on YouTube that explains my thoughts. It talks about HSAs and although they are not perfect I think the model is a base to work from…my main point is to create a system where patient’s talk to their doctors about “cost”. http://www.youtube.com/watch?v=_u18teqr258&feature=youtube_gdata

  5. ruok? says:

    “I would estimate 80% of my primarily elderly patients could make the best decisions on how to spend their money and this would bring common sense back to medical care, rather than the irrational “standard of care” which is highly driven by fear of tort.” -Nathan

    Excellent point, nothing better illustrates that than those involved in that process (doctor, patient relationship). Delegating it to another authority only circumvents the individual and their freedom of choice.

    This arbitrary process, of issuing a type of “quality control” within healthcare, greatly underestimates the ability of patients to openly discuss healthcare needs with their doctor. Would it be criminal to allow Americans to make up their own minds as to whether or not they needed healthcare insurance, given their present conditions, or coerce (forcibly, if not, fine monetarily) those same individuals into purchasing healthcare insurance, that is approved (arbitrarily) by an entity, that readily will not use that required (mandated) insurance for thamselves (government).

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