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How we killed health care, and how we can bring it back to life

America has at least 36 million uninsured citizens. Unpaid medical bills are the leading cause of personal bankruptcy. Approximately, 45,000 Americans die every year because they don't have health insurance. Many Americans think that they have health coverage only to have it taken away from them through a process called "rescission," which basically means your insurance company accuses you of lying on your initial questionnaire and refuses to pay. Some have estimated rescission rates to be as high as 50% for the most expensive 1% of health insurance claims. We spend 16% of our GDP on health care, the highest of any nation, and get among the worst results of any OECD country. Insurance premiums have increased more than four times the rate of inflation in the last ten years.

All this is enough to probably make you sick, (although you shouldn't get sick, because then you'd probably have to go into the American health care system), but don't worry: the American government is here to save the day.

Let's take a look at the beginning of this debacle.

The initial hope for reform was the "public option," which was a collective bargaining arrangement that was supposed to cover 130 million Americans and have rates of Medicare +5%. Initially, the Obama administration was flush with confidence, almost daring private insurers to compete with the "inefficient" government. Obama then started socializing with former GOP Congressman and current Phrma chief lobbyist Billy Tauzin, and quickly realized what was "realistic." The public option became "negotiable."

Congress started chipping away at it. The House version of the bill had a public option that would cover a maximum of 6 million people, not the original 130 million, and its rates would not be tied to Medicare. The Senate version did not even bother with a public option. Obama began backing a triggered option, which was like a public option but for only one state at a time and it would come into effect only when federal regulators said so, which of course would be never. Obama even "actively discourag[ed] Senate Democrats in their effort to include a public insurance option."

The legislative process had clearly gone off the tracks.

Loopholes were drafted into the bill. A $300 million Medicare subsidy was written into the bill for Louisiana Senator Mary Landrieu. Michigan Senator Carl Levin carved out an exemption for non-profit insurers in his state from a hefty excise tax. Vermont, Massachusetts, Pennsylvania, New York and Florida all had Medicare exemptions drawn up for them. Nebraska Senator Ben Nelson got the federal government to cover his state's portion of the expanded Medicare expenses and also struck a deal that prevented the government from subsidizing plans that cover abortions, a truly monumental concession. Utah Senator Orrin Hatch even had a provision inserted to require insurers to consider Christian Science prayer treatments as medical expenses, a provision supported by Massachusetts Senator John Kerry, whose state is headquarters to the Church of Christ, Scientist.

It wasn't enough for Congress to just add pork and favoritism into the bill. By requiring that all plans provide first-dollar coverage, Congress effectively killed Health Savings Accounts, which had allowed people to get higher deductibles in exchange for lower premiums and had doubled in popularity from 2006 to 2008. Obama worked with Delaware Senator Tom Carper to help crush an amendment that would have allowed for the cheap reimportation of pharmaceutical drugs from Canada. The amendment would have saved $80 billion for consumers and $19 billion for the federal government, but that was money Big Pharma wouldn't see, so naturally it had to be crushed. Finally, Congress permitted an amendment to allow insurance companies to place annual limits on the dollar value of medical care, as long as those limits were not "unreasonable." This amendment undermined the very purpose of insurance.

What did Congress hope would compensate for these losses? Health insurance "exchanges." The "exchange" is essentially a government entity that attempts to help insurers comply with consumer protections, facilitates enrollment and delivers subsidies. It is strictly supervisory. It supervises a sub-market within the greater health insurance market where ensurers have to abide by certain rules, such as providing mandatory levels of protection. There is an "escape clause," however, that allows insurers to act outside of this "exchange." Once they are outside of the "exchange," they can act exactly as they normally do.

The insurers outside of the "exchange" will be able to use lower prices and offer specially-tailored plans to attract the healthier, lower-risk clients, while the sicker, higher-risk clients will remain the "exchange." This is exactly what caused the health insurance "exchanges" in Texas, Florida, North Carolina, and California to fail: the healthier clients were cherry-picked out of the "exchange" by insurers operating in the regular market. Also, the insurers inside the "exchange" would have to pay as much as 4 percent of premiums in a surcharge to defray the "exchange's" overhead costs, putting them at a competitive disadvantage.

