Health care Politics

Health Care Lie #494: Health Insurance Companies and Their Allies Are Blocking Reform

[digg-reddit-me]I’ve come to see it as a sign of dishonesty – of political manipulation – to portray the insurance companies as the primary villains in the problems with health care. As for example in this editorial in the Washington Post from the weekend:

[T]he campaign must focus attention on the insurance companies that are primarily responsible for the health-care mess. This means organizing public events across the country that can articulate Americans’ frustrations with the current health insurance system and polarize public opinion against the insurance companies and their allies. [my emphasis]

Of course – as those paying attention to the fight over reform know – the insurance companies stand to benefit from many of the provisions in the plan – if not from others such as the public option – and they seem to have realized in advance that they needed to get behind reform so they could shape it. Perhaps behind the scenes, they are trying to block it – but I haven’t actually seen any indication of it. (And neither has Ezra Klein who has been following this more closely and for much longer than I have.)

Health insurance companies are such an easy target though – as they seem to add little real value. Their secondary purpose – aside from spreading the impact of health risks – is to restrain costs – and in this they have failed miserably. Their aggressive culling from their rolls of all those who actually need the service they provide have undermined their primary purpose. They have adopted horrendous practices and seem to treat their customers in bad faith as a matter of course. They are such easy targets that they knew they needed to get behind reform early – and remain behind it though they are being made the public villain by the reformers. In a lot of ways, they should be: they are profiting from a faulty system that is hurting many Americans and is unsustainable; as prices skyrocket, their profits do as well. Statistics such as the medical loss ratio demonstrate that these companies are trying to do everything possible to avoid providing the service they are in business to provide. But I’m not sure you can make the case that spiraling health care costs are the fault of health insurance companies (though they have contributed in various ways.) And health insurance companies aren’t behind the various lies – from the allegations of a government takeover of the economy to death panels. They may be trying to scuttle the public option, but they stand to benefit from much of the plan – and it’s better for them to reduce the uncertainty and deal with legislation passed than to continue with an unsustainable system.

In other words, in this reform effort – which is mostly about health insurance reform – health insurers aren’t the primary obstacle.

[Image by Steve Rhodes licensed under Creative Commons.]

Barack Obama Health care Politics Videos

Our Wall-Street Run Health Care

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.

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.

Criticism Economics Libertarianism Political Philosophy

Holding a Grudge Against the Bank of America (Part 1)

[Photo by Steven Rhodes licensed under Creative Commons.]

Corporations are considered individuals by the law. Yet they have no conscience to guilt; they have no eternal soul to damn ((if you go for that sort of thing)); they have no empathy, no compassion – no emotion of any sort; they cannot be sent to prison; they can live forever; their single purpose is to make money – and they are legally obligated to make as much money as possible. Yet despite the fundamental differences between corporations and human beings, corporations have been given all of the rights of human beings. They have the right to free speech, the right to assemble, the right to be free from unreasonable searches and seizures – and all those other rights we mere humans take for granted.

Is it any wonder then that all large corporations – once they are no longer the responsibility of a single individual – begin to act as if they have no conscience or compassion – exploiting legal loopholes and damaging society at large? Insurance companies derive enormous profit from denying legitimate claims and every claim that they possibly can. Oil companies lobby and erect barriers and do anything they can to eliminate the possibility of alternative energy sources being developed. Manufacturers externalize the costs of their pollution – spewing toxic chemicals into streams and lakes and the air and the ground – and after paying some negligible penalty, the government (with the people’s money) takes responsibility for cleaning up the mess. ((Much of the analysis and examples given in these first two paragraphs is inspired by The Corporation by Joel Bakan – as well as the documentary of the same name. I do not entirely accept the conclusions of the film or book, or the methods they use to come to their conclusions. The book and the film are both extremely useful and worthwhile but are ultimately limited because they are polemics that do not seek to give a fair analysis but to persuade. Sometimes, the tools they use to persuade are a bit too blunt – as when in the documentary, the filmmakers say that the corporation as a type of instituition was responsible – in part presumably – for the Holocaust and other atrocities – when it is easier to blame “the government as an institution.” As a matter of fact – most of the criticisms of “the Corporation” can be equally applied to the State as an institution.)) Big lenders and bankers take unwise risks that allow them enormous profits in the short term – and the American people then pay to bail the companies out of the deficits they find themselves in. ((This is obviously references specifically the Fannie Mae, Freddie Mac, and Bear Stearns deals which the Financial Times of London called the most deceitful kind of socialism.))

