Health Insurance Coverage: 2008

U.S. Census Bureau
September 10, 2009

* The percentage of people without health insurance in 2008 was not statistically different from 2007 at 15.4 percent. The number of uninsured increased to 46.3 million in 2008, from 45.7 million in 2007.

* The number of people with health insurance increased to 255.1 million in 2008 — up from 253.4 million in 2007. The number of people covered by private health insurance decreased to 201.0 million in 2008 — down from 202.0 million in 2007. The number of people covered by government health insurance increased to 87.4 million — up from 83.0 million in 2007.

* The percentage of people covered by private health insurance was 66.7 percent in 2008 — down from 67.5 percent in 2007. The percentage of people covered by employment-based health insurance decreased to 58.5 percent in 2008, from 59.3 percent in 2007. The number of people covered by employment-based health insurance decreased to 176.3 million in 2008, from 177.4 million in 2007.

* The percentage of people covered by government health insurance programs increased to 29.0 percent in 2008, from 27.8 percent in 2007. The percentage and the number of people covered by Medicaid increased to 14.1 percent and 42.6 million in 2008, from 13.2 percent and 39.6 million in 2007. The percentage and number of people covered by Medicare increased to 14.3 percent and 43.0 million in 2008, from 13.8 percent and 41.4 million in 2007.

* In 2008, the percentage and number of children under 18 without health insurance were 9.9 percent and 7.3 million, lower than they were in 2007 at 11.0 percent and 8.1 million. The uninsured rate and the number of uninsured for children are the lowest since 1987, the first year that comparable health insurance data were collected. Although the uninsured rate for children in poverty decreased to 15.7 percent in 2008, from 17.6 percent in 2007, children in poverty were more likely to be uninsured than all children.

* The uninsured rate and number of uninsured for non-Hispanic Whites increased in 2008 to 10.8 percent and 21.3 million, from 10.4 percent and 20.5 million in 2007. The uninsured rate and number of uninsured for Blacks in 2008 were not statistically different from 2007, at 19.1 percent and 7.3 million.

* The percentage of uninsured Hispanics decreased to 30.7 percent in 2008, from 32.1 percent in 2007. The number of uninsured Hispanics was not statistically different in 2008, at 14.6 million.

http://www.census.gov/hhes/www/hlthins/hlthin08.html

President Obama, in his speech before the joint session of Congress last evening, did not break new ground on the current proposal for reform being developed by Congress and the administration. So, based on the framework that has been advanced, what impact will the current proposal have on the numbers of uninsured?

* The primary reason for the excessive numbers of uninsured is that health care costs are now so high that premiums for adequate health plans are no longer affordable for low and middle income individuals. The policies in the current proposal designed to reduce health care spending are inadequate and will not have an impact on reducing the numbers of uninsured since it will be impossible to create less expensive plans that have adequate benefits.

* Although lower-income individuals will have greater access to Medicaid/CHIP and to larger subsidies to purchase private plans, the subsidies for average-income Americans will be inadequate to make the premiums and cost sharing affordable.

* Most small businesses will be exempt from the employer mandate and thus will not be a factor in increasing the rate of insurance coverage amongst their employees.

* Initially only uninsured individuals and small businesses will have access to the insurance exchange. Thus most Americans will not be able to select from an FEHBP-like menu of plans similar to the program that members of Congress now have.

* Because of a reluctance to increase revenues through the tax system and an insistence that the program not add to our budget deficits, Congress has restricted the amount of funds that will be available to expand Medicaid and to finance the premium subsidies for the private plans.

* Middle-income individuals will be mandated to purchase private health plans. Affordability of these plans for individuals and families will be determined by income levels, by the amount of the government subsidies used to purchase the plans, by adequacy of plan benefits, and by the amount of cost sharing required of those accessing care. Based on the preliminary numbers provided, serious affordability issues will be faced by a far greater number of middle-income individuals than are being projected by the architects of the proposal.

* Because of affordability issues, consideration is being given to allowing the purchase of underinsurance plans like those designed for the young invincibles. Because of the adverse health and financial impacts of relying on these deficient plans, these individuals should be counted amongst the uninsured from a policy design perspective.

* It has been agreed that the inadequacy of the government subsidies will require the issuance of hardship waivers for those who cannot afford their portion of the insurance premium, based on their incomes. Hardship waivers will become commonplace for those caught between low-income, where government support is generous, and high-income, where affordability is not a consideration. Those in the middle are the majority of Americans. Hardship waivers which relieve individuals of paying fines for the crime of being uninsured could become the standard for middle-income Americans.

An improved Medicare for all single payer program would automatically include everyone, and would be affordable for all of us. President Obama’s program will leave far too many out, and will fail to adequately address the high costs of health care.

Many believe that President Obama effectively used his address to set the stage for the final phases of the reform process, with no turning back. We desperately do need to push on with reform, but it needs to be reform that works.

