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Time for Single Payer: How Insurers Pass Risks and Costs to You
The chief executive officer of Aetna, Ronald Williams, recently told a U.S. Senate committee that a government-run health-insurance program for all Americans would shift the cost of medical care to private insurers rather than save money. Most Americans probably don't understand that cost-shifting - or risk-shifting - is the most important process in the health-insurance shell game that has crippled American health care in the past 50 years. Some call it a "hidden tax."
Insurance is about risk. Insurance is supposed to lessen the economic impact of relatively rare events - floods, tornadoes, fires and auto accidents. Health insurance blunts the financial impact of sickness and disease, which are not rare events. Insurance companies make money by avoiding risk.
Health-insurance companies like Aetna make more money by selectively avoiding risky enrollees. Law Prof. Andre Hampton, of St. Mary's University School of Law, and I showed in a 2003 law-review paper how Aetna increased its profitability in the 1990s by decreasing the number of people it insured. There's nothing illegal about avoiding risk, as long as a company complies with federal and state statutes.
Private insurance can shift risk/costs legally - through higher deductibles and co-pays - or can do so less scrupulously by avoiding adverse selection (sick people) or by low-balling usual and customary fees for out-of-network doctors, as New York Atty. Gen. Andrew Cuomo recently showed. Whatever the means, the shell game involves determining who has the risk - insurance companies, doctors, hospitals, the government or patients.
Insurance companies have many ways to avoid "risky" (expensive) patients. In the early days of Medicare HMOs, some companies made seniors climb stairs to a second floor office to enroll, thereby selecting the most fit. Cost-shifting occurs by defining (or disputing) what is "medically necessary" care. If your care is not "medically necessary," insurance companies don't pay for it and you might have to. Cost-shifting can occur when administrative hassles delay or prevent payment of claims. Cost-shifting occurs when lump-sum payments for an illness or medical procedure fall short of true costs and a doctor or hospital has to eat the difference.
In the last 30 years, employers have shifted the risk of health care costs to health maintenance organizations, which have, in turn, shifted the risks to doctors and hospitals. Georgetown University law Prof. Nan Hunter defined "actuarial medicine," where doctors are conditioned to make care decisions based on both your needs and those of the insurance company.
The latest version of risk shifting is called consumer-driven health care. That's where companies impose large deductibles and co-pays on patients who supposedly are empowered to bargain harder with doctors and hospitals because they're using their own money.
Six years ago, Professor Hampton and I predicted that this strategy would fail as the debt-ridden American patient/consumer would soon be on the ropes economically, poorly informed and with virtually no bargaining power when sick.
Along with the failure to oversee Wall Street in the market-driven economy in the past 30 years, state and federal governments have failed to moderate risk shifts by insurance companies, with resulting higher out-of- pocket health-care costs to the average American. In 2009 that amount is forecast to be $1,880.
It's ironic that Aetna, long a master of risk-shifting to consumers, told the Senate that government underpayments caused private insurance premiums to be higher than necessary.
This from a CEO whose total compensation was over $23 million in 2007, down from $30 million in 2006. In 2007, Cigna's CEO got over $25 million, and Humana's over $10 million, including almost $200,000 in rides on the company's corporate jet.
Medicare and Medicaid may pay too little to doctors and hospitals, but not to Aetna's Medicare Advantage HMO programs, one of a breed of profitable managed-care products that the Government Accounting Office says are paid about 13 percent too much. CEO Williams wasn't complaining to the Senate about that.
The health-insurance risk pool should be as large as possible. Only the government can do that by imposing a single-payer system. That spreads the risk over the most people. But even a single-payer system is not immune from risk-shifting. Some say the late Natasha Richardson paid the ultimate price for a lack of helicopter medical evacuation in Quebec's provincial medical-care system. The cost savings/risk of no helicopter evacuation was shifted to injured trauma patients like Richardson.
The health-insurance industry knows that its current business model is at risk. The big insurers are scrambling to re-define themselves not as entities that pay - or refuse to pay - claims but as, according to CEO Williams, entities that "improve health and ensure our consumers get the best most appropriate treatment possible managing complex diseases."
Now, the bean counters with finance degrees want to do what even physicians have trouble doing: determining the right way to practice medicine. They failed to learn in business school that the history of medicine is that conventional wisdom is always proven wrong.