The companies survive – they thrive. It is the people who work for them and who are their customers – the people that are fired, and the people that get sick, and the people denied coverage. Then to top it all off – it is these same people who have to pay when companies that are too big to fail end up failing due to their own recklessness.

I don’t believe that corporations are inherently good or inherently evil – they are tools that are used for many purposes. But when we discuss economics and public policy it is essential that we acknowledge the limits of corporations. This inevitably leads to certain positions:

  • If corporations, by their nature, attempt to externalize as many costs as possible – forcing problems onto the public such as pollution – then government regulation is necessary to force corporations to deal with these externalized problems.
  • If corporations have no conscience or compassion, we cannot necessarily trust them to take care of us in times of need. Although random acts of kindness and charity occur more often than is sometimes acknowledged, they do not change the scope of the problem.
  • If corporations do not take affirmative steps to protect public goods and institutions – such as the national infrastructure, education, political institutions, and the nature of our society – someone must. Today, corporations are radically altering our society on many fronts – and as such they are a threat to its cohesiveness – by encouraging mass immigration and sexual immorality from a conservative perspective, and by creating vast inequities between the rich and everyone else from a liberal perspective.

Liberals, progressives, and Democrats have come to a broad agreement in recent years on some general steps that need to be taken to protect our economy and our country in an increasingly globalized world. (Some deeper critiques and potential solutions from a liberal perspective can be found in William Greider’s The Soul of Capitalism.)

This includes raising the tax rates on those making over $250,000.00 a year and on corporations to the same rates as at the end of Bill Clinton’s term; focusing on developing a clean energy industry to replace traditional manufacturing; increasing funding for infrastructure maintenance and development; protecting the foundations of the internet through net neutrality; and taking various steps to reform our educational and health care systems. (A thoughtful piece in this weekend’s New York Times by David Leonhardt delves into Obama’s economic worldview.)

Health Care

The best insight into the Democratic consensus on these issues comes from the issue of health care.

Barack Obama has said that if he were to design a health care system from scratch, the system would be single-payer. At this time, however, Obama believes we need to work within the system that we have. As with most issues, what Obama proposes here is to tinker with the current system to try to reduce the problems immediately and gradually move towards a better solution. On health care, this means working with the current employer-based system – and creating incentives to reduce the number of people not covered. These incentives incude a mandate for children, tax incentives for those who seek their own health insurance, penalties for large companies that do not provide health insurance (in the form of payroll taxes), the expansion of existing programs, and support for small businesses to assist them in providing health care for their employees.

In addition to the above and more short-term solutions, Obama proposes to open up the health care plan used by members of Congress to the public – and to create a “National Health Insurance Exchange” focused on assisting people who wanted individual or family insurance plans while providing rules and guidelines for participating companies. In the long-term these two changes have the potential to remake the field of health care. If the government program is able to provide better services for less cost than it’s competitors, then if the market works as it should, more and more people will move over to the government plan – unless other health insurance companies are able to take steps to compete.

This combination of freedom of choice for citizens/customers, government regulation for companies wishing to get into a potentially lucrative market, government competition against private companies, and letting the market decide who wins in the long-term – this combination may be too clever to work. But it has far more potential than the giveaways to health insurance companies that the Republicans are proposing.

What does all of this have to do with holding a grude against the Bank of America?, you might ask. That’s coming up in Part 2.