When President Obama mentioned single payer last evening, there was an embarrassing smattering of applause. Democrats were there to support the president who supports a mandate to purchase private plans that you can’t afford. How embarrassing. Supporting a plan that serves the private insurance industry so well, at great cost to the American people.

So you disagree? You think that this will serve middle-income Americans well? Prove it! Demand a full study that calculates premiums for private plans with adequate benefits and adequate financial protection in the face of medical need and includes all risks in the pools, that determines the premiums as a percent of income at various income levels, that determines the size of the subsidy that would be required to make the balance of the premiums affordable at each income level, that determines the level of cost sharing that would be required of those with needs, that determines the true amount of public funding that would be necessary to support those premiums and cost sharing, and then describes precisely the sources of that public funding.

Those crafting reform can’t make the numbers work. If you can’t either, then join us in a march on Washington to demand that they enact reform with numbers that do work in providing all of us with the health care that we need. Sacrificing the insurers should not be an embarrassment to any of us. It should be a matter of pride.

By Kip Sullivan, JD

Leaders of the campaign for a “public option” have circled their wagons around two sentences in HR 3200 (the House health “reform” bill). These sentences, which are not in the bill passed by the Senate health committee, appear in Section 223 of HR 3200:

Health care providers participating under Medicare are participating providers in the public health insurance option unless they opt out in a process established by the Secretary.

[T]he Secretary shall base the payment rates [for providers] on the payment rates for similar services and providers under parts A [the hospital services part] and B [the physician services part] of Medicare.

“Option” advocates are claiming these two sentences are “crucial” and “critical” to the success of the “option” and absolutely must be in any final “reform” bill. The Congressional Progressive Caucus has even warned President Obama that if these two sentences are not in the final bill, they will vote against it.

In this paper, I demonstrate why these two sentences accomplish nothing. In a paper I will post soon, I will go on to show that the “option” in HR 3200 is no better than the “option” in the Senate health committee bill.

Review of recent history

Five committees in Congress have jurisdiction over health care reform, two in the Senate, and three in the House – Health, Education, Labor and Pensions (HELP) and Finance in the Senate, and Energy and Commerce, Education and Labor, and Ways and Means in the House. The Senate HELP Committee has produced a bill, and the three House committees have produced a bill. The Senate Finance Committee has yet to report a draft bill.

The Senate HELP bill is called the Affordable Health Choices Act. A draft version of the HELP Committee bill was published last June. It passed out of committee on July 15, but at this date still has no number and is not available as a single bill. In this paper “the HELP bill” will refer to the portion of the HELP Committee’s draft bill known as “the additional Chairman’s mark on coverage,” available at the Website of the HELP Committee.

The House bill is called America’s Affordable Health Choices Act (my emphasis). A draft version of this bill, written by the chairmen of the three House committees, was published last June. It was formally introduced in July, which means it was given a number (HR 3200). HR 3200 passed out of all three House committees in late July and early August. To placate the Blue Dogs, the version of HR 3200 that passed out of the Energy and Commerce Committee was stripped of the language authorizing the “option” to use Medicare’s rates plus 5 percent. In this paper, “HR 3200” will refer to the original version of that bill which, at this date, is the only version available via the search engine at the Library of Congress.

Both bills, the HELP Committee bill and HR 3200, contain “public option” provisions. It has been obvious since the draft versions of these bills were published last June that the “options” in them are so weak they will have no effect on the premiums insurance companies will charge, and they might not even survive. “Option” advocates refuse to acknowledge these facts.

Instead of taking steps to strengthen the “option” provisions in the HELP bill and HR 3200, “option” advocates have taken the position that the “options” in both bills are “strong” and “robust,” and the “option” in HR 3200 is particularly “strong” and “robust” because it contains the two sentences I quoted above. In fact, the leadership of the “option” movement has decided to make those two pipsqueak sentences their bottom line, their Alamo, their litmus test for whether they will support the final “reform” legislation.

The two sentences “option” supporters say they must have

Here again are the two sentences from HR 3200 that representatives of the “option” movement now claim they must have:

Health care providers participating under Medicare are participating providers in the public health insurance option unless they opt out in a process established by the Secretary. (Section 223(b)(3))

[T]he Secretary shall base the payment rates [for providers] on the payment rates for similar services and providers under parts A [the hospital services part] and B [the physician services part] of Medicare. (Section 223(a)(2)(A))

(Language elsewhere in the bill says the Secretary shall pay providers who participate in both Medicare and the “option” an extra 5 percent during the first three years of the program.)

By contrast, the HELP bill says providers do not have to participate in the “option” program. It authorizes the Secretary only to negotiate with providers about rates (with the proviso that the negotiated rates cannot exceed the average paid by the insurance industry).

Yet “option” advocates treat these two sentences in HR 3200 – the providers-are-assumed-in and the Medicare-rate provisions – as if they were crucial weapons in the “option’s” upcoming battle with the insurance industry.

