The Imploding Health Insurance Industry

11/28/2005

Paul Munnis

Symptoms of Trouble Times

In his recent NY Times Editorial (see Op-Ed) Paul Krugman advocates for a national healthcare insurance program.

On Sunday’s program “This Week,” with George Staphanopolus, Donna Brazile, the Democratic Strategist said this: “One of the key reasons behind the loss of American jobs is the high cost of health care insurance for workers. We will keep bleeding jobs until we fix this problem”

General Motors has petitioned the government for help and assistance in the area of the cost of healthcare benefits after getting the Unions to agree to wage concessions. A major goal of NW Airlines was to curb rising health insurance costs for workers. Corporations are moving jobs offshore to divest the cost of health care for American workers. (The pension system is collapsing too but that is another discussion for another time).

Today we published a report to the effect that Democrats in Congress and Democrat Governors are split over Medicaid with Congressional Democrats feeling a need to cut the entitlement program while Democrat Governors seek to retain it (see Politics).

The system of private health insurance appears to have collapsed for all practical purposes and we are en-route from Forty four million Americans in November 2004 as uninsured for catastrophic health emergency to the bulk of Americans now being forced into the same boat of the uninsured. Can the collapse of hospitals, clinics, and private practice be far behind? The crisis is really growing for example when 30,000 or more workers are let go from GM, and then more from NW airlines, and then more from the others; all are shedding workers to control costs.

Democrats would like to have a Universal Healthcare Plan, offered and administered by Government and built up from Medicare and Medicaid, mechanisms already in place. We would like to extend those programs to cover all Americans. When Hillary Clinton brought this to Congress, as her husbands’ representative, she was handed her head. The last thing that Congress wants is another entitlement program like a national healthcare insurance plan and they will not sign up for it.

So what to do?

The Nature of the Beast

We can start by understanding that health insurance is not free. No matter what solution is taken, somebody must pay for it. Usually it’s the worker either directly or indirectly; either he pays from after-tax money or he pays via taxed wages. There is no free lunch in health care insurance. When the employer pays the insurance cost it’s to avoid paying higher wages for needed skills and thus the worker pays for the insurance indirectly by agreeing to a fixed cost benefit in lieu of a higher wage. Only thing is that the fixed cost is no longer fixed; it’s floating and that means rising costs.

What insurance does is to spread out the costs of a health emergency so that when a health problem happens insurance payments cushion the shock. Insurance relies on not everyone being sick and in need of healthcare and all at the same time. The bigger the insurance pool then the risk is spread out and thus the lower the cost of insurance.

The insurance pools have been culled of the chronically ill in order to improve profits and that is making the problem worse and is driving up costs. We are now using a subsidy system for the chronically ill and we do it by charging more for treatment for those who are covered so as to subsidize uninsured citizens.

In a public system there is a tendency for people to abuse the system and thus a mechanism must exist to say “No,” to some seeking health care and who then who sing the blues when it’s denied. Americans do not want to hear the word “No,” when it comes to treatment options.

Today we provide health insurance as a job benefit to some thus creating second-class citizens in the process and this is irresponsible in a democratic nation. Most other nations have health insurance solutions for their citizens except for third world nations. We have a system of sorts but it’s failing us.

We have been advocating for a public sector (government) solution to insurance because the cost of administration is lower, the profit margin is eliminated (that’s a 30% reduction right away), and standardization of offerings and benefits can be obtained.

So if not a private solution (which is failing) and if not public solution (which Congress doesn’t want) than how do we solve our problem?

Solution Possibilities

It seems on paper at least that there are at least two alternatives. The first is a Federal backed Health Care Insurance system much as Freddie Mac is for Home Mortgages. Instead of the commodity being mortgages it would be health insurance and it would be contracted for by private individuals over a period of their choosing but with the minimum being 5 or more years. Like Freddie Mac, banks would be the seller with private firms (Clinics, Hospitals, etc) acting as the claim filing administrator. Claims filing would be standardized and computerized.

In such a system the consumer freezes treatment options to the current technologies for 5 or more years thus avoiding the new and usually costlier treatment expense for the insurer as an added risk factor. Prices are then discounted as a function of the duration of the freeze. If you freeze for ten years your costs are lower than if you freeze treatment options for just five years. In effect you agreed to “No” for newer treatment options up front and as a part of your contract. The choice was an economic determination made by you.

The second option is one that I advocated for when I ran for the MN House during 2002. It calls for the creation of Health Insurance Co-ops, perhaps affiliated with Federal Credit Unions. The way this works is that they sell health insurance policies, at cost, to the public. Large purchases made by corporations can be had at a discount thus an employer can buy insurance for his workers at wholesale prices direct from the underwriter and through the co-op who acts as a supplier and a clearing house. If individuals or small businesses want to buy healthcare insurance they go to the local credit union and purchase it and arrange for financing right there. At the end of the year, the co-op looks at its books and returns any surplus funds to co-op members and on a pro-rata distribution basis. Underwriters from many nations are free to sell the co-op their insurance plans as long as some sort of standard is met to assure that all plans meet criteria. There are two options for regulating co-ops, one is a federal standard, the other to disperse regulation to the fifty states and I had advocated for the latter.

Back in 2002 we told people this insurance implosion would happen and that the system was dying and that we would have dire consequences for America. People looked at us like we were in left field. We were not.

Is Proliferation Part of our Problem?

We Americans have a terrible patch-work quilt of health insurance now with Veterans Health Insurance, Medicare, Medicaid, and private insurers, offering various amounts of allowances based upon the nature of the injury, the group that you belong to, the State regulations that must abided, the whims of Congress, and who knows what else?

We have large suppliers like Blue Cross/Blue Shield, we have up and growing competitors like United Health Care, and we have a bunch of others at various stages and persuasions and offerings. We have a maze of forms and filing systems that are a nightmare for places like Mayo Clinic and hospitals to keep up with and then for individuals we have caps and co-pays that float, leaving us all perplexed and feeling exposed.

Recently Congress added to the mess with an undecipherable Medicare drug assistance program that confounds the many well trained minds who try to decode it for their parents. That program has produced a multi-billion dollar deficit to top it all off because Congress misrepresented the cost of provision.

Time for Choice

We can’t wait another 3 years to fix this mess and we have government gridlock on top of the urgency. Both public and private solutions are thus out of reach for us at this moment in history.

I think that it’s high time that we look at a partnership solution between private and public sectors and examine the two possibilities above, (Freddie Mac like vs Co-op like) seeing which can get us through the next five decades most efficiently and then choose the one that seems most optimal for America.

We will never solve this problem by fighting with each other either. It’s really not a political problem so much as it is a technical problem festooned with private interest groups. If we ever needed bi-partisanship on a subject then it’s this one.