There is no financial benefit in these "exchanges" to the consumer, although there is plenty to the insurer. The "individual mandate" ensures that insurance agencies will get millions of new clients, while the "escape clause" ensures that the insurers will not have to take any clients that they consider to be too risky. Instead, the insurers outside the "exchange" can leave these clients to insurers inside the "exchange," who will surely be heavily subsidized by the government.

Ultimately, the CBO estimates premiums in the individual market will rise by 10% to 13% more under this plan than if Congress did nothing. In 2016, (the major reforms of the bill don't come into effect until 2014), the CBO estimates the lowest individual insurance premium will be $5,300, and the lowest family plan will be $15,000. Individuals will also be required to report employer health spending on their W-2's, clearly laying the way for it to be taxed. With all of these costs and with such little benefit, you'd think the media would be exposing this deception on a regular basis, but of course they do the opposite.

The issues have been so obfuscated by the media that in September only 22% of Americans felt they understood the reforms that were under consideration in Congress. The most recent CBO scoring was presented by numerous mainstream media outlets as showing "no big cost rise in premiums." They of course neglected to mention that the reason there was no appreciable increase in the cost to individuals was because 57% of the people participating in the "exchanges" would be getting subsidies, subsidies that the taxpayer has to pay for. Of course, Phrma did spend $150 million on television commercials in August, and has donated more than $19 million to federal candidates since 2007, so maybe in light of that, the media blackout makes more sense.

The real solutions to this problem are simple.

Federal laws that prevent people from going across state borders to get insurance need to be eliminated. They limit collective bargaining and competition. Collective bargaining worked so well in the 1920's that the government originally got involved in the health care market because the fraternal lodges, which over a fourth of Americans belonged to, had privately negotiated rates with doctors that were so low that the government thought the doctors needed to be "protected."

Move away from first dollar coverage. If every dollar of cost is covered by insurers, consumers have no incentive to shop for prices, which means health care providers have no incentive to price themselves competitively. Lasik eye surgery is one of the few procedures not covered by Medicare. Its prices have dropped by 30% since its introduction precisely because consumers have had to shop for prices. This, of course, is while the cost of the rest of health coverage has increased four times the rate of inflation.

Eliminate the wasteful paper-based system to keep track of patients and convert to an electronic-based system. Administrative inefficiency and redundant paperwork creates 18% of all health care waste, which amounts to $153 billion dollars a year. 14% of all health care provider expenditures are related to paperwork. This system is actually encouraged by the government because the government does not reimburse health care providers for email, telephone or electronic records keeping.

Eliminate the incentive for employer-based insurance. Government subsidies of employer-based insurance and losses stemming from payroll tax reductions exceed $200 billion annually. Studies show employer-based insurance decreases job mobility by up to 31%. General Motors alone spent roughly $5.6 billion on health care expenses in 2006, which according to them increased the price of every car they sold by $1,500 to $2,000.

Enact tort reform. The overuse of antibiotics and lab tests to protect against malpractice exposure makes up 37% of health care waste, which amounts to $315 billion a year.

Prevent fraud. Fraud makes up 22% of health care waste. This is approximately $187 billion a year in fraudulent Medicare claims, kickbacks for referrals for unnecessary services and other scams.

Break up monopolies. In Hawaii, two insurance companies control the entire market. In California, the most competitive state, two companies control 58% of the market. Outrageously, Congress actually carved out an exemption for insurance companies from antitrust laws in the McCarran–Ferguson Act of 1945, which clearly needs to be changed.

These reforms would cost virtually nothing to enact. Eliminating the paper-based records system, eliminating the tax incentive for employer-based insurance, enacting tort reform and preventing fraud would save Americans $855 billion a year alone. That's 39% of all total health care expenditures. Moving away from first dollar coverage, allowing people to go across state lines to shop for insurance, and breaking up monopolies would probably save Americans just as much. Of course, that is probably the exact reason why these reforms will be so hard to enact: they keep billions from going into the big boys' pockets.