For example, in a July 15 post entitled, “Why the House’s public option is better than Kennedy’s public option,” Wonk Room blogger Igor Volsky wrote:

Though the House bill is not perfect—it encourages providers to participate rather than compels them to—it goes much further than the Kennedy bill [i.e., the HELP bill] to take full advantage of a public plan’s market power. Under the House legislation, Medicare providers are auto-enrolled as providers in the public option (the legislation presumes they will offer coverage unless they opt out) and their reimbursement rates, which are tied to Medicare rates for the first three years, include a 5 percent bonus for physicians that participate in both Medicare and the public plan (emphasis added).

In a paper posted on August 20, Jacob Hacker, the man credited with inventing the modern version of the “option,” makes the same argument. Hacker lumps the magic Two Sentences into a single concept he dubs, misleadingly, “a Medicare tie-in.” According to Hacker:

Under a Medicare tie-in, providers participating in Medicare would automatically be considered participating providers in the new public plan (although in the House bill, they would have the right to opt out) and payments to providers would be based on Medicare rates – for example, Medicare rates plus 5 percent. If the public plan is required instead to adopt the “not-so-good” approach of signing up providers and bargaining over payments directly with them, the public plan may have a very hard time building a network and obtaining reasonable rates to act as a true competitor to private plans, given the barriers it will face in consolidated insurer and provider markets. The versions of the House bill approved by the House Ways and Means Committee and House Education and Labor Committee contain a Medicare tie-in…. By contrast, the House Energy and Commerce Committee approved the House bill with amendments that preserve only the first of [the] two elements [of the Medicare tie-in – the assumption that providers will participate]. The HELP Committee bill has an even weaker guarantee that the public plan will be able to establish itself. … [I]t states that the Secretary has to negotiate rates directly with providers. But the legislation also lacks the presumption in the House bill that Medicare providers will participate (with an opt-out option), putting the public plan at a disadvantage against the private insurers with established networks. This is also a not-so-good provision that should be changed to the House approach of presuming participation. (pages 4 and 5)

By September, “option” advocates within the Congressional Progressive Caucus had decided to make the Two Sentences their Alamo. In a September 3 letter to President Obama, the CPC abandoned its previous promise to compare HR 3200’s “option” with the CPC’s criteria for a strong “option” and explicitly endorsed the HR 3200 “option” (the version that retained the Medicare-rate requirement):

We continue to support the robust public option that was reported out of the Committees on Ways and Means and Education and Labor and will not vote for a weakened bill on the House Floor or returning from a Conference with the Senate. Any bill that does not provide, at a minimum, a public option built on the Medicare provider system and with reimbursement based on Medicare rates – not negotiated rates – is unacceptable. A plan with negotiated rates would ensure higher costs for the public plan….

Note how easily each of these three statements – Volsky’s, Hacker’s, and the CPC’s – glides right past reality into another world where whatever we wish comes true. All three statements make the utterly unrealistic assumption that the task of “opting out” of the “option” program is going to be so onerous that providers who really don’t want to participate in the “option” will do so just to avoid the opt-out process. All three statements assume that all or most providers won’t want to work for below-industry rates (otherwise why give the “option” the authority to pay such rates), and yet all three statements assume the flimsy little “opt out” requirement will cause providers to change their minds.

Although the language of HR 3200 does say the Secretary will be responsible for developing an “opt out” process, there is nothing in that language to suggest that Congress expects the Secretary to make the process burdensome. What if a future Secretary of DHHS did create an onerous process to keep providers in the public plan? The inevitable a lawsuit to force the Secretary to rescind the onerous process and replace it with a simple one would succeed precisely because HR 3200 contains not even a hint that the process is supposed to cause headaches.

A far more realistic assumption is that the “opt out” process will amount to filling out a form on a computer and mailing it in to the Secretary or to the local “option.” Obviously, an “opt out” process that simple is, in the real world, no different from the voluntary process called for in the Senate HELP bill.

Similarly, the assumption that the Secretary is going to be able to induce clinics and hospitals all over the country to accept Medicare’s rates simply because HR 3200 authorizes the Secretary to use those rates is speculation at best and a daydream at worst. Providers will accept Medicare’s rates for “option” patients only if they think it’s in their financial interest to do so. As I have argued elsewhere, a provider’s judgment about whether to participate in the “option” will be based upon the total revenue that participation in the “option” will generate for the provider, not merely the fees the “option” pays. Total revenue is a function of the fees the “option” will pay and the number of patients it will deliver to the provider. But nothing in HR 3200 guarantees large enrollment in the “option.”

The CPC’s reference to a “Medicare provider system” is particularly egregious. There is no such thing. There is only the reality that the vast, vast majority of American providers accept Medicare patients at Medicare rates without legally being required to do so. Referring to the “Medicare provider system” is like referring to the “Wal-Mart customer system.” Yes, millions of people shop voluntarily at Wal-Mart. That doesn’t make them part of a “system.”

