By Iyah Romm, Sylvia Thompson, MD and Elizabeth Wiley, JD, MPH

I want to cover everybody. Now, the truth is that, unless you have a single-payer system, in which everybody is automatically covered, then you’re probably not going to reach every single individual. ~ President Barack Obama, July 22, 2009

As future physicians, ensuring that every single one of our patients has unrestricted access to health care is a core tenet of our professionalism. President Obama has affirmed what many of us know to be true – a single-payer system is the only responsible solution to our health care crisis. The vast majority of our seniors are satisfied with Medicare; in fact, many patients anxiously await Medicare eligibility because of the security and stability provided by the program’s guarantee of coverage and access. Labor unions and advocacy organizations across the United States support a single payer system as do the majority of health care providers. These groups – these constituencies – recognize that single payer is the best system in which to guarantee quality, affordable, health care for all.

On July 31, 2009, Representative Anthony Weiner (D-NY) introduced an amendment in the House Energy & Commerce Committee to replace key provisions in the House health reform bill with language modeled after HR 676, the Expanded and Improved Medicare for All Act. House Speaker Nancy Pelosi (D-CA) guaranteed a floor vote on single payer if Rep. Weiner withdrew his amendment. Under good faith, Rep. Weiner assented. Now, Speaker Pelosi is reneging on her promise not only to Rep. Weiner, but to the American people, many of whom believe that we need to have a true debate on the merits of a single-payer health care system. We write today calling for an end to these games. Our legislators must stop politicking with the most valuable resource available to them – the lives of our patients, their constituents.

In the long history of single payer advocacy, there has never been such a momentous time – never have Americans had the opportunity to hold their representatives accountable to the people on this issue – rather than to the powerful lobbies that pervade the beltway. According to the Kaiser Family Foundation, nearly one in two Americans support a system of publicly funded, privately delivered, Medicare for all – will the floor vote reflect this statistic? We will only know if Speaker Pelosi upholds her promise.

The American people should be able to trust members of Congress to stand by their promises – both to them and to each other. In the health care debate, the needs of average Americans must come before special interests and politics. Our friends, family, and patients deserve to a true, honest debate. Denying that chance through lies and broken promises is an anti-democratic betrayal of trust that will not easily be forgotten – now or at the polls in November. The Weiner amendment presents a historic opportunity for members of Congress to document their support for single-payer national health insurance as the best way to solve the U.S. healthcare crisis and provide a vote that Members can proudly stand by when approached by constituents.

We see everyday how budget shortfalls result in staff reductions that ultimately threaten the quality and availability of care. Single payer would provide universal and comprehensive coverage for all medically necessary services. Unamended, HR 3962 (formerly HR3200) would leave millions uninsured or with skimpy coverage. Single payer would allow patients free choice of doctor and hospital. Under HR 3962, insurance companies would continue to deny care and restrict access to providers. Single payer would pay for itself by eliminating $400 billion in insurance company administrative waste and redirecting these savings to patient care. HR 3962 would require $1 trillion in new revenue over the next decade. Single payer would establish proven and effective cost-containing mechanisms to ensure that benefits are sustainable over the long run. HR 3962 lacks effective cost control measures by maintaining the primacy of the private insurers.

The private insurance industry has had eight decades to lead change, to shift from a world predicated upon a race to the bottom-line to a culture of innovation and care. But their time has passed. Speaker Pelosi must offer the leadership necessary to truly reform our system and to address one of our greatest moral failures of the last fifty years. Only a single payer system can provide the change President Obama has championed, the change we need – simplifying payment, eliminating unnecessary bureaucracy, and investing the subsequent savings into a solitary goal, providing care to all. The math is simple, the morality pure, and the passion of single payer advocates indefatigable. As future physicians, this is the type of system in which we aspire to practice medicine.

Iyah Romm, Sylvia Thompson, MD and Elizabeth Wiley, JD, MPH are physicians-in-training and PNHP members as well as national leaders in the American Medical Student Association (AMSA).

By Kip Sullivan, JD

Executive summary

Both the Senate and House versions of the proposed “public option” require that corporations with expertise in health insurance “administer” the “option.” This fact received no attention until October 24 when the Washington Post reported that the “option” would “likely” be run by insurance companies. Several bloggers attempted to assure readers that this news was nothing to be concerned about. They asserted that Medicare has always contracted with insurance companies to process claims, and then leaped to the conclusion that the role of insurance companies within the “option” will be no more significant than it is within Medicare.

But this conclusion is clearly wrong if the Senate version of the “option” becomes law, and almost certainly wrong if the House version becomes law. This conclusion rests on the widespread belief that the “option” will “look like Medicare,” which is not accurate. The most important differences between Medicare and the “option” are size and the environment within which the programs will function. While Medicare enrolls 15 percent of the population, the “option” is projected to enroll somewhere between zero and 2 percent. While Medicare is a single-payer system, the “option” will function within a multiple-payer environment.

These two differences, plus provisions in the Democrats’ legislation authorizing the federal government to hire private corporations to administer the “option,” create a high risk that insurance companies and other types of corporations will play a role in the “option” that greatly exceeds the limited role they play in the traditional Medicare program. Private-sector firms will probably play a role within the “option” that closely resembles the role that defense contractors play in the production of weapons for the Pentagon. Just as Northrop Grumman, for example, carries out all tasks necessary to create a fighter plane, so private corporations (not public employees) will carry out all tasks necessary to create the “option” health insurance programs. Carrying out virtually all of the tasks necessary to establish and maintain “option” health insurance plans is obviously very different from, and more significant than, merely processing claims.

To comprehend the more dominant role insurance companies will almost certainly play within the “option” we must first disabuse ourselves of the myth that the “option” will “look like Medicare.” Although leaders of the “option” movement have vigorously promoted that claim, the claim has been demonstrably false since at least June when Democrats introduced legislation that would create tiny “option” programs that would, according to Congressional Budget Office estimates, insure no more than 10 million Americans.

Once we have determined that the “option” will be tiny, we must then ask whether a tiny “option” can be implemented as easily as Medicare was in 1966. Using just our commonsense and a rudimentary knowledge of the health insurance industry, it becomes obvious the answer is, No, a tiny “option” cannot be implemented as quickly and easily as Medicare was. Unlike Medicare, which was implemented at the national level using a few relatively inexpensive methods (such as press conferences and a public education campaign), the “option” will have to be implemented on a market-by-market basis. The “option” program will have to create one “option” program or plan for the California Bay Area market, another for the upstate New York market, and so on.

Of course, stating that the “option” will consist of numerous local plans and will, therefore, be harder to implement than Medicare was, sheds no light on whether public employees or private corporations will create and run those plans. For information on that issue, we must turn to the Democrats’ legislation. According to bills written by the Senate Health, Education, Labor and Pensions (HELP) Committee and by the House leadership (HR 3962), the Secretary of Health and Human Services will be authorized to contract with corporations “for the purpose of performing administrative functions … with respect to the public health insurance option” (as HR 3962 puts it; the HELP Committee’s bill uses nearly identical language). How we interpret the phrase “administrative functions” depends on our understanding of what has to be done to create the “option” program.

To sum up: The tasks required to implement a small “option” are quite different from the tasks required to implement Medicare; the Democrats’ legislation indicates these tasks will be carried out by insurance companies and corporations with similar expertise. When we piece these facts together, we must conclude that private-sector corporations will very likely play a much greater role in the “public option” than they do in Medicare.

