Category: Domestic issues

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Health care Humor Politics Videos

Bill Maher Explains Why Profits Don’t Need To Be Part of Our Health Care System

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Bill Maher – as is his wont – perfectly parries the conservative arguments defending our “capitalist” health care system by linking it to capitalism in general:

Now, I know what you’re thinking: “But Bill, the profit motive is what sustains capitalism.”

Yes, and our sex drive is what sustains the human species, but we don’t try to fuck everything!

There are exceptions, rule, and regulations to everything. Maher – by bringing the matter back to sex – demonstrates that the radical capitalist ideology that seeks to impose itself on every facet of life is in fact just that – an unpragmatic and radical ideology. And he makes the case that liberals and the others in the majority who are opponents of this radical capitalism that the profit motive is a good thing – just like sex drive – but like sex, it needs to be constrained in order to be productive and not destroy our society.

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Barack Obama Health care Politics The Opinionsphere

Health Care Reform: Choice and Security

[digg-reddit-me]There’s been a lot of commentary and puzzlement in the opinionsphere about exactly how Obama is trying to sell his health care reform. Part of the problem is that our system is messy – and Obama does not feel it is feasible to try to start anew. So, instead, Obama is seeking to accomplish two goals with his reform: to “bend the curve” of overall spending on health care; and to provide some form of health insurance to those Americans without it. The problem is that each of these problems seem to be inherent parts of our status quo – as the health insurance industry has sought to drive down medical costs not by incentivizing cheaper effective treatments as in most industries, but by purging the sick from its coverage. Ezra Klein describes this business model most vividly:

Private insurance is a bit like a fire department that turns a profit by letting buildings burn down.

But, as medical professionals swear an oath to provide aid to those who need it, hospital emergency rooms and the government then are forced to pick up the slack. Thus, the health insurance model does not reduce the cost of health care but merely pushes these costs onto the rest of us. This is at least part of the reason America pays about $6,500 more for health care per person – as David Leonhardt writes:

We may not be aware of this stealth $6,500 health care tax, but if you take a moment to think, it makes sense. Over the last 20 years, health costs have soared, and incomes have grown painfully slowly. The two trends are directly connected: employers had to spend more money on benefits, leaving less for raises.

In exchange for the $6,500 tax, we receive many things. We get cutting-edge research and heroic surgeries. But we also get fabulous amounts of waste — bureaucratic and medical.

One thing we don’t get is better health than other rich countries…

This isn’t the only thing causing health care costs to rise so quickly – but it is the most obviously flawed compenent of our system and one of the drivers of the escalating costs and declining level of care. And it is very unclear what benefits – if any – our health insurance model provides. It is an industry which seems designed purely to create profits for a select few and disburse costs to the population at large.

Obama has done rather well in making this case – in attacking the status quo. But the question is: What is he offering? Matt Yglesias suggested, “Health care security” and I think that’s about right. Obama expressed the same idea:

Reform is about every American who has ever feared that they may lose their coverage…

At the same time, as Ezra Klein points out, most people are currently satisfied with their health care – and want more choices rather than less. Klein suggests:

The answer, put simply, is that you don’t institute rapid change. You don’t take what people have. But you give them the option to trade up to something better. As the theory goes, if the current system really is so inefficient, and your alternative really is so much better, then the lure of lower costs and better quality will persuade Americans to switch to the new system of their own accord.

The policies to address these issues are there – in some form in the plans being discussed. The measures that deal with these should be strengthened. And the positive case for health care reform should be simple, always repeated the words choice and security:

Health Care Reform: Delivering Security and Choice to the Middle Class

[Image by dmason licensed under Creative Commons.]