So if the magic Two Sentences can’t create the equivalent of “the Medicare provider system … with reimbursement based on Medicare rates,” to quote the CPC, what will? If the “option” isn’t going to have a ready-made supply of providers to work with, how will it be able to determine what premiums it will charge and which providers its enrollees can see so that it can begin the process of recruiting a customer base? I have discussed this complex “chicken and egg” problem in two previous papers (here and here). Essentially, the problem is that the “option’s” managers won’t be able to negotiate advantageous rates with providers unless they can give providers some idea of how many patients they will deliver to them, but they can’t make that estimate until they have some idea of what premiums the “option” will charge, but they can’t do that till they know what they have to pay providers, etc.

The chicken-egg problem could be solved if HR 3200 contained a provision that created a huge customer base for the “option” in every state prior to the day the “option” opened for business. Alternatively, HR 3200 could require all providers in America to participate in the “option” program (although it is not clear that even this requirement could solve the “chicken and egg” problem by itself). But HR 3200 contains neither provision. All it offers are the magic Two Sentences – providers are assumed to participate unless they say otherwise, and the Secretary is authorized to use Medicare’s rates. Offering the Secretary the Two Sentences is like offering someone scissors with one blade. The CPC’s vow to oppose legislation that does not contain the equivalent of scissors with one blade is silly.

It’s time for truth in advertising about the “option”

The decision by the leadership of the “option” movement to cash in all their marbles for the Two Sentences was dumb. It raises the obvious question, Why did they do it? Were they really unable to determine that the simple “opt out” provision in HR 3200 isn’t worth the paper it’s written on? Are they really incapable of understanding that merely authorizing the “option” to pay Medicare rates plus 5 percent is, by itself, no solution to the chicken-and-egg problem?

Or is there something else going on here?

Perhaps the CPC and other leaders of the “option” movement comprehend that the Two Sentences really are worthless and that the “option” in HR 3200 really is extremely weak, but they can’t bring themselves to say this publicly because they believe any “option,” not matter how pathetic, is better than no “option.” They think a “foot in the door” is better than nothing at all. As I have argued in a previous paper, the “option” will not be a typical government program. It will be a business. One does not open a business on the “foot in the door” theory. You either open a business with a solid business plan and a good chance of succeeding or you don’t.

I suspect the latter explanation (that “option” advocates know the Two Sentences are worthless) is the correct one, with one wrinkle. I suspect the leadership of the “option” movement didn’t start out thinking they would settle for any legislation so long as the naked phrase “public option” appeared somewhere in it. I suspect they decided (wrongly) that the reason Bill Clinton’s 1993 Health Security Act failed was that Clinton revealed way too much detail in his bill and this gave his enemies lots of ammunition with which to sink his ship. If I’m correct about this, the “option” movement’s leaders decided early on that they simply wouldn’t say much about how the “option” would work; they would simply ask their followers to chant “public option, public option” over and over, much the way advertising for consumer products often repeats a brand name or a concept over and over (as in, “great taste, less filling”).

If we measure this repeat-the-mantra strategy by whether it catapulted the phrase “public option” into the news media and resulted in the phrase being incorporated into legislation supported by the leadership of congressional Democrats, we would have to say it worked. But if we measure it by whether it resulted in legislation that (a) describes in sufficient detail a workable program and (b) has a chance of passing, we would have to say it failed.

If I were a foot-soldier in the “option” movement I would ask my leaders to abandon the know-nothing strategy – the strategy of saying nothing about the details of the “option” and concentrating only on the “brand” name. If I believed that a “public option” could truly reform health care I would now conclude that it was a mistake to sell the “option” as if we were selling detergent or lip gloss. I would conclude that “public option” leaders have created great “brand recognition” but they have not created legislation that will implement real health care reform.

All of us desperately need real reform of our sick health care system. The present system ruins human lives daily through preventable deaths, devastating bankruptcies, hideous disparities and gross injustice and indignity. We cannot afford to experiment with “reforms” like the “options” in HR 3200 and the HELP bill which, coupled with the enormous insurance industry bailouts called for by those bills, will merely perpetuate the current system.

It’s time for the “option” movement to insist that its representatives start speaking truthfully about the “option” provisions in HR 3200 and the HELP bill. They might start by admitting that the Two Sentences in HR 3200 are, by themselves, incapable of giving the “option” the tools it needs to survive, much less thrive.

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: How We Got Into It and How We’ll Get Out of It (AuthorHouse, 2006).