Newsflash: Corporations will administer the “option”

On Saturday, October 24, the Washington Post published an article which said in passing that the “public option” will be run by insurance companies. “The public option would effectively be just another insurance plan offered on the open market,” said the article. “It would likely be administered by a private insurance provider, charging premiums and copayments like any other policy.” To my knowledge, that is the first time any media outlet or blog, with the exception of the blog maintained by Physicians for a National Health Program, has warned the public that the “public option” will be run by private corporations, not public employees.

Within hours of this article’s publication, blogger John Byrne at “the raw story” reported that insurance companies will run the “option.” Byrne quoted the Washington Post article and three paragraphs from one of two papers I wrote on this issue. Byrne’s piece generated a minor ruckus in the liberal blogosphere. By Sunday October 25, a half dozen other blogs had posted it, and hundreds of visitors to these blogs had posted comments.

The great majority of the comments expressed outrage over the fact that the “public option” won’t be a publicly run program. But a few sought to minimize the importance of Byrne’s article by assuring readers that Medicare has always had contracts with insurance companies to process claims. For these people, this fact allowed them to jump to the conclusion that the role of the insurance industry in the “public option” would be no more significant than its role in Medicare – insurance companies would be mere claims processors. According to these people, insurance companies wouldn’t create the “option” plans and would not run them. Here are two examples of those comments:

Calm down everyone – let’s unknot those drawers. Private insurance companies have been running the Medicare system for years and years. They are called fiscal Intermediaries. …Please let’s all understand the way Medicare works before going off.


…. Medicare is already administered through private insurance companies and it works very well. Those companies already have the systems set up for tracking and billing and they do the Medicare administration for a minimal cost.

On Monday, October 26, Susie Madrak posted a comment on “Crooks and Liars” in which she described Byrne’s article as “news that really isn’t such a big deal.” Madrak said the insurance companies that get contracts to run the “option” will be “third party administrators” whose only job will be to process claims for the “option.”

Seduced by the “option” campaign’s misinformation

These comments are mistaken. Their authors have been seduced by the “option” campaign’s constant comparison of the “option” to Medicare. The comparison to Medicare leads the unsuspecting to think the “option” will be a uniform program, administered directly by public employees, like the traditional Medicare program, that is, a program with no insurance companies parked between the federal government and the doctors and hospitals that treat Medicare beneficiaries. It leads the unsuspecting to think that public employees will create and directly administer the “option” and that the role of corporations in the “option” will be limited to the role they play in the traditional Medicare program, which is to process claims.

This excerpt from an April 2009 paper entitled “Healthy Competition” by Jacob Hacker, the author of the modern version of the “public option,” illustrates how aggressively contemporary “option” advocates sell the notion that the “option” will resemble Medicare. Notice that Hacker states clearly that the “option” will not contract with “private plans” and “nonprofit insurers.”

In most discussions of the public plan [i.e., the “option”], the phrase “Medicare-like” is used to describe the new plan…. When people say “Medicare-like,” … they are referring to the traditional portion of Medicare that directly pays doctors and hospitals for care delivered to elderly and disabled Americans. A “Medicare-like” plan is a public health insurance plan that pays providers to deliver care, rather than a government contract with private plans to provide insurance. More specifically, the new public plan should be national (with the same basic terms nationwide for patients and providers), governmental (a true public health insurance plan, not, say, a nonprofit insurer operating under federal charter), comprehensive (providing defined benefits on the same basic administrative platform), and built on Medicare’s infrastructure. … [P]lan offerings and pricing can and should differ regionally, but the public health insurance plan should be a single national plan with its own risk pool separate from Medicare’s that is available with the same benefits and coverage terms in all parts of the nation. (page 7)

But Hacker’s description of the “option” bears no resemblance to the “option” in either the Senate Health, Education, Labor and Pensions (HELP) Committee or the House bill (it used to be HR 3200, now it is HR 3962). The “options” in these bills will not resemble the traditional Medicare program but will in fact consist of numerous insurance programs (or plans) functioning at the level of individual insurance markets, that is, at the level of states and regions within states. Once you understand this, you begin to grasp what it means to say that private corporations will “administer” the “option” program. You begin to comprehend the possibility that the multiple local “option” programs might actually be owned by, or administered by, privately owned corporations, possibly health insurance companies. You begin to understand, in short, that the role of corporations in the “option” could be much more substantial than that of a mere claims processor.

To offer an analogy, the role of private corporations in the “option” will probably resemble the role that Northrop Grumman, Boeing and other defense contractors play in the production of fighter planes for the Pentagon. Through contracts with these corporations, the Pentagon sets the terms under which contractors are supposed to produce the planes, but the actual production of the planes is done entirely by private corporations. If and when the “option” program as it is now described in legislation pending in Congress is implemented, private-sector control in that program will almost certainly resemble the private-sector control of the production of military hardware for the Pentagon far more than it will resemble the level of private-sector involvement in the traditional Medicare program.

Review of the “public option” bait-and-switch campaign

Prior to last spring, the possibility that private corporations might play a dominant role in the “option” was not obvious. But some time during the spring, and by no later than June, it did become obvious, at least to those with eyes to see. Last spring Democrats took the large original “option” proposal and shrank it down to a tiny program.

As I have explained elsewhere, the original version of the “option” proposed by Hacker and endorsed by advocates of the “option” was huge. Hacker and others predicted it would enroll 130 million non-elderly Americans, or about half of the non-elderly population. It was reasonable to predict that a public program of that size would either possess many of the features of Medicare, including its uniform benefits, or would soon acquire those features as it grew bigger at the expense of the insurance industry. It was reasonable to predict it would grow bigger because its huge size would give it the advantage of lower overhead and lower provider costs and, therefore, lower premiums.

But after the Democrats released their draft legislation in June, it was apparent they had no intention of enacting an “option” program as large as the one Hacker originally proposed. The Democrats’ bills eliminated all but one of the features of Hacker’s original version of the “option” that would have guaranteed enormous size. The features the Democrats struck from Hacker’s original model included the requirements that the “option” be open to all non-elderly Americans, that the “option” automatically enroll all uninsured people and all Medicaid recipients prior to the commencement of operations, and that only enrollees in the “option” get subsidies to offset the cost of the “option’s” premiums.

The initial reports by the Congressional Budget Office released in July made it even more obvious how badly the Democrats had shrunk the “option.” CBO estimated the Senate HELP Committee’s version of the “option” would enroll approximately zero people while the HR 3200 version would enroll roughly 10 million people. CBO is now saying
the new House version of HR 3200 (HR 3962) released by Speaker Nancy Pelosi on October 29 will enroll just 6 million people.

By no later than July, then, representatives of the “option” campaign had no excuses for comparing the “option” to the traditional Medicare program. That didn’t stop them from doing so, however. Hence the great confusion among members of the public, the media, pollsters, and even members of Congress about what the Democrats’ proposed “option” is and, therefore, the role corporations will play in its creation and administration.

When we knew for sure the “option” was going to be tiny, commonsense and a rudimentary knowledge of the health insurance industry should have told us the “option” would not be a uniform program like the traditional Medicare program but would instead be broken up into dozens or hundreds of individual programs or insurance companies, each serving a particular health insurance market, for example, California’s Bay Area or upstate New York. Commonsense would not necessarily have told us that these multiple insurance programs or companies would be run by private corporations. They could just as easily (and for less money) be run by the federal government.

For information on who would run these local programs, we had to consult the “option” language in the Democrats’ legislation. It is there we find evidence that these programs will be run by private firms. I have reviewed the murky “option” sections of the Senate bill and House bill in previous papers. 

