America has at least 36 million uninsured citizens. Unpaid medical bills are the leading cause of personal bankruptcy. Approximately, 45,000 Americans die every year because they don’t have health insurance. Many Americans think that they have health coverage only to have it taken away from them through a process called “rescission,” which basically means your insurance company accuses you of lying on your initial questionnaire and refuses to pay. Some have estimated rescission rates to be as high as 50% for the most expensive 1% of health insurance claims. We spend 16% of our GDP on health care, the highest of any nation, and get among the worst results of any OECD country. Insurance premiums have increased more than four times the rate of inflation in the last ten years.
All this is enough to probably make you sick, (although you shouldn’t get sick, because then you’d probably have to go into the American health care system), but don’t worry: the American government is here to save the day.
Let’s take a look at the beginning of this debacle.
The initial hope for reform was the “public option,” which was a collective bargaining arrangement that was supposed to cover 130 million Americans and have rates of Medicare +5%. Initially, the Obama administration was flush with confidence, almost daring private insurers to compete with the “inefficient” government. Obama then started socializing with former GOP Congressman and current Phrma chief lobbyist Billy Tauzin, and quickly realized what was “realistic.” The public option became “negotiable.”
Congress started chipping away at it. The House version of the bill had a public option that would cover a maximum of 6 million people, not the original 130 million, and its rates would not be tied to Medicare. The Senate version did not even bother with a public option. Obama began backing a triggered option, which was like a public option but for only one state at a time and it would come into effect only when federal regulators said so, which of course would be never. Obama even “actively discourag[ed] Senate Democrats in their effort to include a public insurance option.”
The legislative process had clearly gone off the tracks.
Loopholes were drafted into the bill. A $300 million Medicare subsidy was written into the bill for Louisiana Senator Mary Landrieu. Michigan Senator Carl Levin carved out an exemption for non-profit insurers in his state from a hefty excise tax. Vermont, Massachusetts, Pennsylvania, New York and Florida all had Medicare exemptions drawn up for them. Nebraska Senator Ben Nelson got the federal government to cover his state’s portion of the expanded Medicare expenses and also struck a deal that prevented the government from subsidizing plans that cover abortions, a truly monumental concession. Utah Senator Orrin Hatch even had a provision inserted to require insurers to consider Christian Science prayer treatments as medical expenses, a provision supported by Massachusetts Senator John Kerry, whose state is headquarters to the Church of Christ, Scientist.
It wasn’t enough for Congress to just add pork and favoritism into the bill. By requiring that all plans provide first-dollar coverage, Congress effectively killed Health Savings Accounts, which had allowed people to get higher deductibles in exchange for lower premiums and had doubled in popularity from 2006 to 2008. Obama worked with Delaware Senator Tom Carper to help crush an amendment that would have allowed for the cheap reimportation of pharmaceutical drugs from Canada. The amendment would have saved $80 billion for consumers and $19 billion for the federal government, but that was money Big Pharma wouldn’t see, so naturally it had to be crushed. Finally, Congress permitted an amendment to allow insurance companies to place annual limits on the dollar value of medical care, as long as those limits were not “unreasonable.” This amendment undermined the very purpose of insurance.
What did Congress hope would compensate for these losses? Health insurance “exchanges.” The “exchange” is essentially a government entity that attempts to help insurers comply with consumer protections, facilitates enrollment and delivers subsidies. It is strictly supervisory. It supervises a sub-market within the greater health insurance market where ensurers have to abide by certain rules, such as providing mandatory levels of protection. There is an “escape clause,” however, that allows insurers to act outside of this “exchange.” Once they are outside of the “exchange,” they can act exactly as they normally do.
The insurers outside of the “exchange” will be able to use lower prices and offer specially-tailored plans to attract the healthier, lower-risk clients, while the sicker, higher-risk clients will remain the “exchange.” This is exactly what caused the health insurance “exchanges” in Texas, Florida, North Carolina, and California to fail: the healthier clients were cherry-picked out of the “exchange” by insurers operating in the regular market. Also, the insurers inside the “exchange” would have to pay as much as 4 percent of premiums in a surcharge to defray the “exchange’s” overhead costs, putting them at a competitive disadvantage.