From Salvador Sandoval MD (Merced, CA)

I would like to report on an encounter with Tea Party people and a semi-town hall meeting with Congressman Dennis Cardoza of the Blue Dog Coalition. There isn’t a formal PNHP chapter here in the conservative San Joaquin Valley town of Merced, California. However, through the Journey for Justice we got wind on short notice of a meeting of the county of Merced supervisors where proposed cuts of the medically indigent program would cut off about half of those already on the program, as well as eliminating dental, eye, and podiatry services for the rest. We managed to delay the inevitable for about a month. However in the process, a doctor read about our testimony, made contact with me, and wrote an excellent op ed on single payer, dovetailing with our proposed Medicare anniversary where we were going to approach Cardoza to support expanded Medicare for all. Her letter brought out some supporters, but also a bunch of elderly irate white citizens who attempted to preempt our picketing of a main thoroughfare near Cardoza’s office. They also barged in on the Congressman’s staff, who thought incorrectly that they were us! Fortunately, I had my life support equipment with me in case one of those elderly counterprotestors collapsed. But they weren’t so appreciative. And luckily I was able to keep my equipment unused for another day.

Through the quick actions of one of our members, the sabotage was averted, and we had our meeting with the Congressman’s staffers, proposing a formal town hall meeting. I won’t belabor you with the content of our presentations, but they were damn good with people talking from the heart about family members dying or suffering from lack of health care. Luckily, we had a young guy make a video of the testimony.

We have had experience earlier in the year with the Congressman when union members of the CSEA and CNA and Health Care Now joined us in a CaPA sponsored meeting with him in Stockton in the futile attempt to get him to sign on as a cosponsor. He had excuses about why he couldn’t support single payer, something about his being on the rules committee being a conflict of interest.

Then the media picked up on the Tea Party people around the country, and Mr. Cardoza started making excuses about why he couldn’t hold a town hall meeting. He did get alot of well deserved flak from all sides, including the general public, and from the local conservative newspaper. He claimed that a phone conference with 4000 people, with no questioning other than for some preselected questions qualified as a town hall meeting. He has generally run unopposed. However, a Republican farmer has announced that he will be running against him in the next election.

Now, out of the blue, Mr Cardoza decided to meet with the local medical society. He actually called that meeting a townhall meeting, although there were only doctors there. There were some vociferous ones against “government run care.” However, there were single payer advocates speaking out too. , The Blue Democrats, which Cardoza represents, are for fiscal responsibility and say they don’t want to be rushed to support a bill that can’t be paid for. It was suggested that perhaps we should go back to the drawing board and include single payer, in the spirit of considering all the options, and particularly since it would save $350 billion. To this Cardoza responded that Congress would never adopt a single payer bill.

There will be at least one town hall meeting held in September, with an empty chair reserved for Congressman Cardoza. A debate will be encouraged, with invitations extended to single payer advocates, public option people, and Tea Party types. I hope to report to you on the results of that meeting.

Increased Spending On Health Care: Long-Term Implications For The Nation

By Michael E. Chernew, Richard A. Hirth and David M. Cutler
Health Affairs
September/October 2009

This paper updates one we published in 2003, describing the implications of continued health care spending growth for the consumption of nonhealth goods and services. Our estimates now show that at approximately long-run average rates of excess health spending growth, 119 percent of the real increase in per capita income would be devoted to health spending over the 2007–2083 projection period. We argue that an alternative scenario, under which health spending grew just one percentage point faster than real per capita income, is “affordable,” although 53.6 percent of real income growth over the period would go to health care. Moreover, even with the more favorable assumption, the nation would still face important challenges paying for care and dividing up the burden. This analysis thus supports the argument that reforms that would dramatically slow the rate of health care spending growth are necessary, especially if the nation hopes to maintain a reasonable amount of consumption of nonhealth goods and services.

… as in our earlier work, we did not capture distributional effects. The impact of health spending growth will likely be more onerous on economically disadvantaged individuals and families who do not qualify for public subsidies.

http://content.healthaffairs.org/cgi/content/abstract/28/5/1253

Average-income Americans – the majority of us – are finding the impact of health spending growth to be onerous, and it will get worse.

President Obama has said that controlling the growth in health care costs is essential if we expect to provide everyone with affordable access to health care. Listen carefully to the president this evening as he addresses the joint session of Congress, and try to identify the specific proposals that will have a significant impact on slowing the rate of cost increases. Be sure to distinguish between sound bites and sound policy.

Unfortunately, the model of reform that the administration and Congress has selected – building on our existing multi-payer public and private systems – is the most expensive model ever devised, and will result in a continuation of excessive cost increases. The only effective measure under consideration to slow the growth will be the increased financial burden placed on individuals which will cause them to forgo necessary care. That is the worst possible choice amongst cost containment policies.

An improved Medicare for all would be the most effective model for slowing the increase in health care costs. And because it’s both automatic in enrollment and equitable in its financing, it would ensure that everyone would have affordable access to health care. The model described tonight, though more expensive, will fall short on these goals.