In the remainder of this paper I will focus on why our commonsense tells us that a very small “option” has to be a balkanized program consisting of multiple local programs. I believe it is the failure of many people to comprehend this fact that leads some of them to misinterpret the language in the Democrats’ bills authorizing the federal government to outsource “administrative functions” necessary to run the “option.”

What commonsense and a little knowledge of the industry tells us

In this section I want to discuss the Democrats’ proposed “option” as if we know only three things about it: (1) it must compete with private health insurance companies to sell health insurance to the non-elderly; (2) unlike the Medicare program, which was given 100 percent of the elderly to insure and thus began with a huge pre-enrolled pool of people, the “option” will instead be guaranteed zero enrollees on its first day of operations and will have to compete with the insurance industry for every customer it eventually enrolls; and (3) the “option” is expected to perform on a “level playing field,” that is, it is given no advantages over Aetna and its other private-sector competitors (such as subsidies to its enrollees to purchase the “option’s” product that people who buy insurance company policies don’t get).

Commonsense tells us that this version of the “option” will not resemble Medicare, either in the manner in which it must be implemented or in its final structure. If the “option” really were like Medicare and was given 100 percent of all Americans in a large age bracket, say all kids up to age 19 or all adults age 50 to 64, we would have every reason to predict the “option” would spring up as quickly as Medicare did and flourish as Medicare has. We would also have every reason to think the establishment of such an “option” would be relatively easy. The primary task that would need to be carried out by such an “option” would be to announce its existence with press conferences and an advertising campaign like the one that preceded the establishment of Medicare Part D (the drug program). These activities, easily executed out of one office in Washington DC, would, largely by themselves, achieve nearly universal enrollment of the eligible population and educate doctors and hospitals about how to participate in the new program.

Because this hypothetical version of the “option” would quickly enroll virtually all of the eligible population (Medicare accomplished that task within 11 months), it would have little or no problem inducing clinics and hospitals everywhere to accept “option”-insured patients even if it paid providers at rates below those paid by the insurance industry. It would have little or no trouble because very few providers would want to turn away so many patients and so much revenue. Commonsense tells us this would be true across the country (not just in some parts of the country) because the distribution of any given age bracket is roughly the same across the country.

Medicare’s history confirms this commonsense analysis. No law requires doctors and hospitals to accept Medicare patients, and yet virtually all doctors and hospitals have accepted Medicare patients routinely since Medicare began operations on July 1, 1966 even though Medicare has paid providers 20 percent less, on average, than the insurance industry has (the actual difference between Medicare and insurance industry reimbursement rates has varied over time and by region).

On the other hand, commonsense suggests a very different outcome if the “option” starts out as a program separate from Medicare and is guaranteed none or few of the advantages that Hacker specified for his original version of the “option,” including a large enrollment prior to the first day of operations. Commonsense tells us that if the “option” is instead forced to begin operations without a single enrollee, and must compete on a level playing field with existing insurance companies to recruit whatever enrollees it eventually does get, the “option’s” growth pattern will be quite different from Medicare’s.

And here we come to my main point: The major difference between an “option” that really does resemble Medicare and the little one proposed by Democrats is that the little Democratic “option” can’t be rolled out all at once at the national level. Rather, it must be implemented at the local level market by market – in the Bay Area market, in the upstate New York market, in the Chicago market, in the Iron Range-Duluth market, in the Fort Worth-Dallas market, and so on.

Small size dictates market-by-market implementation of the “option” program

A small “option” must be implemented market by market because wholesale activities at the national level – like press conferences and a public education campaign – no longer accomplish, by themselves, the two fundamental tasks that any successful insurance program must accomplish – the enrollment of a sufficient number of people, and achieving some assurance (formal or informal) that a sufficient number of providers are ready and willing to treat those people. For the tiny “option” promoted by the Democrats, those tasks can be accomplished, if at all, by a work plan that (1) goes beyond mere press conferences and advertising that is (2) conducted at the local level.

In short, those who must implement the Democrats’ tiny “option” will have to behave as if they were executives of an insurance company seeking to break into markets in which the company has no presence. However, unlike insurance company executives, “option” administrators won’t have the luxury of merely buying an existing insurance company in the target market. (Insurance companies never or rarely create insurance companies from scratch any more but instead buy their way into new markets. That fact indicates how difficult it is going to be for the “option” to establish itself in any market in the US.)

Once we accept the fact that the Democrats’ “option” will have to be built market by market, an obvious question arises: Won’t the “option” program or insurance company we build in one market differ in important ways from the ones we build in other markets? The answer to this question is, Yes, the “options” could vary by premium levels, benefits covered, level of out-of-pocket payments (this will be true even if the final “option” legislation sets minimum benefit and out-of-pocket levels), degree to which patient choice of provider is limited, or all of the above.

For those who aren’t familiar with the insurance industry, let me elaborate briefly. Health care markets, and therefore health insurance markets, are local. With the exception of prescription drugs and medical equipment, the great majority of medical expenditures are for services provided by health care professionals to people who live near them, that is, within their market area. The fact that most health insurance companies are multi-state or national doesn’t change the fact that the success of any given insurance company depends primarily on how it performs in the local markets in which it attempts to compete. Since at least the advent of managed care, the performance of insurance companies in a particular market has depended first and foremost on its size.

The reason insurance companies do not attempt to penetrate all markets is that there are barriers to market entry that are expensive to overcome and, in some markets, impossible to overcome. One of the most important market-entry barriers, possibly the most important, is the level of concentration within the insurance market. A market in which, for example, two insurance companies insure 80 percent of the population will, other things being equal, be harder to break into than a market in which the largest two insurance companies insure only 20 percent of the population. The level of concentration within the clinic and hospital sectors will also have some bearing on how difficult market entry will be.

A third important factor affecting the ease of market entry is the extent to which managed care has taken over the market. In markets where managed care practices are widely used, insurers typically limit patient choice of provider. Insurance companies do this because it allows them to funnel a large number of patients to relatively few providers, and this in turn augments their power to extract discounts from providers and to induce providers to cooperate with the insurance company’s efforts to deny services to patients. Both of these advantages – paying providers less and paying for fewer services – obviously help the insurer keep its premiums down.

Markets differ in the strength of market-entry barriers. In markets where

• one or two insurers insure the majority of the people who live in that market and
• where those insurers impose restrictions on patient choice of provider and, therefore,
• have succeeded in pushing their provider rates way below those of other insurers and
• have induced their providers to deny care at higher rates than smaller insurers have –

in those markets, establishing a new insurance company that can quickly get its premiums down near or below those of the dominant insurers is very, very difficult. On the other hand, in markets where, say, 20 insurance companies each enroll 5 percent of the population and those insurers make limited use of managed-care tactics, entry and long-term survival by new competitors is less difficult.

To sum up: If we know only that the proposed “option” (1) is expected to compete with insurance companies, (2) will be small, and (3) won’t be given advantages that insurers don’t get, we can predict the “option” will have to be built market by market. We can predict, conversely, that such an “option” cannot be implemented with the simpler and less expensive national-level activities that would suffice to implement a large “option” that truly did resemble Medicare. Exactly how small the “option” has to be before we can predict it must be implemented market by market is not clear. But it seems safe to say that the little zero-to-six-million-enrollee “option” proposed by the Democrats falls far below the critical mass required for a publicly financed health insurance program to be implemented with the relatively simple tools with which Medicare was implemented.

Finally, if we reach the conclusion that the Democrats’ “option” must be implemented market by market, then we must also reach the conclusion that the locally implemented “options” will look different from one another. Why? Because the market-entry barriers they will have to overcome will differ from market to market. Such an “option” will be “national” only in the sense that the federal government will be financing the attempt by the “option” program to break into every market in the US, and in the sense that the federal government will set some minimum criteria (such as minimum benefit levels) that “option” programs must meet in each market.

