Category Archives: healthcare

Healthcare

Healthcare in the Senate: Another Example of the DESPERATE Need for Campaign Finance Reform

Time and again we have seen good ideas to benefit the people by regulating companies emerge from Congress in the form of legislation that does exactly the opposite of what it was intended to do, and amounts to nothing short of massive theft by the very industries that were supposed to be regulated.  That certainly appears to be where healthcare reform is headed.

While all the details have not been released yet, by all accounts the Senate has finally killed off the public option and replaced it with weakened non-profits run by for-profit insurance companies and an opportunity for uninsured people age 55-64 to buy into Medicare.  Many progressives have reacted with jubilation to the Medicare proposal because ultimately they would like to see this concept extended to all citizens.  They should be cautious with their enthusiasm.

It is really important to remember the core dynamic of health insurance, which is that statistically speaking, young and healthy people pay for more insurance than they consume in healthcare.  As they get older and sicker, they start consuming more healthcare than they pay for.  When insurance is structured this way, young people are essentially forced to save in advance for their future healthcare costs and the net effect is “low” premiums for everyone.  If young people are not included in the insurance pool and the only people with insurance are those who have very high healthcare costs, then the premiums will be very high because the insurance company essentially ceases to spread risk among the population and begins to be just an unnecessary payment processor, but one that has enormous administrative costs and a requirement to generate a profit.

So now look at what is shaping up in the Senate.

The insurance companies have won a mandate for all people to buy insurance from them.  This guarantees that young, healthy people will be in the insurance pool, which will allow companies to do some combination of A) increase the profits they distribute to their shareholders and B) manage the cost of their insurance premiums.  By giving people age 55-64 the ability to buy into Medicare, the insurance companies have also, probably, increased the ease with which they can force people in this age group out of their insurance pool.  So they have brought in millions of young, healthy, highly profitable customers, and they are getting ready to kick out millions of older, sicker, less profitable customers.  You wonder why they have been saying all day that they won?  This is why.  It is good to be them.  They are now essentially getting ready to sell expensive insurance exclusively to people who have no healthcare costs.

Medicare, on the other hand, is being set up to fail because just the opposite is happening to it.  It is being forced to take on millions of new older, sicker, customers with high healthcare costs but it will not get any younger, healthier customers to which they can spread the costs.  So Medicare is becoming more of a “payer” and less of an “insurer”.  This is going to cause Medicare’s average cost per customer to be much, much higher than the average cost of the private insurers.  Because Medicare coverage for this age group is going to be forced to be self-financing, the premiums are going to be very, very high. The effect will be that as people turn 55 they will be forced out of their lower cost private insurance, where young people subsidize them, and into Medicare which will end up having much higher premiums than they’ve been paying.

And when Americans look at the two systems side by side they will see private insurance with low premiums (they’ll forget that private insurance only has healthy customers) and Medicare with high premiums (they’ll forget that Medicare only has older, sicker customers) and they’ll conclude that “government can’t compete”.  Republicans will have a field day.

The single-payer proponents should be in favor of giving a buy-in to people age 55 -64 only if they know that next year it will be extended to people 45-54, the year after that to people 35-44, the year after that to people 25-34, and the year after that to everyone.  To be excited about what is currently on the table now is to be cheering the tsunami that is about to wash them away.

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Pew Research: What Does the Public Know? Not That Much

http://pewresearch.org/pubs/1378/political-news-iq-quiz

Pew Research has released a study, which you can participate in if you’d like, on what the public knows and what it doesn’t know about current events. I’m frankly not sure what to think about the results.

First of all, what I am sure of is what everyone will be sure of, which is that the results are pretty dismal for a democracy.  For example:

  • Only 23% of American adults know that “cap and trade” refers to energy and environmental legislation.
  • 58% of Americans think that Iran and Israel share a border.
  • Only 33% of Americans know that Ben Bernanke is the Chairman of the Federal Reserve Board.
  • Only 33% know that the Dow is in the range of 10,000
  • 82% do not know that Max Baucus is Chairman of the Senate Finance Committee that has been working on healthcare legislation.

Here are some real kickers:

  • Only 40% of Americans know that Glenn Beck is a TV and radio talk show host
  • 44% of American adults do not know that the “public option” has to do with health care

There are also some non-surprises.  Older people know a lot more about current events than younger people, and more educated people know a lot more about current events than less educated people.

What I’m not sure about is whether this changes my world view of politics.

After untold hours of arguing with conservative friends about the entire array of issues and philosophies wrapped up in politics, and having only ever convinced one or two to change their opinion on anything, I’ve come to believe that expending a lot of energy on convincing people of anything is futile.  Calories are far better spent finding the people who already agree and convincing more of them to get their asses off the couch to vote and make phone calls than the other side.  Turn out is everything.