The September/October issue of Health Affairs is a thematic volume on “Bending the Cost Curve.” If you glance at the webpage at this link, you will understand why this issue is silent on a single payer national health program (and pause for a moment of silence over the demise of the credibility of Health Affairs):
http://www.bendingthecostcurve.com/

Originally published in the Berkshire Eagle

The disruptions at town meetings in August were not just the work of conservative hecklers and their corporate backers. The wave of anger also revealed that many Americans feel left out during the current recession. It is not just the 50 million people who are left out because they don’t have health insurance, or the tens of millions who are left out because they have inadequate health insurance, or even the many people who have been bankrupted by their medical bills (the most common cause of bankruptcy in the United States).

Millions of other Americans also feel left out and angry, frustrated by the bailouts for Wall Street and other corporations which profit from the tax dollars of struggling Americans.

The current health insurance reform bill being created in Congress is looking like just another bailout – this time for health insurance and pharmaceutical companies. With their lobbying dollars and influence, these companies are crafting health insurance legislation to expand their profits and power.

A proposed individual mandate to force 47 million citizens to buy health insurance will be a windfall for private health insurance companies, and will be partially paid for with taxpayer dollars for subsidies to support premiums for people who can’t afford health insurance.

And the drug companies pulled a real coup. President Obama agreed to a promise of $80 billion from the pharmaceutical companies over ten years in exchange for an agreement with the government to not bargain down medication prices for Medicare, and to not allow people to buy cheaper drugs from Canada. The drug companies did not give the government $80 billion, nor agree to cut prices, but only to reduce the amount they would otherwise have raised prices. $80 billion over ten years translates into savings of only 2 percent of the projected U.S. spending on prescription drugs. What was Obama thinking?

What ordinary people seem to be thinking is, “We’ve given enough bailouts to the private sector, and we are sick of our government continuing to subsidize private corporations.”

At a “Community Meeting for Healthcare” in New Hampshire during his campaign for president in 2007, Barack Obama talked with 200-plus people about health care reform. He said, “I want to be held accountable for establishing a universal health care plan by the end of my first term, but I have to insist on the voters rallying for this change. When I take office I have to feel I have a mandate for change.”

According to the Associated Press, his audience at the community meeting was “almost single-mindedly focused on a single-payer system.” What we know from polls is that 59 percent of Americans support a single payer national health insurance program, an improved “Medicare for All.” So why have our president and Congress abandoned single payer health care when the majority of Americans support it?

Representatives John Conyers and Dennis Kucinich are sponsoring HR 676, the single-payer, not-for-profit health insurance bill in the house, along with 85 other representatives. Kucinich says, “Insurance companies will stop at nothing to hold on to the American people’s wallet when it comes to health insurance.” He believes that health care reform needs to come from public input, not the special interest groups who are driving the legislation in Congress.

He recommends that we step back and start over on health care reform, and that congressmen should go back to the people and listen to their stories. They need to talk to all their constituents, not just those who scream the loudest. They need to hold town meetings where civil discourse prevails.

For those of us who support single payer health care, we can make it clear to our representatives in Congress that this will be an important issue in their re-election as we go to vote next year.

Since health insurance lobbyists have effectively squelched discussion of single payer bill HR 676 as an option for health care reform in Congress at this time, Rep. Anthony Weiner, a single payer supporter, has filed an amendment to the health reform legislation recently created in the House, HR 3200. Weiner’s amendment would effectively change HR 3200 into a single payer bill.

Speaker Nancy Pelosi has promised an up or down vote on this amendment in September. If you support single payer health care, please call your representative, or go to www.pnhp.org and send an email asking him to support the Weiner amendment to HR 3200.

If we had an improved “Medicare for All” program, everyone would have comprehensive coverage, including medical and dental care, prescription drugs, and long term care, all without deductibles and co-payments. This approach would not add to our burgeoning national deficit, but would save $400 billion in administrative costs alone by eliminating for-profit health insurance companies.

The current Medicare program is financially threatened: Medicare viability would be enhanced by including everyone in the system, rather than siphoning off healthy workers to the for-profit insurance industry. Only with a single payer national health program will we have “everybody in and nobody out.”

There is a moral imperative to providing comprehensive health care to everyone. Health care should be a human right, not a market good. As Senator Teddy Kennedy said, “For all those whose cares have been our concern, the work goes on, the cause endures, the hope still lives, and the dream shall never die.”

Susanne L. King is a Lenox-based practitioner.

Newsletter

Congressman Mike Ross
Arkansas Democrat, Blue Dog Coalition
September 8, 2009

I have been skeptical about the public health insurance option from the beginning and used August to get feedback from you, my constituents. An overwhelming number of you oppose a government-run health insurance option and it is your feedback that has led me to oppose the public option as well.