Option advocates offer no information on who will create and run the “options”

Reaching the conclusion that the “option” program will have to be implemented market by market does not necessarily mean individual local “option” programs will be created by or run by private firms. One could imagine Congress passing a law that requires “option” programs to be created and run by public employees.

To shed some light on this issue, it would be helpful if we could find discussions about the implementation of the “option” in documents prepared by “option” advocates, by the staff of the Democrats who wrote the “reform” bills, or by independent consultants who reviewed the “option” proposal. But, amazingly, the available documents contain not a word about how the “option” will be created. The following documents about the “option” say nothing at all about how “option” plans will be established:

* Jacob Hacker’s 2001, 2007, and 2009 papers describing the “option”;
* All three reports on Hacker’s version of the “option” by the Lewin Group (the first two of which Hacker and his allies endorsed);
* Press releases and other documents about the “option” prepared by representatives of Health Care for America Now and of the Congressional Progressive Caucus;
* All five reports by the Congressional Budget Office to members of Congress about the impact of the “option” on the uninsured rate and on federal spending issued between July and September as well as CBO’s latest (October 29) report on the “option” in the House bill.

On October 27, I attempted to induce Jason Rosenbaum, a blogger for HCAN, to explain how the Democrats’ “option” would be implemented. I posted a question to Rosenbaum on an article he wrote for the Firedoglake Website in which he called Sen. Reid’s announcement the previous day (that the Senate version of the “reform” bill would contain an “option”) “a huge victory.” My question, which is presented in an appendix to this post, laid out my best guess as to how an “option” plan could come into existence plus several questions about aspects of my scenario. Rosenbaum declined to discuss my question. “Sorry Kip, not interested,” was the extent of his reply.

Divining the intention of the authors of the Democrats’ legislation

Thus, the only documents available to the public at this date that shed light on the extent to which private corporations will create and run the “option” program are the Democrats’ “reform” bills – the Senate HELP Committee bill and HR 3200, now HR 3962. As I have noted in previously posted papers, both bills clearly authorize the Secretary of the Department of Health and Human Services (the official in charge of implementing the “option” in both bills) to hire private-sector insurance companies and other types of corporations “for the purpose of performing administrative functions … with respect to the public health insurance option” (as HR 3962 puts it at page 212; the HELP Committee bill uses identical language but substitutes “with respect to the community health insurance option”). Both bills state that these “administrative functions” include at minimum the claims-processing functions now carried out by insurance companies for Medicare. Both bills, especially the Senate bill, clearly imply that the administrative functions that will need to be carried out to create the “option” will go way beyond mere claims processing. However, neither bill explains what these non-claims-processing tasks will be.

In my view it is reasonable to infer that the non-claims-processing functions will be all those tasks necessary to create and run “option” programs in every market in the US. I said above that the Senate HELP Committee bill is especially clear about this. That’s because it not only explicitly acknowledges that the “option” will consist of numerous “community option” programs, but because it limits the use of the start-up funds to loans to the “contracting administrators” (the Senate HELP Committee’s name for the corporations the Secretary may contract with). There is, in other words, no language in the “option” section of the Senate HELP bill that gives the Secretary money to hire more public employees to carry out the task of creating “option” insurance programs. The Secretary’s only choice is to outsource all the tasks necessary to create “option” programs market by market to private sector corporations, most of which will probably be insurance companies.


Using our commonsense and a few basic bits of information about the Democrats’ “option,” we can deduce that the “option” will not be uniform like Medicare, but will be a smorgasbord of local plans. When we consult the Democrats’ legislation, it becomes apparent – in the case of the Senate bill, obvious – that the “option” will be created and possibly run by insurance companies and other corporations.

Once we establish that the “option” will consist of multiple local plans, then it becomes obvious the contracting administrators will have to set those up. What’s not obvious, but what seems inevitable, is that (a) the contracting administrators will hire non-public-employees to staff the local plans and (b) the contracting administrators will either eventually retire from the scene and leave those plans in private hands (in which case we can say the local “options” are privately owned and run) or the contracting administrators will continue to play some ownership or supervisory role indefinitely (in which case it would be accurate to say the contracting administrators not only created the local “options” but ran them thereafter).

Thanks in large part to the bait-and-switch tactic employed by the leaders of the “public option” movement, the high probability that the “option” will be a balkanized program created and run by insurance companies is not obvious to the public. The constant description of the “option” as “like Medicare” and “available to all Americans” has created widespread confusion about every aspect of the “option,” including how big it will be, whether it will be uniform like Medicare or balkanized into dozens or hundreds of local programs, and who will create it. Given this confusion, I definitely understand why some people thought Byrne’s article overstated the role insurance companies will play in the “option.” But that doesn’t excuse them. The movement for universal health insurance does not need ditto-heads. We need well informed people capable of playing a role in improving, not diminishing, public understanding of the Democrats’ “reform” legislation.

I want to stress that the issue of whether the Democrats’ tiny “option” is run by public employees or private corporations is secondary to the question of whether the “option” will work as advertised, in particular, whether it will be big enough, efficient enough, and sufficiently immune to adverse selection to seize substantial market share from the insurance industry and force its premiums down. The important issue is the impact the small size of the Democrats’ option will have on its ability to keep its administrative costs and provider reimbursement rates down. The use of private firms to create the numerous “community insurance option” programs will probably add to the total administrative cost of setting up the “option” program, but those additional costs pale in comparison to the higher administrative costs created by the need to build the “option” program on a retail basis, that is, market by market, rather than on a wholesale basis.

Most importantly, if the Democrats’ feeble “option” is used as a fig leaf by liberal members of Congress to throw hundreds of billions of dollars per decade at the insurance industry, and if the “option” fails to have any effect on the insurance industry, serious damage will be inflicted on Americans, both as patients and as premium- and tax-payers. Those who wish to alleviate human suffering in all its forms will care little whether the “option” failed under the guidance of public employees or insurance companies.

Nevertheless, this issue of whether corporations will play a significant role in the “option” is an important one because truthful reporting about it helps educate Americans, including those Americans who hold seats in Congress, about what the “option” is and isn’t. Right now the Democrats’ “option” looks like a tiny little program that will hire insurance companies to create little privately run insurance companies from scratch on a market by market basis. It is extremely unlikely that if pollsters asked Americans what they thought of this version of the “option” that a majority would say they like it. It’s hard to believe a majority of the membership of Congress would vote for it.


My question for HCAN blogger Jason Rosenbaum, posted October 27, 2009 on Firedoglake’s blog:

Could you walk us through the process by which the Department of Health and Human Services will set up an “option” plan in any given market, say Boston, under the Senate health bill, HR 3200, or HCAN’s blueprint? Here’s the scenario I believe will occur under both the Senate HELP bill and HR 3200 assuming the “option” actually survives.

* Beginning in 2013, the Secretary of HHS contracts with a “contracting administrator,” that is, a corporation such as Blue Cross Blue Shield, to set up an “option” plan in Boston. The Secretary also loans Blue Cross several hundred million dollars to carry out all the tasks necessary to set up an “option” plan.

* Blue Cross then hires 80-100 people to create an insurance company to serve Boston. These people do the things you’d expect people to do to create a new insurance company, including making cold calls on clinics and hospitals to see if they’d be interested in accepting “option”-insured patients at Medicare rates plus 5% (or about 15% below the insurance industry average).