Do these numbers challenge that?  Could it be that if we can explain cap and trade to the 77% of Americans that don’t know what it is before the other side can, we actually have an opportunity to win them over?  Could it be that the 77% of people who think cap and trade has to do with health care, or unemployment, or banking and finance reform can not be convinced otherwise?  Or could it be that the 77% of people who don’t know this are just way more interested in who is winning Dancing with the Stars and they are never going to be an important political force whether they understand or don’t understand because they are never going to vote anyway.  I’m not sure.

Aside from the obvious, as stated above, what do you think this study means for the pragmatic practice of politics?

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UnitedHealth $7 billion more than Medicare to pay less than 10% of Medicare’s bills.

In 2007 UnitedHealth Group made a net profit of $4.65 billion on revenues of $75.43 billion.  6.2%, which sounds reasonable and fair.  That’s NET profit of course.  UnitedHealth Group also paid $2.6 billion in income tax.  Now, they don’t have a choice in this last bit, but the fact remains that a government run alternative would save the profit and the income tax UHG takes out of the healthcare system and which amounts to 9.8% of the insurance premiums they collect.

But that’s just the beginning. I’m not here to make a case that the government should run businesses solely because it doesn’t have a profit motive.  We have good reason to believe that in lots of cases that’s a bad idea.

United Health’s 2007 Cost of Goods Sold (their actual insurance payouts) were $56.2 billion or, 74.5% of their $75.43 billion of revenues.  We know that of the remaining $25.5% is $7.3 billion in tax and profit.  Now, as it turns out, UH wrote off $796 million in depreciation and amortization which the government also does in its own way, which left it with $10.583 billion in operating expenses, or 14% of gross revenue.  This 14% is where the REAL pain is.

A large portion of this goes to doing their damndest to not insure people who might need insurance and to cut them off from insurance in the instance that they ever do.  So, this really is the heart of our healthcare issue, which is that insurance companies make money by NOT paying for healthcare costs people pay them to pay for.  But the heart of the problem isn’t the only problem.

The other problem with the 14% (and actually, lets go ahead and make it the whole 25.5% again) is that the comparable cost for the combined Medicare and Medicaid program is… are you ready?  2.6%.  That’s right.  Medicare and Medicaid expect to pay out $709 billion of medical payments covering healthcare for 95 million Americans (about 1 in 3) with administrative overhead of $18.6 billion.  Actually, a lot of this 2.6% covers fraud and abuse prevention and loss accounts, quality improvement programs, research, and grants to states for various things.  The actual program administration costs are one half of one percent.  That’s right.  0.5%

Another way to look at it is that if Medicare had a similar cost structure to United Healthcare, it would spend $180 billion on administration and profit to provide services to all those people instead of the $18 billion it actually spends.  Or, if UnitedHealth were as efficient as Medicare, its overhead would be less than $2 billion.

Sources:

United Health Group 2007 Financial Statements.

Centers for Medicare and Medicaid Performance Budget for FY 2009.

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Public option will NOT automatically cause most companies to drop insurance.

There are exceedingly few companies in the United States today that are required by law to provide insurance for their employees.  So why do they do it when it is such a huge expense?

Companies provide insurance benefits to compete in the labor market.

No matter what the unemployment rate, sooner or later companies have to hire new employees.  When they do, it doesn’t matter whether there are three employees available or three hundred… no company wants the 3rd best.  They compete for the best.  They don’t always win the competition, but they try to.

When was the last time you met an electrical engineer with ten years of experience who would even consider working for some fly-by-night company that doesn’t offer medical benefits?  Or a Director of Advertising.  Or a Senior Database Security Analyst.  Or a Vice President of Finance and Accounting?  Or a District Manager of Food Service Operations?  Or a damn good Administrative Assistant?

To compete for the best talent, companies have to offer the most competitive compensation packages, and in today’s world that means health insurance as a benefit is mandatory.

Now, if a company is paying 15% of its payroll to provide insurance and it finds that it can stop doing that and pay just an 8% penalty… of course it is going to want to do that.  But it is only going to be able to do that if workers find that option to be competitive.  If the best quality employees, the ones with the most choices and options of where to work, feel that the public insurance and private insurance are equally as good, but their out of pocket cost is $300 a month for the company that provides private insurance (because of the employer contribution) but $900 a month for the company that makes them use the public option, they will work for the company that offers them the private insurance.  Until, or unless, the company not offering insurance pays them the $600 a month in cash to make them whole.  Likewise, if the out of pocket costs are the same, but the public insurance turns out not to be as good as the private insurance, the best employees are going to either demand to be compensated financially… or flat out refuse to work there.

If it turns out that the public option insurance is as good as the private insurance, and that after paying the 8% penalty and whatever amount they have to pay employees in cash to continue to be competitive it is still economically beneficial for them to do that… well, that will be the proof of the pudding that government can do it better!  We should all applaud.  The employees will be happy, the company will be happy, the taxpayers will be happy… everyone will be happy except the insurance company CEO that can no longer command a $10 million a year annual salary.

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