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bornagaindem's picture
Submitted by bornagaindem on

Ha ha ha ha - it all sounded so good until you read the reforms you actually think will save health care

1) going across state lines allow insurers to cherry pick the healthiest people out of states that actually require insurers to provide a decent plan when they charge you a premium thus eliminating decent plans from existing
2) eliminating first dollar coverage- I am so glad that when you have your first stroke and heart attack that you are going to spend time shopping around for a cheaper doctor - good luck with that
3) we can eliminate the paper- but that is already part of the bill
4) eliminate incentives for employers - that amounts to a huge tax hike essentially on everyone who currently gets healthcare through especially a big employer. The advantages of the negotiating ability that big employers have is important in keeping healthcare costs down at all. And you want to make eveyone buy their own with no advantages of big customer base therefore lower prices.
5)enact tort reform - how long will you continue flogging this dead horse- texas did this 6 years ago- we still have huge healthcare costs doctors premiums for malpractice insurance only came down a small amount and now no one can sue a doctor even if he kills you by complete and utter neglect. That shoudl be a good one.
6) prevent fraud - that is the republicant fall back for everything - I agree there is fraud and it should be eliminated at every stage but the only way to really eliminate fraud is to stop paying for every procedure , put doctors on salary and pay for outcome. Your reforms do none of that.
7) break up monopolies- great idea I suggest creating a medicare for all who want to buy in, in order to get some real competition for those damn insurance companies.

oops not going to happen as long as both parties (especially Obama)are owned by big insurance and big pharma.

Submitted by lambert on

Despite the bizarre appropriation of "collective bargaining" to apply to negotiations that don't involve unions, the thought behind the words is similar to this. GMAT.

* * *

Oh, and people die from lack of health care, not lack of health insurance. Confusing the two is a standard talking point in Versailles, and Obama's rhetorical shift from care to insurance was a key inflection point in the current debacle.

Submitted by [Please enter a... (not verified) on

I don't see why collective bargaining only has to be done with unions. Unions are just groups of people.

Bornagaindem, getting rid of first dollar coverage doesn't mean people won't be covered for heart attacks. It just means not every little procedure will be covered for people. There will just be a higher deductible, if people choose that. Or there could still be a lower deductible if people choose that.

I'm not going to bother responding to the rest of your comments, because on the whole they're not worth responding to. I also don't respond to people who address me as part of "you people." You don't even know me. You just heard some trigger words and reacted to those. Pretty sad.

Submitted by cg.eye on

and a sign that a proposal is biased toward corporations, with no real desire to help the people who need health care. People don't shop for doctors; people don't compare prices at pharmacies, because they are usually in the middle of a crisis. That's why we need informed advocates to make fair decisions for us, so we can concentrate on our sick child or ourselves.

If "collective bargaining" is so swell, why eliminate the one non-union source of it people get for their insurance -- their employers? Why promote the folly of health savings accounts that still only work when a big employer negotiates a fairly-priced and -featured policy? Paying first-dollar of a crappy policy is still paying for crap.

It's all well and good for costs to go down with elective surgery -- I think that's part of the definition of a medical procedure solely ruled by market demands -- but with most non-elective procedures, we're not the people who see the benefits of lowered costs. Medicare works as well as it does because informed referees look at what doctors and hospitals charge and demand at least a small amount of accountability -- and the pain's spread across a large population of people. Letting individuals shift for themselves in a insurance market is the very antithesis of insurance -- risk pools need as many people in them as possible, and informed buyers need to negotiate for them. These superficial feints toward competitiveness and cost-cutting favor the companies most experienced in pulling populations *away* from each other, and create negotiating disadvantages.

If corporations can game the system, they will -- and asking for health insurance to be delinked from corporate buyers, and switching the contract terms from two relatively well-informed parties, to one massively informed one and a buyer who gets information from TV commercials, *is not a good idea*.

You can cloak your free-market hoo-ha in as many buzz words you like, but it won't cover up the stench of retrograde ideas repackaged as reform -- we just went through such a shitstorm, and we don't need another one, thanks.

Submitted by cg.eye on

Aastra Telecom WASHER SS 5/16-In.ID X 3/4-In.OD - SAMPLE W-2 Twin - Cordless Phone

They're right up there before "America" (just in case he deletes the evidence).