Question: Do you anticipate that Blue Cross will at some point ask clinics and hospitals to sign contracts with Blue Cross indicating their commitment to be part of the Boston “option” network? Or will contracts be unnecessary?

* After six months of making numerous cold calls, Blue Cross succeeds somehow in inducing a sufficient number of clinics and hospitals to agree to accept “option” enrollees. Now Blue Cross incorporates the Boston Public Option Plan (BPOP) and hires 80 people to staff BPOP.

Question: Does Blue Cross exit the scene now, or do you anticipate Blue Cross will continue to serve as an advisor to BPOP? Obviously, Blue Cross, if it does retire from the project, has to leave in place a contract with BPOP that at minimum ensures BPOP will repay the loan that Blue Cross got from the Secretary of HHS.

* BPOP/Blue Cross now begins advertising heavily and making cold calls on employers seeking to induce tens of thousands of Boston residents to pay their premiums to BPOP in the event that these people are eligible to shop in the MA exchange.

Question: How many people will have to enroll in BPOP in order for BPOP to have sufficient leverage over local providers to get them to accept reimbursement rates even with or below the rates paid by Aetna et al. in the Boston area? I’m not looking for precision, just some evidence that you or someone you know in the “option” movement has thought about this.

* Let’s assume BPOP solves the chicken-and-egg problem of trying to assemble a critical mass of providers and enrollees roughly simultaneously. BPOP formally opens for business. BPOP makes enough money within the next 8 to 9 years that it can repay to Blue Cross the loan it got from the Sec or HHS. Blue Cross in turn repays HHS.
Is this the process you envision?

Kip Sullivan is a member of the steering committee of the Minnesota chapter of Physicians for a National Health Program. He is the author of The Health Care Mess (AuthorHouse, 2006).

CBO report on the public option

Posted by on Friday, Oct 30, 2009

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Preliminary Analysis of the Affordable Health Care for America Act

Congressional Budget Office
October 29, 2009

The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) have completed a preliminary analysis of H.R. 3962, the Affordable Health Care for America Act, as introduced on October 29, 2009.

The options available in the insurance exchange would include private health insurance plans as well as a public plan that would be administered by the Secretary of Health and Human Services (HHS). The public plan would negotiate payment rates with all providers and suppliers of health care goods and services; providers would not be required to participate in the public plan in order to participate in Medicare. The public plan would have to charge premiums that covered its costs, including the costs of paying back start-up funding that the government would provide.

Roughly one-fifth of the people purchasing coverage through the exchanges would enroll in the public plan, meaning that total enrollment in that plan would be about 6 million.

That estimate of enrollment reflects CBO’s assessment that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees. (The effects of that “adverse selection” on the public plan’s premiums would be only partially offset by the “risk adjustment” procedures that would apply to all plans operating in the exchanges.)


Affordable Health Care for America Act

H.R. 3962 (replaces H.R. 3200)
Introduced October 29, 2009


Consistent with this subtitle, the public health insurance option shall comply with requirements that are applicable under this title to an Exchange-participating health benefits plan, including requirements related to benefits, benefit levels, provider networks, notices, consumer protections, and cost-sharing.

H.R. 3962 (1990 pages)

What happened to that public option that the liberals promised us when they decided not to try to enact the golden standard of a single payer national health program? You know, that government program, like Medicare, designed to be less expensive, more efficient and more equitable, and that each of us could choose in place of private health plans. Really, what happened to it?

Well, Congress plowed it under. Their first priority never was about patients. It was always about taking care of the private insurance industry. Instead of enacting policies that would provide everyone with affordable health care, they have crafted reform that provides a robust insurance market, and then patients are crammed into whatever niches that market creates.

A prime example of their approach is that they have insisted that the public option be prohibited from using policies that provide the greater efficiency and effectiveness of government health care financing programs such as Medicare. To protect the private insurers from “unfair” competition from the government, they have included in the legislation policies to “ensure a level playing field.”

What does the CBO predict will be the outcome of these policies? The public option would have “premiums that are somewhat higher than the average premiums for the private plans in the exchanges,” and fewer than 2 percent of our nation will be enrolled in our own Medicare-like plan that was promised as a choice for all of us.

The golden standard? This public option is not even made of brass. It’s merely the slag cast off while the private insurers walk away with the ingots.

(NB: Do not assume that this message is a plea for a “robust” public option. Adding a robust option to our dysfunctional, fragmented system of health care financing would have very little impact in reducing the waste, inequities, and inefficiencies in our system. This message is a plea to dump the private insurers into the slag pit and use our taxpayer ingots to purchase our own improved Medicare-for-all system.)

By Margaret Flowers, M.D.

Let me begin by saying that I don’t have any desire to be arrested. I am a pediatrician with three teenagers and a husband who would prefer that I do not spend time in jail. I have never actually spent the night in jail and I imagine it’s not very pleasant.

To be honest, I am a bit frightened. But, I expect that these are normal feelings and I am dedicated to act despite my reservations because there comes a time when our conscience dictates that we act. That time is now (or “way past now” as doctors and patients whom I’ve met in my travels have told me).

In short, I am going to be arrested because I believe that it is my professional responsibility to advocate on behalf of those patients who are suffering and because it is clear that traditional advocacy tools are not working.

The phrase that runs continuously through my mind is “To be silent is to be complicit.” I cannot be complicit in the face of an industry that profits at the cost of human lives and in the face of an administration and Congress that are too dysfunctional to stop this practice.

I left practice more than two years ago to advocate for health reform. This year I traveled on a particularly unexpected and eye-opening journey. In January, I celebrated the inauguration of a new President who I hoped would be the agent to create real change in America. I hoped we would see changes that benefited the people of America (more than the corporations).

I joined the steering committee of the Leadership Conference for Guaranteed Health Care because I believed that if we built the grassroots movement for real health care reform: a national publicly financed health system that was truly universal and accountable, Medicare for all, then we would provide the political cover so that the new administration and the Congress could pass it, or at the very least discuss it. I believed when the administration said that it wanted to hear from the Americans, that we would actually have a debate about how to improve health care in this nation.

Early in the year, I lobbied with many other members of the LCGHC who represented health professionals, patients, labor and faith groups. We had two simple requests: include advocates of single-payer Medicare for all in the hearings and do an economic study of single-payer legislation so that it could be compared to the plans being put together in Congress.

We were assured by members, such as Majority Leader Steny Hoyer, that this would happen. However, before long, we saw quotes from the leadership that essentially said all options were on the table except single payer. Ever the optimist, I thought this was simply a signal to work harder. “OK,” I told myself, “they aren’t going to make this easy. No surprise there.”

We continued to meet with members, we pressured the White House to invite single-payer representatives to the Health Summit in March (which they did) and we continued to reach out to organizations to join our movement.

We thought the health care debate would include the stakeholders (health providers and patients), but found that only the stockholders were invited to the table. When it came time for the first series of public hearings on health care, which were held in the Senate Finance Committee, we requested that one single-payer advocate be included with the 41 other witnesses (many of whom represented the private insurance industry, pharmaceutical corporations and big business).

Despite thousands of calls and emails from across the country, our request was denied. That is when it became clear that we would have to use stronger tools. On the day of the second hearing, May 5, eight of us traveled to Washington to attend the hearing. As it began, we stood up one by one and requested a seat at the table. And one by one we were arrested to the sounds of nervous laughter from the members of the committee and audience.

It reminded me of a quote from Gandhi, something like “first they ignore you, then they laugh at you, then they fight you and then you win.” We returned the following week with nurses and more people were arrested in the committee. This time there was no laughter. I guess that meant we were on to phase three: the fight.