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Barack Obama Health care Politics The Opinionsphere

A Leap of Faith on Health Care

[digg-reddit-me]Last week, Matt Yglesias explained how the relationship between Congress, the media, and the public doesn’t often lead to positive policy results. His these is that a policy idea do not become popular and then receive bipartisan support and those presidents who support such ideas then succeed; instead, the observing affects the observed: if an idea is promoted by the president at the head of one party and is supported by at least some of his opposition party then the media conveys this in such a way that the idea becomes popular; if instead his opponents remain solidly opposed, the idea is seen as overreach. It was this insight that allowed Bill Clinton to bounce back after his defeat on health care in 1993/1994. The plan was solid enough – but failed, among other reasons, because the Republicans solidly opposed it and were able to peel off a few Democrats. The public thus assumed that the health care plan was a bad thing, that it was a result of Clinton’s liberal overreach. Clinton, to his credit learned from this defeat and subsequently exploited this dynamic by consistently peeling off a few Republicans for the rest of his initiatives – or sometimes siding with them more substantially – and thus accomplished things as he needed to in order to save his presidency. The problem is that Clinton’s approach often hurt the Democratic party – and resulted in many small initiatives at a time when there were festering problems that needed to be dealt with.

Obama has tried to be the un-Clinton on this and other issues. Clinton was often seen to be insincere in reaching out to the Republicans – but he helped the class of 1994 pass a significant part of their agenda. Obama has taken pains to appear sincere, but has been more interested in ideas of his own – including incorporating Republican ideas into his proposals. While Bill Clinton had started out happy with partisan victories, but then gradually came to see how the above dynamic could be used to protect himself, and became a proponent of bipartisanship, Obama started out trying to reach out to Republicans, but has become disillusioned with bipartisanship as he saw how the necessity of it gave inordinate power to a few Republicans to derail his agenda.

All of this creates a situation which Jonathan Chait over at The New Republic‘s Plank describes:

Democrats simply have to accept that health care reform is going to be polling badly when they vote on it. There’s no mechanism in the current media configuration that would allow them to convey the details of the plan in a positive way without getting overrun by negative process stories. It’s just not possible. What they have to focus on is which alternative is likely to make them better off: reform passing or reform failing. It’s an easy call, which is why I think reform will pass.

But it’s a bit depressing that the actual merit of a policy has little to nothing to do with whether or not it will pass. I agree with Chait that health care reform will pass – and it will be substantial – because the Democrats know they must just take that leap of faith and trust the president (or whoever the architect of this health care bill ends up being). It’s an easy choice between whether each representative wants to survive together, or hang separately.

[Image by ClickFlashPhotos licensed under Creative Commons.]

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Barack Obama Criticism Health care Politics The Opinionsphere

The Federal Reserve, Henry Gates, Popular Policies, Health Care, Krugman on Cap and Trade, and High Times

1. Down with the Fed! William Greider suggests we “dismantle the temple” that is the Federal Reserve in a piece this week. Greider is not only one of my favorite authors and one of the best writers on economics, he is also one of the foremost experts on the Federal Reserve. They key problem for Greider is that the Federal Reserve is an essentially anti-democratic institution:

The Federal Reserve is the black hole of our democracy – the crucial contradiction that keeps the people and their representatives from having any voice in these most important public policies.

Ezra Klein gives the piece a symapthetic audience, but then explains his reservations:

[F]or a period of time, Ben Bernanke ran our economy under a monetarist’s version of martial law. And the really problematic thing is that it probably worked. It may be all that saved us. You could argue that in the absence of the Federal Reserve, Congress would have been a whole lot more aggressive and responsible because Bernanke wouldn’t have been there to backstop them. But would you really want to bet the U.S. economy on it?

2. Sanity on the Henry Gates Controversy. Jacob Sullum in Reason‘s Hit ‘n’ Run blog gives what I think to be the essential take-away from the Gates fiasco:

[E]ven if we accept the facts as presented by Crowley, it’s clear he abused his authority, whether or not the color of Gates’ skin had anything to do with it.

Let’s say Gates did initially refuse to show his ID (an unsurprising response from an innocent man confronted by police in his own home). Let’s say he immediately accused Crowley of racism, raised his voice, and behaved in a “tumultuous” fashion. Let’s say he overreacted. So what? By Crowley’s own account, he arrested Gates for dissing him.

3. The Appearance of Bipartisanship Creates Popularity. Matt Yglesias has an interesting piece exploring the difference between how the media treats the relationship between public opinon, Congress, and policy issues and how that relationship actually works.