…if House leadership presents a final bill that contains a government-run public option, I will oppose it.

http://ross.congressnewsletter.net/common/mailings/?id=308

And…

Hoyer: Public health plan might have to go

By Mike Soraghan
The Hill
September 8, 2009

House Majority Leader Steny Hoyer said Tuesday that a public option might need to be dropped from the healthcare bill in order to get it passed.

http://thehill.com/homenews/house/57637-hoyer-public-health-plan-might-have-to-go

In his Labor Day speech yesterday, President Obama, in using his “I continue to believe…” phrasing when mentioning a public option, made it quite clear that he will not tell the joint session of Congress tomorrow that the lack of a public option in the reform bill will result in a veto.

The hype tomorrow following his speech will be that insurance market reforms will be his line in the sand, and that he will let the public option go if necessary (perhaps as a trigger with a weld on the trigger lock).

But the debate over the public option has been a very successful diversionary tactic on the part of the insurance industry. The real debate should have been over whether or not to replace the private insurance plans with a single public plan. The insurance industry won outright since we never had that debate.

Now everyone will have to buy a private plan with inadequate benefits (65-70% actuarial value), and unaffordable premiums, with inadequate subsidies, and with continuing unaffordable cost escalation. This will negatively impact middle-income individuals and families the most.

And our out? Those hardship waivers that will waive the fines we would face for committing the criminal act of being uninsured. And with time, more and more of us will qualify for them.

The progressives drew a line on the public option. Maybe now they should back up and draw the line on single payer. That could give us a fresh start on reform that works for the people instead of the insurers

Notes on the eve of the President’s address
by Andy Coates

The election of Obama raised expectations for sweeping health reform sky high. But in spite of several self-imposed deadlines, Senate and House health reform bills were not ready by the time of the August Congressional recess, when passionate local debate erupted at Congressional home district town hall meetings.

The Onion pierced the din with truth: “After months of committee meetings and hundreds of hours of heated debate, the United States Congress remained deadlocked this week over the best possible way to deny Americans health care.”

If the goals are health care for all and reduced costs of care, the measures being prepared in Congress will not reform the health system. Instead they amount to a massive taxpayer subsidy for the private health insurance industry.

In 2007 more than one of five working age people were uninsured for a year or longer. One of six working people had health insurance insufficient to meet the expenses of a serious illness. And there were 8 million uninsured children in the United States. At least 5 million more people have lost their health insurance in 2008 and 2009 thanks to galloping unemployment – on top of years of progressively unaffordable health insurance, inadequate coverage and steep out-of-pocket costs. The failing economy further accelerated the crisis in health care through devastating state and local cutbacks in safety net care.

Yet the Congressional bills that have come through committee offer precious little relief for these ills, no fundamental reform — and key provisions would not start until 2013.

Against this background, a nascent mass movement for single-payer national health insurance, plugging away for decades, steadily accumulates new force. Single payer would deliver all necessary care for all individuals, lifelong, with no co-pays and no deductibles through a system in which health care would be publicly financed but privately delivered. By eliminating private insurance, single payer would save an estimated $400 billion annually in health spending. The single-payer bills in Congress are HR 676 and S 703. HR 676 has 86 co-sponsors and has been endorsed by over 500 labor bodies, including 39 state AFL-CIO federations.

Whether a bill passes or flounders this fall, the details in the proposals that have come through Congressional committees have little connection with the popular expectations and grassroots clamor this summer.

If Congress enacts reform, in 2013 individuals will be required to purchase health insurance. This is the centerpiece of the “reform.” The proposal has come straight from the insurance industry: criminalize the uninsured and subsidize unaffordable private insurance premiums with public funds.

Massachusetts as a model

An “individual mandate” was enacted in Massachusetts under Governor Mitt Romney in 2006. All residents of the state were required to join the private insurance risk pool or pay a fine. Supposedly this would reduce costs through an expansion of the risk pool. It did not.

The state purchased health insurance for everyone with incomes below 150% of the federal poverty level and subsidized those making between 150% and 300% of that level. A new state agency, the Commonwealth Health Insurance Connector, was established to match individuals to private insurance plans.

The Connector employs more state workers to assist with the purchase of private health insurance than the province of Ontario’s Medicare employs. Canada’s Medicare is the agency that pays for all necessary medical services for all residents. Ontario’s population (13 million) is twice that of Massachusetts. Canada’s Medicare overhead costs 1.3% of health spending. In Massachusetts the Insurance Connector adds 4.5% in administrative cost to each policy it brokers.

The Massachusetts reform went into effect in 2007. As of March 2008, 40% of those uninsured in 2007 remained without coverage. High-deductible policies lowered premium costs by shifting more of the expense onto individuals. Physicians for a National Health Program found that a healthy 43 year-old man making just over $31,000 a year would have to pay $5,096 before any insurance coverage kicks in, with additional co-pay and co-insurance costs.

In Massachusetts when you lose your job you still lose your health insurance, the reform does not protect you from financial ruin when illness strikes, and health insurance remains far too expensive. Neither is the program sustainable for the state. As the state budget deficit rises into the billions, funding for safety net programs and institutions has been slashed to keep the individual mandate afloat. Services that have been cut include care for the poor, emergency and primary care, mental health and addiction care.

