Facing the Death Penalty—the Medical Insurance Industry
Things are heating up in the battle for health care reform. It looked for a while that things would go all civilized on us—President Obama had a meeting with health care stake holders including the medical insurance industry. These folks folded in public like a cheap deck chair and agreed voluntarily to trim health care costs by $2 trillion in the few years. Great fanfare and warm words were exchanged and, indeed, it was obvious to everyone especially those insightful reporters from the main stream media that peace in our time was at hand. Then Hitler invaded Czechoslovakia (sorry about the Nazi metaphor, but it actually makes sense in this context).
Since then, of course, the insurance and health care industry have backpedaled at 100 miles per hour and have publicly reneged on anything that they said in that very public meeting. I think we are seeing an example of the limits of Presidential power when dealing with large, powerful interests with lots of money.
Obama tried to publicly strong arm them and like the bankers before them they said yes until they could get out of the room. We are also seeing the limits to Obama’s sometimes startling naiveté and his cooperative, collegial approach. This one is gong to get ugly folks. The medical insurance industry is looking at the death penalty.
To understand why they’re facing the death penalty you have to have some understanding of what the two options they fear most mean. The two options the medical insurance industry fears most are in order of lethality 1) single payer; 2) public insurance option. They are really very similar in many regards, but there are some fundamental differences that I’ll get to in a bit.Single Payer
Single payer is very simple and would cause the immediate death of the medical insurance industry as we know it today. Corporations would cease to have to offer any kind of health plans. Individuals would stop having to pay for company benefits. Instead, we would all start paying a much larger Medicare tax.
Single payer is Medicare without the age or disability requirement. Single payer is not free and no one has ever contended that it would be free.
However, single payer turns health care into a type of public utility. The profit motive is removed from at least the insurance portion of the equation.
Hospitals and doctors would not be going to work for the government or constrained from seeking profit. But single payer is an insurance program that the current insurers cannot possibly compete with and, trust me, they know this. Insurance companies have armies of actuaries who understand actuarial risk pools.
Single payer would result in a national risk pool. Without going into mind numbing specifics—the larger the risk pool the less impact the very ill have on the costs associated with the risk pool.
A multi-hundred million member risk pool would dwarf any risk pool that even the largest insurer represents. The net of this is that you can drop any underwriting and insure everyone without the overall impact of the sick and elderly creating an unsustainable financial model. That is because the vast majority of the risk pool is very healthy, but they too will be paying the taxes to fund single payer.
The medical insurance industry cannot compete with single payer for a lot of reasons but the size of the risk pool is probably the most significant.
The other reasons that medical insurers couldn’t compete with single payer are (in no particular order):
· No profit requirement
· No need for marketing
· Elimination of Underwriting
· Low Administrative overhead
· Elimination of competitive pressures
Essentially, because a national Medicare system has no need for many of the most costly activities associated with being an insurance company--administrative overhead goes way, way down.
Single payer is summary execution for the medical insurance industry. Here today—gone tomorrow. A hot bullet to the head.Public Option
Public option is different. This is NOT single payer. It is the establishment of a federal health insurance company. Think Federal Reserve or FDIC.
Public Option represents death to the medical insurance industry—but it is a much slower death. Due to the slower death it may be politically doable where single payer is not.
Public option has a lot of the benefits of single payer, but is a corporate/government half breed. It will be much, much easier to render the public option weak and unattractive. Note: It would take another article to detail all the ways that Public Option could be diluted, co-opted, bankrupted etc.
Public option, like single payer, creates a huge risk pool. It should, since it will be a hybrid public/private non-profit with either very low or no underwriting standards, and should have many of the cost advantages of single payer.
It will not, however, be funded through payroll taxes. The individual or company (some of these details are not set yet) would sign up with this Public Option insurance company and directly pay for it with either payroll deduction or directly from their bank accounts. Both methods of payment are likely. Those that couldn’t cover the cost would have to get government subsidies.
Since this quasi-government entity is non-profit and should acquire a huge risk pool--administrative costs will be very low in comparison to private insurers.