4. Imitation is the Sincerest Form of Flattery. Ezra Klein points out that one passage from Obama’s speech Wednesday night seemed to be taking arguments directly from articles by Steven Pearlstein and David Leonhardt this week that got a lot of traction in the blogosphere. Both columns are worth reading even independent of their apparent influence on the Obama administration’s tactics.

5. Krugman on Cap and Trade Speculation. Paul Krugman takes on doubters encouraged by Matt Taibbi’s piece describing cap-and-trade as a giant scheme:

The solution to climate change must rely to an important extent on market mechanisms — it’s too complex an issue to deal with using command-and-control. That means accepting that some people will make money out of trading — and that yes, sometimes trading will go bad. So? We’ve got a planet at stake; it’s crazy to cut off our future to spite Goldman Sachs’s face.

6. A Laid-back Beat. Lastly, I came across this song in an episode of the British series Skins this week:

[Photo by me.]

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Barack Obama Health care Politics Videos

Our Wall-Street Run Health Care

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There are quite a few ways to explain what is causing our health care and health insurance costs to skyrocket, but in terms of crude political terms, there are really only two possibilities: either health care costs are skyrocketing because the government is involved in a major way – with Medicare, Medicaid, the prescription drug benefit, the subsidy for employer-based coverage, etc.; or the market for health care and health insurance is inefficient independent of government interference.

I don’t have the expertise to resolve the issue – but to me it is telling that the costs of health care and health insurance began to rise exponentially not shortly after Medicare and Medicaid were begun, but during the early years of the Reagan administration with his derogatory fervor. Then the medical loss ratio began to decrease – as health insurance companies began to squeeze as much profit as they could from their businesses. In other words, the prices for health care and health insurance began to rise precipitously as Wall Street began to take a more assertive role in running the economy including health insurance. At the same time, the costs of government insurance has risen slower than that of private insurance companies.

Economists long ago discovered that health care markets are not efficient on their own – as most individuals do not treat health care as a typical service. Rather if people have a choice, they avoid using the service until they absolutely need it – and then are willing to pay whatever is necessary to get better. This also is demonstrated by the fact that despite the fact that America spends far more on health insurance than nations with similar health care systems, statistics show our overall level of care is generally lower than in these countries (fewer doctors per patient; a lower life expectancy; etcetera). At the same time, most individuals treat some level of health care as a right. Even right-wingers – as they decry the attempts to make health care a right in America – implicitly treat it as one when they tell the anecdotes about the 21-year old alcoholic who was denied a liver transplant under Britain’s system because the bureaucracy in place required him to prove he would not endanger his new liver. But unless getting medical treatment to extend this young man’s life is a right, why would anyone be outraged over it?

Because of these various factors, health care operates as an inefficient market as demand does not appreciably respond to changes in price. This helps explain how the health insurance industry began to fall under the sway of Wall Street and take on the telltale characteristics of a Wall Street-run corporation that exists primarily to generate exorbitant profits instead of to provide a service or product. When Wall Street focuses on an indursty, there follows certain predictable steps:

  • as a precondition, there needs to be a market inefficiency that Wall Street can exploit; for example, the inflexibility of demand for a product or service allows the creation of a rapidly inflating bubble in costs;
  • the pay of top corporation executives rises exponentially above that of most employees;
  • increasingly, these executives began to make decisions that benefit their shareholders in the short-term so as to maximize their paychecks and keep their jobs;
  • the product or service is degraded as corporations turn their focus to creating mass short-term profits;
  • the inefficiences present initially are exacerbated;
  • most important, many major risks and costs are deliberately externalized to the public so as to maximize private profits;
  • at some point, this becomes unsustainable and the bubble bursts.

This is exactly what we saw in Exxon’s massive profits during the surge in oil prices in 2008; and it is very similar to what we saw in the housing market; and it is also clearly what we have seen with health care in America for the past twenty to thirty years as the inflation in health care costs far outpaced all else.