The key political question of the day is: Can we afford the private insurers anymore?
20 Comments so far
Show AllWhen our elected officials start providing health care then they will stop letting the corporations poison Americans for profit. Surprise?
Do socialist countries have insurance?
No, but they are authoritarian. A parecon would also not have insurance, and would not suffer from authoritarianism.
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Eric Patton
Cincinnati, OH
ebpatton@yahoo.com
If that's what the direct democratic majority wants, fine, but not necessarily what a politician wants.
You need to watch this excellent program SICK AROUND THE WORLD from Frontline (PBS).
http://www.pbs.org/wgbh/pages/frontline/video/flv/
generic.html?s=frol02p101&continuous=1
Obviously, you don't have a clue as to what socialism is all about. There are about as many forms of socialism as there are forms of democracy. But, like all knowledge, you have to dig a bit to find out the facts. The Scandanavian countries are probably the best examples the world has and they certainly cannot be regarded as authoritarian.
Sagebrush Philo
Intelligently and persuasively stated.
we cannot afford the private insurers any more. They eat up about 30 cents out of every health care dollar. They also donate billions to politicians at election time. These are dollars that could be used to treat the 18,000 Americans that die each year for lack of health care.
Our politicians have the finest health care in the world paid for by you and me. Then they get campaign dollars from insurance to keep the broken health care system to take care of the rest of us. Perhaps a good learning experience would be for them to have to navigate the broken system like the rest of us and they may be more amenable to the necessity of a single payer system.
Tonva
Excellent observations.
In any given society WHAT purpose is served by giving one group of people , no matter the reasons, access to health care while another can not get it?
Why would a person wish another group of people have WORSE health care? What does it demonstrate ? What benefit is derived from such a system for the people?
Sit on a bus or drive down the street and pick out any person and tell yourself "I want that person to have worse health care then I can get". Articulate why such a system is superior. The notion is absurd.
Yet this is what a for profit , private insurance system with HMOS delivers.
With all the debate going on from those that advocate a for profit, privately insured business they are saying exactly that. Those with money should get better health care END of story. That is what they are defending.
In reality then, it is not even ABOUT health care. If it was a for profit system would not exist. It is about maintaining a have and have not system and about making profits for industry.
GWNorth, Excellent analysis and observations on this topic.
Yes indeed, why not quality health care for all citizens, whether they are poor or billionaires.
Single payer health care or a nationalized Medicare system will work. The tax revenue is there, but is given over to the the Department of War for committing crimes against humanity.
The Scandinavian system is far superior to ours. Most of Western Europe is. Even Cuba, with neighborhood clinics, has a better method for treating their people.
Talk to people while you're in a line somewhere, people you meet on the street and ask them what kind of health insurance they have. Ask people with small businesses about their medical insurance and if they provide insurance for the employees or not. I know small business owners that don't even have insurance for themselves, let alone the employees. When I ask them what happens if they become sick or injured, the usual response is: "I don't know, I guess I'm screwed!"
The trillions wasted in Iraq and Afghanistan to murder, maim, destroy and plunder, could have covered all American citizens with health coverage. We are far from being an enlightened society in the 21st Century.
H.R.676, the John Conners bill, and here in California, state senator Mark Leno's bill, S.B. 810, need to be expeditiously passed for the benefit of the nation.
Most people don't question whether Single Payer will work. What you hear instead is obscuring what will and will not be part of Single Payer. I forget which morning show had a for profit advocate who said "socialized medicine" won't work because the Government "can't say no."
Western European systems have some mechanism to judge what is "medically necessary or appropriate" right now. So they are saying "no" to many of the same things private insurers here do: elective cosmetic surgery being at the top of the list. What US private insurance "excels" at is saying "no" to a disproportionate number of procedures that pretty much all Western European systems recognize as medically appropriate, knowing that saying "no" just once will discourage a known % of patients from any attempt at appeals.
