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“Non-Profit” Healthcare is a Non-Solution

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Headlined to H2 9/12/09

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One definition of insanity is doing the exact same thing over and over and expecting the results to be different. Sure, there are situations controlled by random chance where different outcomes are possible. But surely we are not looking to formulate public policies based upon random chance.

This idea becomes important when discussing any use of "not for profit" entities as part of the reform of our health care system in the United States. This has been done before, and we have no good reason to believe that the eventual outcome will be any different.

It is the greatest irony that the free-market believing Republicans are claiming that "not for profit" entities sponsored by the government will have an advantage over "for profit" entities in the provision of health care and that will end up driving everybody into the care of these government sponsored "not for profit" entities. History tells us that the exact opposite is more likely to occur. We only need to examine the history of the Blue Cross and Blue Shield plans to understand this.

The Blue Cross/Blue Shield system had its roots in a 1929 effort by Baylor University to provide catastrophic hospitalization insurance for Texas teachers. People all around the country liked the idea, and soon a large number of non-profit hospitalization and physician insurance plans sprang up. The Blue Shield plans began with a California non-profit called California Physicians Service. The Blue Cross logo was derived from the logo of the American Hospital Association, with which it was affiliated to various degrees until 1972. For several decades the hospitalization and physician plans were run separately, but in 1982 the national Blue Cross organization merged with the national Blue Shield organization and state organizations similarly merged their hospitalization and physician plans.

If being a non-profit company had such tremendous market power that "for profit" companies would be driven out of the market, we might never have developed the health care crisis we have today. But in fact, the situation is the reverse: the "for profit" companies managed to use their market power and legislative influence to obtain advantages for themselves. So it came to pass that as part of the Tax Reform Act of 1986, the non-profit health care companies lost their 501(c)(3) charity statuses and were reclassified as taxable entities under section 501(m) of the Internal Revenue Code.

As a result of this reclassification, it became possible to convert a Blue Cross/Blue Shield company into a "for profit" entity, and since 1986, roughly half of the Blue Cross/Blue Shield plans across the country have converted to "for profit" status. Certain plans have converted directly to "for profit" status while others have first converted into a "mutual insurance company" and then gone through the process of demutualization. Some state Attorneys General have successfully sued the resulting "for profit" entities to recover the value of the absorbed charitable entity. Others have let the asset conversions in their states go through with hardly a whimper.

In the beginning, the management of many Blue Cross/Blue Shield plans was dominated by representatives of service providers. Gradually, control passed to consumer representatives, then to professional managers, and finally in many cases to "for profit" corporations, some of which are publicly traded on a stock exchange. Ultimately, what began as a laudable goal to provide an affordable option for sharing risk among members of the middle class morphed into just another business operation designed to extract the maximum amount of money from those who pay the fees while providing the minimum amount of benefits to the service beneficiaries. This is illustrated in the following quote from Colin Gordon's review of a book-length history of the Blue Cross/Blue Shield system:

"In their largely futile effort to hold to the principal of 'community rating,' the Blues underscored the persistent irony of private health insurance--that it was ultimately an exercise in avoiding risk rather than spreading it. In their increasingly elaborate brokering of the demands of hospitals, employers, and patients, the Blues underscored the limits of private health insurance--which quickly became obsessed with shuffling costs among the covered population and their employers and indifferent to the goal of expanding coverage."

Given the above, it is no surprise that there is little difference between how the "non-profit" and "for profit" companies within the Blue Cross/Blue Shield system operate. And in the end, any system of insurance ultimately revolves around "avoiding risk rather than spreading it." This is part of the reason why the healthcare reforms as proposed by President Obama on September 9, 2009, are doomed to fail. The strong incentive remains to avoid taking on costly risks, and nothing in the President's plan will force any company to take on anybody and everybody who applies for coverage.

The Real "Public Option"

The funds to support health care must come from payroll collections, just as do the funds to support the Social Security System and the Medicare System. These funds can be remitted back to people in the form of vouchers, similar to the Medicare System, which people can use to purchase coverage of the sort which they personally desire. The option always exists for people or companies to add money into the deal and purchase better (or more-complete) coverage at a higher price than that provided in return for the voucher. This system is, in essence, the "Medicare for all" system. A slight increase in the fees charged to everybody will ensure that all citizens and legal residents are covered.

With the funding mechanism settled, the next step is to focus on cost reductions. The greatest cost reductions achievable in the healthcare system will be obtained by making most routine care available through lesser-trained individuals, such as practical nurses. The current government regulations on drugs should be changed to provide a middle ground between "over the counter" and a doctor has to write a prescription for the patient. At a minimum, nurses and pharmacists ought to have the right to write prescriptions for a list of drugs deemed to be safe for such uses, and using such procedures to determine eligibility for such prescriptions as might be determined by the FDA. With such a system in place, doctors are freed up to treat only the more serious or difficult to diagnose cases.

We must pursue all conceivable avenues of cost reduction. I'm certain that there are many ideas for cost reductions available to choose from. Mine (above) is only one. Ultimately, though, I believe we need to move away from the "fee per service" model and move towards the "maintenance of health" model used in the United Kingdom and by Health Maintenance Organizations in the USA.

President Obama Gets A C-

The health care reform unveiled by President Obama on September 9, 2009 evaluates in my mind to a grade of no better than C-. The plan does nothing to address the huge extra costs inherent in a highly regulated health care system where only the most expensive providers can provide all but the most routine health care services. And the plan fails to ensure that every citizen and legal resident automatically has coverage, no matter what their circumstances might be. In my view, the President's plan lacks any bold initiative whatsoever. It leaves the citizenry with nothing to rally around except the problem itself. The proffered solution is not easily comprehensible by the average person to be an actual solution to the actual problems of health care in these United States.

I realize that there are political constraints on what the President can accomplish with only 59 Democrats in the Senate. But my evaluation is that it would be better for the President to introduce a bold plan centered around a "Medicare for all" system and substantial new initiatives to reduce costs. If such a plan fails to get through Congress this time, he can make it a huge campaign issue in 2010 to get the people to elect the Congress which will pass such a plan. At this point, I would rather see the President wait than push through the anemic plan he offered on September 9.

 

http://www.mrmoderate.com/

I am an early baby-boomer, growing up in Orange County California during the 1950s and early 1960s. During the 1964 election, I strongly supported Barry Goldwater, even though I was too young to vote (just 17). I still consider myself to be a (more...)
 
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I agree that Medicare for All has better chances f... by Jason Paz on Saturday, Sep 12, 2009 at 11:51:25 AM
It's laughable that they can even attempt to call ... by August Adams on Saturday, Sep 12, 2009 at 12:32:17 PM
Just because Blue Cross Blue Shield began as a non... by Guy Dwyer on Saturday, Sep 12, 2009 at 2:55:30 PM
Public Schools and the postal service are governme... by Mr. Moderate on Saturday, Sep 12, 2009 at 7:58:14 PM