I actually don’t like the idea of blaming everything on Wall Street – but the telltale signs are here:

  • health care demand is generally inflexible, although when costs are paid can be shifted as most people see health care as a right and medical facilities and doctors swear an oath to provide care to everyone;
  • health insurance companies – rather than maintaining their large dollar profits as prices skyrocketed in the 1980s and 1990s instead began to increase their percentage of the profit – as a Wall Street-run company always does, thus exacerbating the inefficiencies already present;
  • rather than seeking to reduce the costs of care while providing the best service possible, they sought to exclude as many sick individuals as possible and to cancel coverage for as many individuals who got sick as possible and to use other means of artificially lowering their costs without lowering the price of their service;
  • by refusing to pay for so many sick individuals, many of these costs are externalized to the public; by refusing to cover those who have preexisting conditions – and thus those who are more likely to need to use health care resources – the costs of taking care of these individuals is put upon hospitals and the public; while doing all of this, the insurance industry sought greater and greater government subsidies.

The toxic effect of this inflating cost bubble coupled with the attempts to externalize as many costs as possible have created the twin problems of a growing number of uninsured Americans and rapidly growing federal deficit fueled almost entirely by health care costs.

This is the status quo that we need to change. As Steven Pearlstein explained:

Among the range of options for health-care reform, there’s one that is sure to raise your taxes, increase your out-of-pocket medical expenses, swell the federal deficit, leave more Americans without insurance and guarantee that wages will remain stagnant.

That’s the option of doing nothing…

Doing nothing means leaving our Wall Street-run health care in place; and while right-wing critics focus on the specter of rationing by government bureaucrats and government bureaucrats in between you and your doctor and complain about the complex system the Democrats are proposing – they fail to acknowledge that this Wall Street-run health care rations care by cost and interjects bureaucrats reporting to CEOs imbued with the culture and ethos of Wall Street as they attempt to exploit every inefficiency in our current extremely complex system as much as possible, externalizing as much cost to the public as they can.

If the problem with our current system is not that the government is too involved – as right-wingers assert – but that the market is inefficient in providing health care – and that these inefficiencies are being exploited by Wall Street-run health insurance companies – and if with the economy still fragile from the bursting of the bubble in home prices and with radical changes not feasible or desired – then you turn to the various plans that the Obama administration and Democratic Congress are looking at which attempt to introduce various processes and incentives that will gradually shape the health care system into a more rational market – creating regulated markets for individuals to buy health insurance; eliminating abusive practices that artificially decrease medical costs for insurance companies; creating a public option to compete with these private companies; empowering an independent body (MedPAC) to regulate Medicare prices and practices; creating a body to look at and disseminate information on the comparative effectiveness of treatments and medicines.

It’s clear that our Wall Street-run health care industry isn’t working. More of the same – more deregulation as the Republicans propose – isn’t going to fix this problem. We need change. We need to take back our health care from Wall Street and make it responsive to consumers again. Our system won’t be perfect – and it won’t happen overnight – but the Democrats are clearly working to reform this system. The Republicans are merely seeking to obstruct.

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Barack Obama Health care Politics

The Option of Doing Nothing on Health Care

[digg-reddit-me]Steven Pearlstein began his much–remarked column yesterday morning with a basic observation that most deficit-hawk opponents of Obama’s “experiment” with health care reform don’t seem to acknowledge:

Among the range of options for health-care reform, there’s one that is sure to raise your taxes, increase your out-of-pocket medical expenses, swell the federal deficit, leave more Americans without insurance and guarantee that wages will remain stagnant.

That’s the option of doing nothing…

I have yet to see any opponent of health care reform acknowledge that our current health care system is unsustainable and getting worse, or to acknowledge that the situation has reached a point where it undermines the very legitimacy of America’s model of the state.

Opponents of any of the Democratic health care reform proposals often argue that they are actually in favor of reform – just not this “fast” and not any of the plans being considered at the moment. They don’t have much of a response as to why they showed no concern for this issue when those more inclined to accept their ideas were in power. There have been some attempts to come up with an alternative health care reform, but it doesn’t seem like any actual plan will be offered. For example, Representative Roy Blunt, head of the GOP’s Health Care Solutions Group, is suggesting that no plan will be offered by the Republicans as he asks rhetorically:

[W]hy start diverting attention from this really bad piece of work they’ve got to whatever we’re offering right now?

This is good politics – as long as you’re not serious about reform. As long as your goal is to “break” Obama rather than to fix health care and our growing deficit problem.