There is no financial benefit in these “exchanges” to the consumer, although there is plenty to the insurer. The “individual mandate” ensures that insurance agencies will get millions of new clients, while the “escape clause” ensures that the insurers will not have to take any clients that they consider to be too risky. Instead, the insurers outside the “exchange” can leave these clients to insurers inside the “exchange,” who will surely be heavily subsidized by the government.
Ultimately, the CBO estimates premiums in the individual market will rise by 10% to 13% more under this plan than if Congress did nothing. In 2016, (the major reforms of the bill don’t come into effect until 2014), the CBO estimates the lowest individual insurance premium will be $5,300, and the lowest family plan will be $15,000. Individuals will also be required to report employer health spending on their W-2’s, clearly laying the way for it to be taxed. With all of these costs and with such little benefit, you’d think the media would be exposing this deception on a regular basis, but of course they do the opposite.
The issues have been so obfuscated by the media that in September only 22% of Americans felt they understood the reforms that were under consideration in Congress. The most recent CBO scoring was presented by numerous mainstream media outlets as showing “no big cost rise in premiums.” They of course neglected to mention that the reason there was no appreciable increase in the cost to individuals was because 57% of the people participating in the “exchanges” would be getting subsidies, subsidies that the taxpayer has to pay for. Of course, Phrma did spend $150 million on television commercials in August, and has donated more than $19 million to federal candidates since 2007, so maybe in light of that, the media blackout makes more sense.
The real solutions to this problem are simple.
Federal laws that prevent people from going across state borders to get insurance need to be eliminated. They limit collective bargaining and competition. Collective bargaining worked so well in the 1920’s that the government originally got involved in the health care market because the fraternal lodges, which over a fourth of Americans belonged to, had privately negotiated rates with doctors that were so low that the government thought the doctors needed to be “protected.”
Move away from first dollar coverage. If every dollar of cost is covered by insurers, consumers have no incentive to shop for prices, which means health care providers have no incentive to price themselves competitively. Lasik eye surgery is one of the few procedures not covered by Medicare. Its prices have dropped by 30% since its introduction precisely because consumers have had to shop for prices. This, of course, is while the cost of the rest of health coverage has increased four times the rate of inflation.
Eliminate the wasteful paper-based system to keep track of patients and convert to an electronic-based system. Administrative inefficiency and redundant paperwork creates 18% of all health care waste, which amounts to $153 billion dollars a year. 14% of all health care provider expenditures are related to paperwork. This system is actually encouraged by the government because the government does not reimburse health care providers for email, telephone or electronic records keeping.
Eliminate the incentive for employer-based insurance. Government subsidies of employer-based insurance and losses stemming from payroll tax reductions exceed $200 billion annually. Studies show employer-based insurance decreases job mobility by up to 31%. General Motors alone spent roughly $5.6 billion on health care expenses in 2006, which according to them increased the price of every car they sold by $1,500 to $2,000.
Enact tort reform. The overuse of antibiotics and lab tests to protect against malpractice exposure makes up 37% of health care waste, which amounts to $315 billion a year. France has a tort-averse system, which helps their doctors avoid costly malpractice insurance.
Prevent fraud. Fraud makes up 22% of health care waste. This is approximately $187 billion a year in fraudulent Medicare claims, kickbacks for referrals for unnecessary services and other scams. This fiscal year the government paid out questionable Medicare claims at a rate nearly three times higher than last. This is money that we’re simply giving away.
Break up monopolies. In Hawaii, two insurance companies control the entire market. In California, the most competitive state, two companies control 58% of the market. Outrageously, Congress actually carved out an exemption for insurance companies from antitrust laws in the McCarran–Ferguson Act of 1945, which clearly needs to be changed.
These reforms would cost virtually nothing to enact. Eliminating the paper-based records system, eliminating the tax incentive for employer-based insurance, enacting tort reform and preventing fraud would save Americans $855 billion a year alone. That’s 39% of all total health care expenditures. Moving away from first dollar coverage, allowing people to go across state lines to shop for insurance, and breaking up monopolies would probably save Americans just as much. Of course, that is probably the exact reason why these reforms will be so hard to enact: they keep billions from going into the big boys’ pockets.