The health care issue is simply one more nail in the coffin, wherein the poor have traditionally been kept. Now, they are being joined by the rest of us pathetically duped and increasingly targeted non-entities. To expect the US to implement a truly national health care system would not only drastically reduce the congressional coffers (health care lobbyists are the largest group of all), but would reek of (gasp!) Socialism. That evil word, equated with governmental dictatorships and money stolen from the hard working class to prop up those lazy no-goods who would do better to get off their butts or just die and quit sucking the system dry. No, the USA is better than that. We are a real Democracy. No free handouts to no-goods who have sucked the system dry, right? Just to CEO's and companies who really need the help! After all, it wasn't their fault that they got a little distracted by greed. It is our same Democracy that drove us to invade Iraq (albeit it only after WMDs and removing that evil man we created failed to convince some of the dupes). Why don't those stupid Iraqis whose country we have obliterated understand that our Democracy will give them a better life? Well, some people- especially the non-entities- just don't have the intelligence, I guess. It is the same Democracy that called us to a higher level of securing our nation's protection by disavowing the Geneva Convention and conducting torture- oops!- I mean enhanced interrogation methods that we had charged other countries with war crimes for conducting.
We are the good guys- the cowboys who wear white. Occasionally we may prop some stupid (Tonto) non-entity beside us; but only to enhance our greatness. And anyone who disagrees with us can- in the words of our prestigious orator former vice president- go f&#k themselves. Who are we? We are the anointed rich who have sacrificed our lives to make this world a better place for all of us (us, as in the same; not the masses of non-entities who exist only to serve our purpose). Should health care ever be taken over by the government, you can rest assured that it will be the same government who has taken over our financial system. It will be us. So go ahead Congress. Let the play begin. Express sincere concern for the non-entities in the chambers. Berate us so as to demonstrate your concern for the non-entities. But don;t forget: after the curtain has fallen at the end of the day, we have a date at the Mayflower. Oh, and we have some small tokens of appreciation to give you for all your efforts.
Where's Obama on HR676 these days? He sure seems to be wasting more "capital" on phoney stimulus packages and further ruining the lives of sweetheart Afghans and Pakistanis than he is repairing our broken-hearted healthcare system ! Most doctors in my area don't share the kind of courage Dr. Mittler has shown. Thank you Dr. Mittler for proving that lawyers and doctors need not be enemies but friends. We are all be divided and conquered to broken-hearted status.
Amen, Jennifer!
Jennifer, thanks for pointing out that there already is a bill in congress that would bring about the kind of single payer national health care that we desperately need.
Won't you join me in sending a get well card to the president, asking him to support HR676? I have a stash of get well cards from garage sales and thrift stores, and I can't think of a better way to use them. I know it costs 42 cents to send a card, but I think it's worth it to try, and I think if enough of us do it together we can share the costs of postage!
I'm going to send a card every day until I run out of cards and/or money, or until we get health care for all. This is what I write: "Dear Mr. President, America is sick! We need single payer national health care and we need it now! Please support HR 676 and help America to Get Well Soon! Love, Elaine"
I think this is truly the kind of community-oriented, grass-roots movement that can influence our president. Will you try it with me?
Great idea. I'll do and I'll even bring in others to join in on this. Thank you. :)
"Some say the late Natasha Richardson paid the ultimate price for a lack of helicopter medical evacuation in Quebec's provincial medical-care system."
"Some" may say that, however it would be said only to further misinformation about both the Canadian healthcare system and Richardson's particular condition (which could happen to anyone, anywhere). Please visit the following link for more accurate information:
http://www.pnhp.org/news/2009/april/are_we_safer_than_na.php
It's unfortunate that vested interests would choose to exploit this tragic death to further their interests, but not surprising.
Barto, thanks for the link to an interesting article. It would seem that Ms. Richardson at first declined the services of an ambulance; surely she would have declined a helicopter too! But you can be sure that some dipstick pundits will be bringing that up over and over.
As to risk shifting, I would like to point out that if you don't have insurance and need to use a hospital, you will be charged more for the same services. The hospital bills the pool of non-insured people at a different cost than those with an insurance company. So, it's a double whammy. Not only do you have to pay 100% of your own bills, but you are charged more.
If you have insurance and pay a co-pay, it's usually 20%. But that is on the "retail" charge from the hospital. I've been told that that price is NOT what the insurance company pays. If that is true, they are also ripping off their clients who think they're paying 20% when in actuality they may be paying much more.