I try to take things that people I disagree with politically seriously, assuming their good faith on the issue. But if opponents of the reforms on the table now don’t offer an alternative, talk about “breaking” the Democrats, and refuse to acknowledge the basic fact that the status quo which their opponents are trying to reform is leading to a disaster – all while simultaneously blaming Obama for this looming disaster – what other explanation is there for this behavior than “bad faith”?

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Barack Obama Economics Health care Politics

The Lesson of 1993/1994

[digg-reddit-me]Like a lingering odor, the failure of Hillarycare in 1993 is hanging over this perilous moment in Obama’s presidency. It’s true that Clinton’s health care plan never got this far legislatively.  By presenting a complicated plan to Congress and trying to bully it through, the Clinton administration made a huge tactical blunder. But it is clear that both sides sense that this is the moment when health care reform could be derailed. While the Democrats and Obama have long been planning on pushing through health care, what is going on now is pure political blood sport. This is a zero sum game. This is a Democratic attempt to prove that they can accomplish something that is popular and helps the middle class and which they have been trying for sixty years with only moderate success to enact. This is the Republican attempt to protect the status quo and to slingshot their way back to power as they did in 1994.

Bill Kristol has said that this is the week to stop health care reform – to not worry about being obstructionist or trying to appear constructive:

There will be a tendency to want to let the Democrats’ plans sink of their own weight, to emphasize that the critics have been pushing sound reform ideas all along and suggest it’s not too late for a bipartisan compromise over the next couple of weeks or months.

My advice, for what it’s worth: Resist the temptation. This is no time to pull punches. Go for the kill.

Beneath the veneer of policy disagreement that Kristol is using, it’s clear he is advocating pure obstructionism. He senses opportunity. Which is why he and many other Republicans are now all repeating the same talking points: Obama’s health care reform is an “experiment” with your health; it will ration health care; you will lose the insurance you have now; the government will impose itself between you and your doctor; socialism! These rather familiar refrains are being thrown about for one purpose – and it has little to do with health care.

As Senator Jim DeMint rather infamously declared in a secret call to anti-reform advocates:

If we’re able to stop Obama on this it will be his Waterloo. It will break him.

Newt Gingrich echoed this point:

This could be the bill that drags his whole presidency down and they look back on it and suddenly the whole thing is unraveled.

And the Democrats seem to agree – as the former Organizing for America sent out DeMint’s statements to rally supporters – and Mark Kleiman, a Democratic blogger said, “This bill is make or break for the Democratic Party.”

The Republicans are trying to break the Obama presidency – as they did Clinton’s. Clinton came back, but he never had the same political support.

Meanwhile, moderates play an interesting role in this political blood sport. They decry both sides for being mean – and suggest everyone get along. They talk about bipartisanship, suggest the Democrats move slowly, and they feel queasy at the prospect that the Democrats – by actually governing and doing what they promised they would do – might be overreaching. Matt Yglesias ably responded to this point:

It’s not as if what happened in 1994 was the congress passed Bill Clinton’s big health reform package, then the public didn’t like it, then in revulsion they turned against Democrats. Nor did congress pass the proposed BTU tax, then the public didn’t like it, and then in revulsion they turned against Democrats. The noteworthy thing about the first two years of the Clinton administration was the lack of ambitious progressive programs put in place. And you could say the same about Jimmy Carter. Whatever it is people reacted against in 1978, 1980, and 1994 it wasn’t actually existing left-wing governance.

Ezra Klein – on the same theme – explained the lesson one of the key architect’s of Obama’s strategy learned from 1993:

Emanuel has carried that lesson with him into the Obama White House. “The only thing that’s not negotiable is success,” he likes to say. The worst outcome for the party — in part because it’s the worst outcome for its marginal members – is defeat. Voters punish defeat.

If the Democrats succeed – as Bill Kristol explained in 1993:

It will revive the reputation of the party that spends and regulates, the Democrats, as the generous protector of middle-class interests. And it will at the same time strike a punishing blow against Republican claims to defend the middle-class by restraining the growth of government.

Despite this moment of peril, Obama’s strategy to get health care through is still intact. His administration has learned the lessons of 1993- 1994 well – perhaps too well.