I was invited shortly afterwards to testify before the Senate Health, Education, Labor and Pensions Committee. In fact, I was the first of 24 people to testify there. I was shocked to hear other members of the panel give poor or misleading information to the committee. I wondered why we weren’t required to testify under oath.

For decades, I and other health providers have found it more and more difficult to provide quality health care. The private insurance industry has placed more and more obstacles in the way of providers and patients in the forms of co-pays, deductibles, networks, uncovered services, the need for authorization, pre-existing conditions, rescissions, rapidly rising health insurance premiums, etc.

And we, the doctors and patients, have done our best to comply with the complex and confusing maze of requirements. We’ve seen medicine turned into a business rather than a healing art. Patients have become consumers and health care has become available only to those who could afford it or were eligible for government programs. Doctors have become frustrated and started leaving practice or opening “boutique” practices.

I traveled with a group of physicians this summer who drove across the country to speak about health reform (see The level of desperation we encountered was tremendous. Many of the doctors I spoke with said things like, “Well, up until about five years ago I could still get care for my patients, but now, I can’t.” We heard stories of people fired because they or a family member became ill, people who delayed tests or medications due to costs who subsequently died of preventable causes or ended up in the intensive care unit and people leaving the country to have surgery or treatment done in Mexico or Canada where they could afford it.

For decades, legislators at the state and federal levels have tried incremental health reform. I have heard legislators and health advocates say that they are “diehard incrementalists” or “political pragmatists.”

Despite patchwork efforts to expand Medicaid, provide tax credits or subsidies towards the purchase of private insurance or to provide competing public insurances, the number of uninsured and underinsured has continued to grow. The cost of health care in this country has increased faster than wages, inflation and the GDP.

How practical is it to keep trying the same thing and expecting a different result?

We, as a nation, have put off the fight we know we will have to wage if we want real health reform. The fight is against the market model of health care and the foe is formidable. The medical-industrial complex has billions of dollars and strong influence over the politicians.

The revolving door between the medical-industrial complex and the congressional staffers is spinning so fast that it is hard to keep track. For instance, Liz Fowler worked for Sen. Baucus, then became vice president of public policy for Wellpoint (one of the largest health insurers) and then returned to the Senate Finance Committee this year to oversee the legislative process for the health bill.

There are six health insurance lobbyists for each member of Congress and at least 350 of these lobbyists were former staffers. The industry is spending around $1.4 million each day on lobbying.

We are the only industrialized nation to use this market model for health care and it has failed to be either universal or affordable for a very simple reason: the business of private health insurers is to make a profit for their investors, which is done by charging high premiums, avoiding the sick and restricting and denying payment for care. Decisions are made based on what is best for the bottom line, not the health of the patient.

The United States ranks at the top in only one area when it comes to health care and that is for how much we spend. We spend twice as much or more per person than any other industrialized nation and for that we are ranked 37th in the world on health outcomes. We have high infant and maternal mortalities, growing health disparities and low life expectancy.

The other industrialized nations guarantee health care to almost everybody living on their soil. We leave at least 46 million out entirely and have millions more who are insured but unprotected and so they lose their home or go bankrupt trying to pay for needed health care. We rank the highest of the top 19 industrialized nations for the number of preventable deaths, estimated at 110,000 per year in 2007.

It doesn’t have to be this way. We have a model that does work for the population it serves, those 65 years of age and over and the disabled. It is traditional Medicare. Medicare is already nationwide. It finances health care with a very low overhead (3 percent instead of five times that figure for private insurers) and allows doctors and patients to make medical decisions without jumping through numerous hoops (like private insurers do).

The politicians know this, but they try to shut it out because adopting Medicare for all means giving up those generous campaign contributions.

There comes a time when we must ask ourselves if we can continue to delay doing what we know is right. Can we be silent and allow thousands of our fellow Americans to die each year? Is it acceptable to close our eyes and pretend we don’t see because we may believe that we have “good insurance”?

A dear friend recently wrote a song about the health care situation that contains the question “Isn’t this America?” And I ask the same question. If we are spending the most, why aren’t we trying to be the best? Or at least in the top 10? Why aren’t fiscal conservatives demanding that we spend our health care dollars wisely to get the most health for our dollars?

A national single-payer health system, such as Medicare for All, is civilized medicine. It is what civilized societies do for their people. It allows people the freedom to go to school, change jobs, open their own businesses, and provide for their families without the stress of worrying about losing everything if they become ill.

I have decided to join other doctors and citizens in the mobilization for health care reform — a nationwide coordinated nonviolent civil disobedience campaign for Medicare for all. As we saw in other social justice movements such as women’s suffrage and civil rights in the 1960s, change will not come unless we take a stand.

There are some who disagree with or do not understand the purpose of nonviolent civil disobedience. To me, it is clear that this is the path we must take in order to overcome the stranglehold the medical-industrial complex has on our nation. Other methods have failed. We cannot wait. The number of people suffering and dying in this nation every day is unacceptable.

I do this reluctantly but with resolve for those who would like to act but cannot. We will ask to speak with insurance company CEOs and we will demand that they stop denying care and influencing members of Congress. We will spread the message of Medicare for all to the public. I hope that others will join and support the campaign in whatever way they can. The web site is There is still an opportunity to get real health reform if enough of us take action.

With hopes for peace and a better future,

Margaret Flowers, M.D.
Sparks, MD
Congressional Fellow, Physicians for a National Health Program

Why I got arrested

Posted by on Thursday, Oct 29, 2009

From Matt Hendrickson

My name is Matt Hendrickson, I am an Emergency Physician and the Vice Chair of the Physicians For a National Program, Los Angeles Chapter. Yesterday I was arrested at the Cigna offices in Glendale, California.

After getting last second jitters to join the 12 arrestees in the “Patients Not Profits” event on October 15 at Anthem Blue Cross in downtown Los Angeles, I committed to joining 6 other volunteers for yesterday’s civil disobedience action to protest the harmful practices of private health insurance. Our group included a retired nurse, a Cal Tech Physics doctoral student, an unemployed clerical worker, a computer programmer, a labor organizer and a member of the California Democratic Party Board of Directors.

We participated in three training sessions where we learned about satyagraha (Gandhi’s term for soul force), and “the sword that heals” (Martin Luther King, Jr.): power in society flows not from guns or positions of authority but from the consent and cooperation of the people. That power is unleashed by the combination of refusal to use force to harm one’s opponent and the willingness to make deep personal sacrifices and even suffer for one’s causes.

The action was organized by Mobilization For Healthcare, a one month old organization cobbled together from the financial support of Healthcare-Now! and the civil disobedience expertise of the Center For the Working Poor. Center for the Working Poor is a shoestring nonprofit of young men and women that live communally in an old Victorian home in downtown Los Angeles and take inspiration from the teachings of Reverend James Lawson, the architect of the Civil Rights Sit-In Movement.

Mobilization For Healthcare’s first action was on September 29th, and since then there have been over 20 sit-ins with approximately 100 arrests. Ten other cities had actions today, another ten cities will do nonviolent civil disobedience over the next 6 days. Beyond the next week, Los Angeles is already planning their third action with a new wave of volunteer arrestees to include more physicians and reportedly local politicians.

These actions are unlike any single payer events I have seen. Many of the activists are much younger. There are drums, singers, and street theatre (billionaires for wealthcare). And the message is not muddied by a divided approach between the merits of government financing and a criticism of the status quo. For these events there is one sharp focus, apparently guided by consultation with George Lakoff: private insurance is the real death panel.