For a spammer, you're spending a lot of time hiding whatever SEO strategy you're forming for your blog. And if you're not a spammer, you're still hiding neocon strategy in some gamy sheep's clothing.

Submitted by [Please enter a... (not verified) on

"Trigger word." You have to love it. Just so that you know, France has had tort reform, and it's worked just fine for them. Go let them know that they're "neocons."

I just want to leave this up here for more intelligent people to see: "people don't compare prices at pharmacies, because they are usually in the middle of a crisis. That's why we need informed advocates to make fair decisions for us"

So, first, we have the falsehood that people only go to a pharmacy during an emergency. Joke. Then we have the idea that we need informed advocates to make choices for us. Well, then I guess every medical procedure is more complicated than Lasik and plastic surgery, which are not covered by most insurance plans. Not only that, but you have the infantilization of people to the point where they can't make a decision any more. What a joke!

Oh, and thank you of informing me of the "spam" that I left, obviously deliberately, to further my "SEO" (uh, what?) strategy. I'm actually going to take it down for everybody but you. That should reinforce your paranoia.

nihil obstet's picture
Submitted by nihil obstet on

When you get sick, do you call a doctor and say, "I have a sore throat. What will you charge to treat it?" Do you get three estimates? How do you get hold of the doctor's schedule of charges? Even if it's just for a check-up, how do you compare the costs of the labs that your blood tests will be sent to? And I just don't have the knowledge to check out the accuracy of the bills, even though I've read this how-to. In fact, I once spent three months trying to get the following questions answered by the doctor's office after I received a lab bill for some tests: "Did you order these tests, and were they performed?" I spent three effing months trying to get the questions answered, and finally paid the bill because it wasn't worth dealing with the collection agency any longer. I still don't know why the practice would not answer the questions.

Then, of course, I had to leave the practice because once you've annoyed medical staff, you really don't want them dealing with your health when you can't check their dealings.

But beyond my personal dealings with medical businesses, the U.K. has provided the best real-world study of the effects of competition on medical service delivery, because Thatcherism sought to convert the NHS to a more American model. The result was that in emergency services, hospitals adopting the competitive model had higher mortality.

Competition is fine in areas where there are few barriers to market entry, information is nearly equal between seller and buyer, neither is disempowered by externalities (like illness), and incentives line up with desired results. Health care is not such a market.

Submitted by [Please enter a... (not verified) on

Well, I think that's a good post. I can't really respond to that link about the NHS, because there's really very little information in that summary. I don't doubt that it's true, but I don't think that you can necessarily extrapolate that to the entire world. For instance, if competition were bad, why have Lasik and plastic surgery prices gone down, and from what I've heard, improved in quality?

I like your last paragraph; we're at least getting to the issues, but I have to disagree with the arguments.

There might be barriers to entry now (I really don't know, but I would imagine there are), but I think those can be removed or reduced. For instance, say a group of people wanted to contract with a dentist privately to have health insurance. Boom. You have it right there. Or maybe the doctor chooses to offer it himself, offer insurance policies for his services.

You can make the argument that won't happen as easily with cancer screening equipment, but everything takes start up capital. I think if you removed the necessity of first dollar coverage, which was actually mandatory in the Senate version of the bill, then you can remove a lot of the barriers to entry.

Information being equal. You can offer the services of advisors, something like a Consumer Reports for health care, or people who do it privately. ...I mean, I really don't think there's all that much to know about a health insurance policy. You can get coverage for a lot of extravagant things for a little money, because they're so rare. I don't see why most people wouldn't be able to make up their minds about it. Plus, when you have genuine competition, it's in people's best interests to make everything clear.

Externalities. This is the key one. Everyone seems to think that people only get insurance in an emergency. Really? Plus, if you're looking for insurance when you already have a sickness, doesn't it make sense that your insurance rate would go up? Plus, in the ideal situation, I don't think people would wait to get insurance like they do now. I think the main reason people wait or don't buy it now is because of how unclear and expensive things are right now, something we're obviously trying to end.

So, I have to disagree with you, but I thank you for not being a buffoon, or at least not a buffoon as far as I can see.

nihil obstet's picture
Submitted by nihil obstet on

Three areas of disagreement.