But make no mistake as you see the charges thrown about by both sides in these next few weeks. This battle is no longer about policy for either the White House or the Republican Party. (Though the right policies will be essential to its long-term success.) Right now this is political blood sport – it is about whether or not the Obama administration will be broken by obstructionist elements. The short-term success of the administration will be determined by whether or not they succeed in the next few weeks to pass something substantial; their long-term success will depend on the policies they are able to include.

[Image not subject to copyright.]

Categories
Economics Health care Politics

A Distinctly American Health Care System

Jacob Weisberg in Slate has an interesting take on health care systems as reflecting the society of which they are a large part. The piece is worth checking out. Here’s his short description of America’s health care:

America’s evolved, undesigned system is also an expression of our culture at its best and it worst. Health care in the United States is innovative, entrepreneurial, expensive, litigious, and wasteful. It is decentralized, driven by self-interest, excellent at the high end, and increasingly unequal. It resists acknowledging trade-offs or limits and is characterized by shocking gaps in basic care.

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Economics Environmental Issues Health care Politics Videos

Health Care Reform To Stimulate the Entrepreneurship

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Paul Gigot of the Wall Street Journal editorial page makes the same argument many Obama critics have been making – beginning with Rush Limbaugh who attempted to blame the financial collapse on the fear markets had at the prospect of an Obama victory in the 2008 election to the present, as Gigot attempts to blame any lingering effects of this financial collapse – and its economic aftereffects – on fear of “the Obama agenda.”

But neither Gigot nor Limbaugh nor any other right-wingers seem to give any consideration to those drags on risk-taking that our current status quo creates.

Gigot apparently thinks that raising taxes on a handful of powerful individuals has a greater effect on reducing risk-taking than the prospect of global warming, than the lack of a health care safety net has on potential entrepreneurs.

The difference between Gigot and myself is that Gigot is concerned that this handful of powerful people will be less likely to take risks with their vast sums of money – along with a dozen or so major corporations having less ability to generate major profits by externalizing costs for pollution and health care to the society at large. If a corporation has to pay for the damage it causes, then it is – by Gigot’s standards – less free. This is true only in the sense that a tyrant is less free than an ordinary citizen because he is no longer able to impose his way upon others.

If one wants to stimulate the economy by encouraging small businesses and entrepreneurship, there are few better ways to do it than to pass some sort of health care reform that makes it cheaper and more available outside of large employers. As Daniel Gross, financial columnist for Newsweek and Slate, explains:

An affordable national health care policy, which could allow people to quit their jobs and launch businesses without worrying about the crippling costs of premiums or medical costs, might be a better spur to risk-taking than targeted small-business loans.

I say this as a former small business owner and entrepreneur myself. One of my biggest concerns in working outside of an established business was that I was not able to get my health care through my job – which meant astronomical monthly premiums for a service I did not use – but which I could not be sure I would not badly need.

Gigot and other right-wingers are not focused on small business and entrepreneurs – although they does invoke them as a fig leaf for political reasons. If they were they could see the advantage of a public health care option. Instead of defending the free market, Gigot and other right-wingers seek to defend a corrupt status quo in which decisions are made by a princely few rather than being made in the competition and varied decision-making bodies of a free market. Health care reform – if done right, with a public option – will remove a major obstacle to individuals taking their own risks, starting their own businesses; it will be a small step to diversifying decision-making and creating a more free market.

Gigot – by taking the dogmatic position he does – proves he is not serious about protecting the free market; he is only interested in protecting the interests of his cronies among the monied elite.

Categories
Domestic issues Economics Health care

The Medical Loss Ratio

[digg-reddit-me]In most industries, when a customer pays for something – and then asks to get what they paid for – it’s not considered a big deal. It’s the basic transaction that the business engages in. The health insurance industry works differently. You make regular payments so that the insurance company will pay your irregular medical bills and so that they will protect against the possibility that you will be one of the unlucky few who has some serious condition which requires extensive medical treatment. Most people aren’t – and so they just give over money regularly and receive very little in return. But a few people end up needing serious medical care. That’s the purpose of insurance – to distribute the risks and costs more evenly. This is what it was designed to do – this is why people buy it – it is what they are paying for. But the health insurance industry sees their role differently. They’re in it to make as much money as possible – not to provide a service for a fee and make a profit from this. Thus, when anyone who has duly paid for health insurance for years makes a claim for a condition that requires serious and expensive medical treatment, they try to find every possible basis to deny and revoke their coverage. It would be as if – after I had paid for a soda – the store then tried to deny me the right to open the soda and leave the store.