Again, the size of the risk pool is what makes this work. If you have 200 million insured the effect of the small percentage of the chronically ill would allow prices to very low. Since this is not a universal Medicare the highest risk population—the elderly—would remain in government funded Medicare making this risk pool even less risky. But it is the size of the risk pool that the insurers are afraid of.
Due to the low pricing and relaxed underwriting standards the Public Option Company could offer all those small and medium sized businesses-- businesses that either cannot offer health insurance to their employees or are offering it at great expense--would immediately sign up.
These companies represent the highest profits for the insurance industry. That is why they’ve lobbied so hard to keep small/medium businesses from being able join together into large bargaining units/risk pools. Take this small/medium corporate population away and a lot of profit vanishes overnight.
The larger corporations would probably also have to offer the Public Option as an alternative to their employees in the same cost sharing model in place today. If the costs were lower and the underwriting rules better (no pre-existing condition clauses even without a letter of creditable coverage) the employees would likely pick the cheaper, better option.
The end of the medical insurance industry would be in sight, but it wouldn’t be immediate.
Public option would be offering medical insurance with lower deductibles, smaller co-pays, larger coverage limits, and no pre-existing condition clauses at a much lower price than any of the current players in the insurance industry.
The public option might even be able to go back to the 90/10% and 100% hospital model that some of the older folks out there remember ( Insurance wasn’t always the horror that it is now. At one time you could get very, very sick and not lose everything. But that is a historical tale).
Even with all this many employees wouldn’t change from their existing insurance companies. People are just like that. Inertia is a very powerful force and many just don’t like change.
But the Public Option presence in the market would still represent an existential threat to the medical insurance industry. However, the looming death sentence would not be carried out with such swift brutality.
There would be time for a massive industry consolidation where risk pools would be rapidly combined and new, more competitive products could be developed and offered.
I could see health insurance lobbyists getting bills introduced that would allow small and medium businesses to join into much larger risk pools/bargaining units. The irony of that would boggle the mind.
But again, it is all actuarial numbers. The bigger the risk pool—the less impact it has if you or I develop a terminal illness or need an operation.
Fight to the Death or Graceful Surrender
Both the single payer and the public insurance option represent the end of the world as the medical insurance industry knows it. It is not that these companies cannot take all that money that they’ve made and use it to fund something else, but that is not an overnight process.
This is why it is going to get ugly. Everyone in this fight must recognize that your opponent’s back is against the wall and they are going to martial every resource at their disposal to fight this.
The end game is that this will either be a war to the death or a war with terms of surrender.
I’d advocate going for the latter. There will have to be some sort of transition offered to these companies. Or they’re going to lie, cheat, steal, threaten, and have a whole bunch of tantrums. And they’ll outspend us like you wouldn’t believe.
It is imperative that we give them a reason to surrender. If not, we will be facing scorched earth and neither party will like the result. We must give them something to live for.
Proponents of true health care reform have pointed out that these companies have lied, that their ability to even promise savings over whatever time period it was showed that the market wasn’t working, and that the only option was single payer or public insurance.
Opponents of both single payer and public option are coming flat out and saying that in either option private insurance cannot compete so these options shouldn’t be allowed onto the field.
It is true that they'll not be able to compete. Too bad. Standard econometric models break when you look at health care. Demand is infinite and is infinitely elastic. As supply grows demand growth always outpaces supply. That being the case prices inevitably go up and up and up. And that, my friends, is the crux of the matter.
This is not an economic argument. This is about delivering health care to people that need it, when they need it, and not having personal financial catastrophe as a result. Medical care doesn’t follow normal economic rules and it won’t ever do so.
The health care industry, but especially the insurance industry, continues to shovel money to health care lobbyists and stuff money into legislator’s pockets. This is something they’ve been doing for many years. In fact, many of the legal limitations the industry has championed over the years such as not allowing small businesses to join into larger risk pools and lower the cost of insurance for themselves and their employees is something that well may spell the end for them.
