Corporate Reform: Better than No Reform at All

September 8th, 2009

This is one from the archives.


With the debate swirling around health care reform, I took a few weeks to do some more research on the  American health care system and the reforms that have been proposed a little more.

The way I see it, the Republican attack machine has done it’s job to make sure that whatever reforms are passed will be watered down to the point where nothing will be done to harm the corporations. Reform may still pass, but it will be totally on the terms that the corporate insurance companies, big Pharma etc., deem acceptable.

Here’s my take on the whole thing.

The Current System

Just to give you a little intro, I’ve compiled some stats on the state of health care in the United States so that we can all understand what we are dealing with.

There is one category among which the United States leads with regards to health care and that is the amount that we spend. All surveys agree that the United States spends more than any other country in the world on health care. The United States spends $2.1 trillion dollars a year on health care. That is about 30% more based on population and wealth than the average industrialized country. American families now spend about 1 in 4 dollars on health care.  

Well what do we get for these high costs? I have heard more than one conservative pundit say that we get the “best health care system in the world.” Sorry, not even close. It’s difficult to measure what country has the “best” system because it all depends on what variables you put in, but the most cited study is the World Health Organization which ranks us 37th (!). 

Somehow, ”We’re Number 37!” just doesn’t have the same ring as ”We’re number one!” 

Now I don’t want to put too much stock in this rating system. It obviously has some flaws, but even on the rankings that are just related to outcomes, almost all advanced countries have better national health statistics than the United States does.

In addition to high costs and poor performance, consider the following:

  • Over the last decade, employer-sponsored health insurance premiums have increased 119 percent. 
  • That number is four times the rate of inflation and wage increases during that same period 
  • The Congressional Budget Office has estimated that job-based health insurance could increase 100 percent over the next decade
  • Approximately 1.5 million families lose their homes to foreclosure every year due to unaffordable medical costs
  • 62 percent of all bankruptcies filed in 2007 were linked to medical expenses. Amazingly, of those who filed for bankruptcy, nearly 80 percent had health insurance.

Think about that last one for a sec. Those 80% of people who had health insurance thought they were insured…until they actually got sick…and now they’re bankrupt.

  • Finally,  despite the huge amount we spend on health care approximately 10-15% of Americans are still uninsured.

Of course, the cost of health care in the United States has a huge effect on federal budgets as well. As with private insurance, Medicare and Medicaid’s costs have been increasing faster than the economy. CBO projects that at the current rate, Medicare and Medicaid costs will grow from 5% of GDP today to 10% by 2035. Entitlements as a whole will be growing because of the retirement of the Baby Boomers, but CBO estimates that 80% of the increase in those programs will be due to the increased costs for Medicare and Medicaid. 

 So when you hear Republicans complain about “record deficits” under Obama, think about reforming insurance, because a huge percentage of those deficits are based on rising health care costs.

The public deserved a rational debate about what the issues, what has been proposed to fix them and what additional items should be added to the list. Instead it got Sarah Palin and the Death Panels, Charles Grassley and the Pulling of the Plug on Grandma and a bunch of teabaggers yelling at their Congressmen. What this amounts to is a scorched earth policy that has made reforms that any observer without ideological blindfolds on knows we need much harder to get in the future. It’s not very patriotic, but it did the job that the corporate paymasters wanted done.

What Is in the Democratic Plans?

The purest version of the Democrats plan came in the original House version of the legislation. It consisted of the following elements.

Insurance Exchange

  • The establishment of an insurance exchange where people whose employers didn’t offer health insurance could purchase health insurance from eligible plans
  • As part of this exchange and as part of the individuals choices, a public plan that resembles Medicare
  • Initially, only individuals who are not covered or companies with 10 or less employees could purchase insurance through the exchanges, this would increase to 20 or more in 2014. Future expansions would be determined by an independent board.