Obama’s attempt to reform health care is partly about reforming the way we provide care (with electronic records, comparative effectiveness studies, etc.) – but it is mainly the way in which we provide health care insurance. In this fight, there is one statistic we have not heard enough about but which critics of the current system should bring up whenever they can: the medical loss ratio. This statistic describes the percentage of dollars that a health insurance company takes in from its premiums that it uses to actually pay for medical services. For example, back in the 1990s – when the health care insurance industry was quite profitable – the figure was generally in the mid-90s. In other words, about 95% of all dollars collected in premiums were used to pay for medical services. Since then, structural changes in the health insurance industry have led it to focus more on profits – as a Wall Street mentality took hold. Since the 1990s, the medical loss ratio has dropped significantly. Today it is in the mid 70s to low 80s – meaning $20 to $30 of every $100 paid in insurance premiums is not used to provide the services paid for. These profits – and the quest to increase such profits – has led to the health insurance industry becoming more like a Wall Street financial firm – with massive bonuses to its top executives and large dividends to shareholders as they skim greater profits from a rising bubble in the field in which it operates in. Our health insurance system is run by Wall Street tycoons.

How does this affect the quality of the service that health insurance companies provide? It forces them to reduce their medical loss ratio as much as possible. Wendell Potter, a former executive at CIGNA, explains several ways:

Rescission is one thing. Denying claims is another. Being, you know, really careful as they review claims, particularly for things like liver transplants, to make sure, from their point of view, that it really is medically necessary and not experimental. That’s one thing. And that was that issue in the Nataline Sarkisyan case.

But another way is to purge employer accounts, that – if a small business has an employee, for example, who suddenly has have a lot of treatment, or is in an accident. And medical bills are piling up, and this employee is filing claims with the insurance company. That’ll be noticed by the insurance company.

And when that business is up for renewal, and it typically is up, once a year, up for renewal, the underwriters will look at that. And they’ll say, “We need to jack up the rates here, because the experience was,” when I say experience, the claim experience, the number of claims filed was more than we anticipated. So we need to jack up the price. Jack up the premiums. Often they’ll do this, knowing that the employer will have no alternative but to leave. And that happens all the time.

They’ll resort to things like the rescissions that we saw earlier. Or dumping, actually dumping employer groups from the rolls. So the more of my premium that goes to my health claims, pays for my medical coverage, the less money the company makes.

The health insurance industry uses any possible reason to revoke coverage that an individual has been paying for as soon as they actually need the service they have paid for – for example, they will point to some minor preexisting condition that was not disclosed when they agreed to provide the insurance as an excuse to cancel coverage. Robin Beaton of Texas had her policy revoked as her doctors were scheduling her double mastectomy for her breast cancer because she had failed to disclose to her insurance company that she had the pre existing condition of acne and a rapid heartbeat.

So – essentially, these organizations accept contracts to provide health insurance in the event someone needs it. But as soon as a significant claim is made, they try to find a reason to deny it. And the executives at these companies have refused to say that they will not continue these practices.

Our system of health insurance has created a Wall Street-run health care business. For all the worry Republicans are trying to gin up about government bureaucrats reporting to Congress or the White House being in between you and your doctor – what we have now is a system where faceless corporate bureaucrats are making medical decisions reporting to Wall Street tycoons. Like the Wall Street firms, health insurance companies have driven up prices exponentially, creating a bubble; the CEOs take enormous salaries; they are accepting money for insurance from anyone, but will look for any way out of any of their commitments if they can get away with it. In normal businesses, profits are the primary side-effect of providing a product or service; in a Wall Street style corporation, profits are the sole and only goal – with the product or service they are selling merely a means to this end. This is what our health insurance industry has become.

This is the royally fucked system we have today. This isn’t the only issue health care reform needs to address – but it is a major one.

Continue reading “The Medical Loss Ratio”