That you can do anything doesn't mean you can do everything. Look at the amount of time required for the consumer in a medical marketplace. Think about all the other things one has to do, according to the lectures I've gotten from market enthusiasts on dealing with life. I'm supposed to shop in the medical services market (all that forming of insurance companies, comparing providers' prices which I've been unable to do, etc.), in the household and auto insurance markets, in the retirement plan markets, in the financial services markets, in the home mortgage markets, and so on. In each of these, I'm in an adversarial relationship with people whose full-time job it is to sell necessities to less knowledgeable customers. I don't have a problem with consumer goods (including vanity medical procedures) being available through a competitive market (simple defined cost and simple defined result and totally optional), but complex necessities take time. I'm supposed to work at career with lots of extra hours, because low income would be my own fault. I should take care of my parents and/or children, because that's the personal virtue that we all ought to have. And any difficulties that I or any other US resident has mean that we've been infantilized so that we can't make a decision? No, my decision on many of these things is that I want appropriate social infrastructure that supports us all in a full life.

I want insurance to pay first dollar. One of the minor anxieties of life is that food service workers generally have no insurance and low pay. Or at least, it's usually low anxiety, but every now and then you get something like H1N1 going around and the anxiety level goes up a little. Same with child care workers who have heavy incentives to show up to work sick.

Third problem is the comparison between the health care costs and outcomes in the US and in other industrialized countries. I'm singularly unpersuaded by arguments that say, "Look, I'm logically right, even though all the real world examples prove me wrong." When that's your argument, you should re-examine your premises.

Submitted by [Please enter a... (not verified) on

Well, you seem to think that people either can't or don't have time to make their own decisions. I think people can and do. I think it will be even easier to make decisions once there is more competition, presumably, and there are harsher economic consequences for people who don't help make consumers' jobs easier for them.

First dollar coverage is fine, if you choose it. Not all people want a stubbed toe or a cough to be covered if it means paying higher premiums. Some people just want catastrophic things covered. This new legistlation prevents higher deductibles. That prevents people from shopping for price for a check up, or whatever other minor medical procedures there may be.

Third, as I said there's virtually no information in that link you gave other than saying it didn't work out well. I gave you examples of how competition has helped with price and quality. I don't see how what you're saying should make me completely ignore the examples I've given.

Aeryl's picture
Submitted by Aeryl on

Are for elective procedures, which has no bearing on real world healthcare costs that most families face, and is therefore, irrelevant to the topic at hand.

Submitted by [Please enter a... (not verified) on

You're right. Lasik and plastic surgery are completely elective while going for a normal check up or maybe getting a flu shot isn't, therefore they are completely irrelevant to the topic at hand.

madamab's picture
Submitted by madamab on

In America the employer makes the choice of insurance companies, not the employee. There is some competition at the employer level (gee, which overpriced, limiting, POS plan do I buy for my employees?), but I, as the person who is supposed to be receiving care, certainly don't get to decide which hospital or doctor to see. Hell, I've gone to pharmacies with a prescription from my doctor, and been told I can't have it because my plan doesn't cover it. (By the way, this was not eeeevil birth control - it was a sinus spray that had been covered less than a month earlier.)

With single-payer/Medicare for All, I, the person who is receiving the care and thus "the consumer" (LOL), would have a wide variety of doctors and hospitals to choose from, as well as the possibility of a primary care "medical home."

How is what you're advocating better than that?

Submitted by [Please enter a... (not verified) on

I don't see how you think what I'm advocating for doesn't give the individual choice. That's exactly what I'm advocating for. I think the elimination of employer-based insurance puts the power in the hands of the individual.

Submitted by lambert on

Fulton answers: "power in the hands of the individual." That's a feel-good ideological answer.

I think that madamab was asking what concrete material benefits your policy proposals would bring.

Even less than health insurance does health ideology deliver health care.

Submitted by [Please enter a... (not verified) on

Ug. The elimination of employer-sponsored insurance does do that, as does the move away from first-dollar coverage. Being able to go over state borders to get insurance gives the individual more freedom too.