By Dave Lindorff
When 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% or over $1 out of every $5 dollars spent on health care) and another $150 billion in profits (a tidy 15% 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. (These are real death panels--not the products of fevered imaginations or right-wing charlatans.)
And that $179 billion wasted on administration (Medicare, a federally-run program, only devotes 4% 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 in the front office 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%).
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% 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, but it would also mean 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. Clearly it is not being funded out of insurance company profits! 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., as well as on marketing and advertising campaigns—things, in short, 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.