With my arrest yesterday, and Dr. Flowers probable arrest today, maybe it is time for our organization to consider a new phase to our advocacy. The image of physicians in white coats being escorted away from insurance offices in handcuffs on a daily basis could bring an unexpected and profound new voice to this reform debate. The voice of physicians like Dr. Hochfeld who are Mad As Hell at how the political process has ignored the heartbreaking reality of our broken healthcare system and refuse to be complicit in the meaningless political solution.

In my case the day was exhilarating. The group of seven entered the Cigna offices lobby and were met by a phalanx of stormtrooper-like officers who blocked our route to the elevators. So we sat in the lobby facing them and with cameras flashing a two hour song and chant filled standoff ensued before we were warned and then briskly handcuffed and carted off to the jail for processing. Four hours later we were released without a bail charge or fine but with a misdemeanor charge for Civilian Arrest Trespassing that will be defended at our court date by volunteer Civil Rights Attorneys.

I will leave to those physicians that are admirably more cautious than I am the job of researching the possible consequences of this misdemeanor if the charges are not dropped, it didn’t matter to me. In my mind I was making the right decision for my patients and for my profession.

It is a personal decision and every physician knows when it’s the right time if ever for them to make that sacrifice. But I believe that a relatively small sacrifice -a few hours, maybe a night in jail- in exchange for broad media exposure to dramatize the profound harm of the private insurance industry on the practice of medicine is an irresistible opportunity.

Weiner single payer amendment tanks

Posted by on Thursday, Oct 29, 2009

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Nancy Pelosi starts clock on House health bill

By Patrick O’Connor and Chris Frates
October 29, 2009

(House Speaker Nancy Pelosi) backed down from a deal granting liberals a vote to establish single-payer government-run health care. She cut the deal with New York Rep. Anthony Weiner to break a last-minute logjam on the Energy and Commerce Committee. But, in the end, party leaders were concerned the final cost would be astronomical and the vote would fail to garner votes from even half the caucus.

What the… !?

The ethics of health care reform

Posted by on Wednesday, Oct 28, 2009

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

“Making Sense of the Health Care Debate”

A round table discussion of health care reform
University of California at Irvine
The UCI Interdisciplinary Center for the Scientific Study of Ethics and Morality
October 27, 2009

Comments of Don McCanne, M.D. (from memory, edited and abridged):

I’ll be brief because I want to make only one very simple point: An ethical health care system is designed to take care of patients. What could be more obvious? If the health care system is doing its job in taking care of patients then the health care system itself is being taken care of. Special interests legitimately involved in health care delivery will do just fine.

Although this principle seems very obvious, it hasn’t been guiding the process in Washington, DC. Our politicians are designing a health care system that is taking care of the private insurance industry. Patient care is secondary, as it must conform to the private insurance model.

As Senator Joe Dunn just said, legislation is 10 percent principles and 90 percent politics. Congress is providing us with a political solution rather than a solution based on sound health policy science.

We were told that we would have health care reform that would cover everyone, and that costs would be controlled, making health care affordable for each of us. Yet when they insisted that reform be based on private insurance plans and that the budget be limited to $900 billion over the next ten years, they realized that at least 20 million people could not be insured under this proposal. Likely it will be many more, especially after four more years of health care inflation before the basics of this plan are even in place. And since there are no effective measures for controlling costs, health care will be even less affordable.

The limitations imposed have resulted in such bizarre policy proposals as granting waivers to individuals to exempt them from the fines that would be imposed for committing the criminal act of being uninsured.

A fundamental flaw of their proposal was to try to craft reform based on a package of benefits in a private insurance plan that has a premium assigned to it. That premium plus the out-of-pocket expenses must cover the average family health care costs of $16,771 (Milliman Medical Index). With a typical family income of perhaps $60,000, those costs now create a financial hardship for families, especially those at income levels where the subsidies phase out.

By designing reform that primarily benefits insurers, the most productive sector of our society – middle income Americans – is going to be the hardest hit by the adverse consequences of this legislation.

Since this is a forum on ethics, I have to conclude that our legislators, by failing to place the patient first, compromised ethics when they crafted this reform.

The actuarial squeeze on low and middle income families

Posted by on Tuesday, Oct 27, 2009

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Provision Under Consideration for Merged Senate Health Bill Would Harm Needy Families

By January Angeles and Judith Solomon
Center on Budget and Policy Priorities
October 26, 2009

A family of three earning $27,465 a year before taxes — that is, at 150 percent of the poverty line — would have to pay $1,318 a year for health coverage under a proposal that Senate negotiators are considering for a merged health reform bill that they would bring to the Senate floor.

This is related to efforts that Senators working on the merged bill are making to cap the cost of insurance premium contributions at 10 percent of income for households that earn between 300 and 400 percent of the poverty line, rather than at 12 percent of income as under the Finance Committee bill. To help pay for this change, they reportedly are also considering increasing the amounts that very low-income households would be required to pay.


Trends In Underinsurance And The Affordability Of Employer Coverage, 2004-2007

By Jon R. Gabel, Roland McDevitt, Ryan Lore, Jeremy Pickreign, Heidi Whitmore and Tina Ding
Health Affairs
June 2, 2009

Health plans covered slightly fewer expenses in 2007 than in 2004, but out-of-pocket spending grew more than one-third because of growth in overall health spending.

Underinsurance rose from 2004 to 2007 as the actuarial value of employer-based health insurance declined slightly, from 81.4 percent of the bill to 80.1 percent. The major change in benefit design during these years was an increase in the percentage of plans with deductibles and an increase in the average deductible level.

In the United States, if you are sick and earn a modest income, then you are probably underinsured–even if you have employer-based health coverage.

The best private insurance available today – employer-sponsored health plans – have an actuarial value of 80%. That means that the insurance pays 80% of the covered costs of health care and patients are responsible for the other 20%. Patients also are usually responsible for out-of-network services and for services and products that are not benefits of the plans.

The Health Affairs article by Jon Gabel and his colleagues shows that plans with an 80% actuarial value are not providing adequate financial protection to individuals with modest incomes who need health care. Having a plan with an 80% actuarial value can place you in the ranks of the underinsured.

Basic coverage under the proposals before Congress would provide an actuarial value of 65% or 70%. That means that the patients would be responsible for the remaining 30% or 35% of health care costs, although the proposals would limit the total amount for which the patients are responsible under the plans. Patients also would be responsible for out-of-network services and for services and products not covered by their plans.

If there is a cap on out-of-pocket spending, then why should the precise actuarial value make difference? Simply, the lower the actuarial value, the greater the likelihood that the patient will have to spend the full amount up to the cap. Thus more individuals will be negatively impacted. Also, the amount of the cap makes a very big difference. The proposed caps on out-of-pocket spending, when added to the patient’s share of the premium, create a financial hardship for most low and middle income individuals and families.

Members of Congress are particularly concerned about the high costs for those at income levels wherein the subsidies supporting the premiums are phased out. Not only do they understand that making health care unaffordable is not wise policy, but they also understand the backlash that would likely occur when the most productive sector of our society finds out what hit them.

The report from the Center for Budget and Policy Priorities demonstrates how desperate our legislators are to find a way out of this highly flawed financing proposal that hits their base supporters the hardest. To soften the impact on middle income individuals and families, they are investigating a proposal to increase the amounts that low income families would have to pay, even though they already can’t pay the current levels proposed. Perhaps they calculate that, at election time, bankrupting individuals without a political voice is a safer than facing a backlash from the base supporters.

Is health insurers’ profit 2% or 22%?