Insurance Regulations

  • A regulation of private insurers that prevents them from denying coverage for a pre-existing condition, bars “recission” (where the insurance company collects benefits for years until you get sick and then tries to kick you off the plan as soon as they have to pay).
  • Regulations on minimum coverage that insurers need to provide in order to be included in the exchange

Mandates, Incentives and Subsidies

  • Companies that have a payroll of over $250,000, will either need to offer health insurance with minimum benefit requirements or pay into a pool to help fund subsidies for people who are not covered. The payment varies from 2.5% of payroll for a 250,000 business and maxes out at a 8.5% for businesses that have over $400,000 in payroll.    
  • Individuals who do not have insurance will need to sign up for health insurance or face a 2.5% tax
  • Provides tax credits for people up to 400% of poverty level ($43K for individuals, $88K for a family of 4) to make buying into the system more affordable

So basically, this sets up a system to insure the uninsured and a set of incentives to get employers to provide insurance or fund the program and individuals to buy into the system. It also provides badly needed regulation of insurance that most people agree on.

So far, the battle lines have mostly been drawn around the dreaded public option. As I noted before, this basically adds one additional option for people who do not have insurance and small firms that want to buy into the system–a system that resembles Medicare (the 2nd most popular government program we have).

Well, why should we have a public insurance option? Aren’t the for-profit companies doing okay? Obviously not (see above). Well then, what could the public option do better?

 Well first, it could reduce costs. American’s mostly get private health insurance from their employers and recent studies have shown that US health insurance companies have the highest administrative costs in the world. They spend roughly 20% of every dollar on non-medical costs. These costs include paperwork, reviewing claims and marketing. In comparison, France spends 4% on administrative costs, Canada spends 6% and Taiwan spends 1.5%. Our own “socialized” system of Medicare spends 2% to 8%, depending on what numbers you use.

I don’t have the breakdown on where the higher costs are for the for-profit insurance, but one has to assume that part of the increased costs include health companies’ research to determine who has a pre-existing condition and should not be allowed to participate in a plan, efforts to deny coverage to people who are currently sick because they filled out their paper work incorrectly or just generally finding technicalities to deny coverage to people who need it. With many of these excuses avoided, surely the insurance companies will still be able to compete against a government run system. We all know how inefficient the government is, right? Who would want to even join that plan? Well, the CBO estimates that about 10 million people would join that system by 2019. For those of you doing the math at home, that’s about 3% of Americans in a ten year period.

I don’t want to spend a lot of time debating this issue, because it’s probably dead. The Democrats might have 50 votes to pass it, but they don’t have 60, which is what they need in the Senate. What may pass is a “trigger” whereby the insurance companies have to meet certain benchmarks (undetermined at this time, but one assumes cost cutting) by a certain date or the public option goes into effect. This could actually work if the benchmarks were strong because I have no doubt that the insurance companies will do whatever it takes to eliminate any competition.

So, to sum it up, the reforms will basicially provide some much needed regulation of the insurance industry, mandates that encourage employers to provide health care and individuals to buy and some subsidies to make it more affordable.

A list of what the reforms won’t do is too long for this forum, but certainly it would include the following: it won’t reform the inefficient for-profit health care system we have in the US, it doesn’t include enough for preventative care and nutrition, it doesn’t include tort reform, it doesn’t create national standards that are proven to decrease costs without compromising care… the list could go on. I think that these omissions are mistakes. When you consider the damage that ballooning deficits could do to our economy and our global standing, it’s clear that we need all hands on deck. But when you have an environment when even the president making a speech to schoolchildren about personal responsibility is sold as a socialist plot, a set of politicians on the other side who don’t have the balls to make tough decisions and a sensationalist media that just covers the pitched battles instead of educating the public, then change comes slow.

If history is any guide, Democrats won’t have a better chance to make change than now. They need to pass what they can now, get some modest reforms and move on to the rest of the issues that are confronting this country.

This issue isn’t going to go away, and we’ll be back here in a few years to fine tune the details.

Anyway, that’s my take.

I guess we’ll hear the president’s tomorrow.


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