As they say on Wall Street, “Pigs get fat. Hogs get slaughtered…” You could ask a lot of people on the left and right, in labor and management, in the stockroom or the board room—I doubt you’d find a lot of fans of the medical insurance industry. To say that they’ve been abusive with using their money to create political clout and get measures passed that have made health insurance more and more expensive is a serious understatement. But really, did they think this would forever?Miscellaneous Goings On
· Oddly (not really odd at all) enough we’ve had another group come out with Swift Boat type ads that claim that the Canadian and the UK National Health Care systems are fundamentally broken and that everyone that lives there hates their health care systems. For some reason they stayed the hell away from the French system which is apparently so good as to disinvite criticism.
According to infomercial I saw Canadians are stampeding across our borders to access the U.S. health care system which is “the best health care system in the world” (this begs the question...if it’s so damn good then why do we all hate it so much?). Then they interviewed real Canadians that had bad experiences with the Canadian Medicare system. These Canadians, all five of them, had nothing good to say. But they were not particularly compelling.
If you look at the basic, publicly available statistics on the Canadian health system and its popularity or lack thereof the argument falls apart. That these contentions are complete nonsense has did not dissuaded the Swift Boaters for Truth any more than it did the last time (basic logic cue—you can’t infer a general case from a list of disconnected specific case and no context).
Strangely enough the creator of this infomercial is the disgraced former CEO of the HCS hospital chain—Rick Scott. Old Rick buddy was forced to resign when HCS was accused and convicted for Medicare and Medicaid fraud. HCS went on to pay the largest single corporate fine in the history of U.S. business--$1.7 billion. Some of the other guys running the show actually went to jail. How Ricky boy avoided it is not known to me and I refuse to waste my time researching the case. But Rick carries some bad karma with him and some of the more fervent supporters of health care reform consider him an amoral psychopath whose policies led to quite a few deaths and, as they say in the health care trade, negative outcomes.
I can see Rickie funding this, but coming out as the spokesman is astoundingly arrogant.
This hit piece has since been thoroughly debunked and discredited and isn’t really out there any longer.
· Then we had the national spectacle of proponents of the single payer option being arrested in Senate chambers when they stood up and very politely asked why they didn’t have a seat at the table during. I watched it. It was very polite. They are all nurses and doctors after all. Senator Max Baucus had them arrested anyway. Then they did it again. And again. They were arrested each time. When one was taken out of the chamber the next would stand up. Frankly, it was great. And while it was very polite—it was also very disruptive. Which it should have been.
· Somehow we had gone from Obama’s contention that “all options were on the table”—to only the options that the insurance industry and their allies deemed acceptable being on the table.
· A lot has changed since then. Single payer is getting a hearing at least in the House. Senator Ted Kennedy is in remission from brain cancer and has returned to the Senate. His leadership has had a major impact in the past and probably will in this instance.
· Initially, all options were supposed to be on the table including single payer. Due to the Senate and the House of Representative caving in to the money interest’s, single payer found it didn't have a seat. Due to some very courageous non-violent protest action by health care professionals committed to single payer it is now back on the table.
· Then our theoretical representation tried to kill the public insurance option. Again, outrage followed. And talk of just killing public option died out. Whether it gets watered down into non-viability remains to be seen.
· And, now Obama, Nancy Pelosi, Teddy Kennedy and others are trying to move things forward. So, there are some hopeful signs.The End Game
The war has just started. Many battles remain. But, in the end, if we as citizens do our job the medical insurance industry as it exists today will die.
It is up to all of us to exert the necessary pressure on our Representatives, our Senators, and anyone else we can think of. Talk with the owners of small and medium businesses. There is no way that they want to continue things as they are. It’s not good for them or their employees. It’s not good for large companies either, but that is another discussion.
As a starting point join with Dr. Howard Dean and sign his petition at http://standwithdrdean.com/.
Work to force all options on the table. Your voice is essential to this effort. President Obama can’t do it without you.
And don’t push for the death penalty (at least the immediate “take you out back and shoot you” death penalty ) for the medical insurance industry. They have to have some safe ground to retreat to. If they dig in and fight to the death this will just forestall any real solution.