Posted by on Monday, Oct 26, 2009

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Health insurers’ profits 35th of 53

By Calvin Woodward
The Washington Post
October 26, 2009

Health insurance profit margins typically run about 6 percent, give or take a point or two.

Health insurers posted a 2.2 percent profit margin last year, placing them 35th of 53 industries on the Fortune 500 list. As is typical, other health sectors did much better – drugs and medical products and services were both in the top 10.

Leading the list: network and other communications equipment, at 20.4 percent.


October 26, 2009

Health care plans – net profit margin: 3.3%


American Medical News
August 24, 2009

Medical loss ratios of largest publicly traded health plans:
Average 85.2% (non-weighted, range 82.9% – 86.8%)

In simple accounting terms, profit represents the difference between gross revenues and the cost of producing and marketing the products or services sold. So what is the product that the private insurers are selling us? Administrative services.

Unlike most other businesses, the revenues of the private insurers include our own funds that essentially are held in trust for the eventual payment of medical claims – currently 85.2% as represented by their medical loss ratios. Their business costs relate strictly to their product – the administrative services – currently 14.8% of their revenues. Thus their profit margin, to make sense, should be calculated based on their business model of providing us administrative services, but not on the funds held in trust which involve negligible expenses but which provide them with long term investment income. (Profit statements for the notorious financial services industry should also be adjusted accordingly since that is also our money that they are jerking around.)

The 3.3% profit margin reported by Morningstar includes the funds held in trust, but if adjusted to include only all costs of their legitimate business operations of producing and marketing their administrative services then their profit margin is actually 22.3%. That moves them into first place on the Fortune 500 list of profitable firms, in front of the network and communications equipment industry (20.4% profit).

To be realistic, playing with these numbers does not change the fact that eliminating these profits would have only a very small direct impact on our total national health expenditures – saving less than 1% of our health care dollars. What would have a tremendous impact would be to eliminate an industry that has the incentive of a 22% profit margin on a product that is designed to reduce our access to the health care that we need, not to mention a product that places a costly administrative burden on our health care delivery system. Eliminating the private insurance industry could have a hugh direct impact on our health care spending – diverting perhaps $4 trillion over the next ten years from administrative waste, and redirecting it to patient care.

We need to take heed of this comment in today’s Los Angeles Times:

“As President Obama’s push for a healthcare overhaul moves toward its final act, the oft-vilified health insurance industry is on the verge of seeing a plan enacted that largely protects its financial interests.”,0,11741,full.story

Baby boomers and cancer: storms ahead

Posted by on Thursday, Oct 22, 2009

Book Review
“The Cancer Generation: Baby Boomers Facing a Perfect Storm,” by John Geyman, M.D. Common Courage Press, 2009. Softcover, 303 pp., $18.95.

By A.R. Strobeck Jr.

In “The Cancer Generation,” Dr. John Geyman, physician and professor emeritus of family medicine at the University of Washington, focuses on the baby boomer generation in the United States and the virtual tsunami of cancer cases that is expected to hit this 79.5-million-member demographic as more of its members move into their “golden years.”

Geyman says he aims to examine “the changing landscape of cancer in the U.S., including the extent to which the marketplace fails patients with cancer care.” He takes a hard look at how well the present state of cancer care – particularly the financing of medical services – measures up to the task of providing quality, compassionate care to those who need it.

While he draws upon the latest academic research and the book is heavily footnoted, the material is presented in a popular, accessible way, including with the abundant use of tables and graphs.

The picture he draws is not pretty. The author believes that the outlook for cancer care is bleak, largely due to the unregulated “free market” economic policies that have come to dictate both access to, and delivery of, health care in the U.S. These policies have given rise to an astronomical increase in the costs of cancer care, with treatment costs are now rising by 20 percent each year. The rising costs are putting effective care out of reach of millions.

This problem is expected to worsen, the author says, noting that the Institute of Medicine projects the number of cancer cases will double between 2000 and 2050. Meanwhile, the annual cost of treating cancer is projected to reach $1.1 trillion by 2023, more than five times what we spend today.

As a result, the aging of the U.S. population “will lead to an increasing cancer burden, both for individuals and their families as well as for the health care system itself.”

Geyman acknowledges that treatments for cancer have improved, and today’s care can be effective in many cases. He points to the dramatic increase in the survival rate among children diagnosed with cancer, for example.

But lack of health insurance, or poor quality insurance, prevents people from getting access to and obtaining proper care. The chief culprit here, he says, is the private health insurance industry, which is more concerned with increasing its profits than in assuring access to care.

More generally, however, he believes that our present market-driven health care system cannot meet the coming surge in cancer cases without drastic changes in its structure, access, delivery and methods of financing.

Geyman sees a blind faith in technology in the U.S. as fueling an explosion of new technologies, even though there is much uncertainty as to the safety and efficacy of these innovations. Unfortunately, he asserts, due to the high stakes that come with cancer, patients facing it are “especially vulnerable to accepting treatment at whatever the risks or costs.” Thus the marketplace is “setting cancer policy by default,” i.e. most of our health care dollars are going into treatment and far too little into prevention.

Cancer survivors face special challenges, he writes. They are less likely to be employed. They face three kinds of barriers to care thrown in their way by private insurance: availability, affordability and adequacy. And if these barriers are not enough, private insurance companies sometimes will go to even greater lengths to deny coverage to those afflicted.

Survivors lucky enough to have insurance face much higher co-payments. In addition, insurance firms try to cap coverage or otherwise place limits on the amount of treatment. As a result, a cancer diagnosis is often a prelude to financial crisis and bankruptcy.

Cancer survivors without insurance often find it difficult to see a doctor or to have a regular source of care. Geyman notes that it is no wonder that uninsured and Medicaid patients often have cancer at a more advanced stage when it is diagnosed. In addition, most cancer survivors often have serious co-morbidities such as heart disease or diabetes, which also go untreated at a disproportionately higher rate.

Geyman argues that everyone needs accessibility to doctors if the mortality rate of cancer is to be reduced. Unfortunately, the policies of the private health insurance industry are heading in the opposite direction, leading to uncontrolled inflation of costs; growing unaffordability of premiums; decreasing levels of coverage; a bloated bureaucracy, contributing to the waste of 31 cents of every U.S. health care dollar on administrative costs; a shrinking market of only 59 percent of employers now offering health insurance; ineffective state and federal regulation; and growing insecurity and hardship in the general population.

Racial disparities also continue to take a heavy toll: for example, cancer mortality rates are 35 percent higher for African Americans than whites.

What’s his prescription for a cure? As step No. 1, Geyman recommends establishing a public health insurance system such as single-payer Medicare for All. Such a system would provide health care services “based on medical need, not ability to pay, ” and would “eliminate much of the inefficiency and waste of the private insurance industry and actually cost employers and individuals less than we are already paying for insurance and health care.”

He outlines additional measures like establishing a national, evidence-based clinical effectiveness program; more funding for cancer research; and the strengthening of the nation’s cancer workforce, especially in primary care and geriatric oncology.

Finally, Geyman reminds us of the ethical issues surrounding cancer care, citing Dr. Martin Luther King Jr., when he said, “Of all forms of inequality, injustice in health care is the most shocking and most inhuman…. Although social change cannot come overnight, we must always work as though it were a possibility in the morning.”

Reading and acting on this book will help bring about that better day.

A.R. Strobeck Jr. worked for many years in health care administration. He resides in Chicago.

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Physicians for a National Health Program's blog serves to facilitate communication among physicians and the public. The views presented on this blog are those of the individual authors and do not necessarily represent the views of PNHP.

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