A 2008 survey of opinion intended to bolster the program found that of those directly affected by the reform in Massachusetts 56% opposed the individual mandate and 50% said that the “is hurting” the uninsured. In July 2009 the state revoked subsidized health insurance for 30,000 legal immigrants.

For healthy profits

The “individual mandate” is a financial bonanza for the insurance industry just at at time when the relentless rise in premiums, far ahead of wages, have hit their ceiling of unaffordability.

An April 2008 New York Times business column about sagging profits at UnitedHealth carried a frank appraisal of the declining employer-sponsored private health insurance market. “It is never a good thing if many of your customers can no longer afford what you’re selling,” Reed Abelson wrote. “In recent years despite soaring medical costs, insurers have made big profits by keeping premiums well ahead of health care inflation. But analysts say that business strategy may be reaching its limits, with companies finding it harder to raise prices without losing substantial numbers of customers.”

The article closed with a quote from a health business analyst: “The hail Mary may be that we turn to some sort of universal care.”

Shortly after the Presidential election the insurance industry officially embraced health care reform. A November 2008 press release from Blue Cross Blue Shield read: “The Blue Cross and Blue Shield Association (BCBSA) and the 39 member Blue Cross and Blue Shield companies today announced support for every individual being required to have coverage and all insurers being required to accept everyone regardless of their health status.”

If the government would only criminalize the uninsured and pay the premiums for the poor, the industry said, it would stop denying people insurance coverage because they are ill. The industry further promised that women would no longer be charged more than men for health insurance – again, if and only if the federal government would deliver paying customers – and guarantee the payments too.

But there is growing recognition that the “reform” is most of all “truly meaningful” for the profitability of Blue Cross Blue Shield Association and its competitors. BusinessWeek announced on its front page: “The Health Insurers Have Already Won: How UnitedHealth and rival carriers, maneuvering behind the scenes in Washington, shaped health-care reform for their own benefit.” A Los Angeles Times headline read: “Healthcare insurers get upper hand. Obama’s overhaul fight is being won by the industry, experts say. The end result may be a financial ‘bonanza.’”

Details of the swindle

Congressional proposals include a minimum annual tax of $750 and/or a tax of 2.5% of adjusted income upon people who don’t purchase health insurance. For those who still could not afford the premiums, a hardship waiver could be requested. The Senate HELP bill defines “unaffordable” as 12.5% of income or more.

Companies that presently arrange skimpy policies, for example the very high deductible plans like Wal-Mart offers, would be protected by a grandfather clause and exempted from regulations setting forth minimum covered benefits. Recognizing that the costs of health insurance are a nonstarter for individuals, subsidies for private health insurance policies would be granted for people whose incomes are 400% of federal poverty or less. And tax credits would be given to small employers to subsidize the employer share of insurance premiums and grant payments to employers whose plans cover retirees aged 55-64.

But as the Congressional Budget Office began adding up the price tag – over a trillion additional dollars in costs over the coming decade – lawmakers moved to scale back the subsidy. According to the Los Angeles Times, “In May, the Senate Finance Committee discussed requiring that insurers reimburse at least 76% of policyholders’ medical costs under the most affordable plans. Now the committee is considering setting the rate as low as 65%.”

Bankruptcies in the United States in 2009 will affect 3.8 million people. Two-thirds are the result of debt due to illness – more than three-fourths of whom have health insurance. To prevent this, HR 3200 would cap personal costs (at $5,000 for an individual and $10,000 for a family) – but only for covered services, not all out-of-pocket costs.

On top of this, the proposal would shift more costs to individuals. Invoking “shared responsibility” the House bill calls for employers to pick up at least 72.5% of the premium for an individual policy and 65% of the premium for a family. The Senate HELP bill would require employers to offer to pay 60% of the insurance premium. Consider that 40% (the direct cost to the employee) of the market price for insurance coverage for a family of four would equal 2/5ths of about $16,000 — $6,400 annually or $533 per month. Plus co-pays, deductibles, and the rest of the usual unaffordable out-of-pocket expenses.

Another feature of proposed bills is a government “exchange,” through which employers and individuals would be encouraged to purchase insurance. Individuals would not be allowed to use the exchange if their employers offer health insurance, including plans that were grandfathered. This agency would add yet another layer of expensive bureaucracy to the presently dysfunctional system, like the Connector did in Massachusetts.

None of these changes would start until 2013. Some of the provisions that would begin in 2010 include new taxes, increasing Medicaid payment for primary care services to 80% of Medicare rates and prohibiting insurance companies from recissions – rescinding policies for reasons other than nonpayment of premiums (often the allegation of failing to disclose a pre-existing condition.)

“Public option” posturing

The “public option” refers to an idea that people and employers should be allowed to purchase insurance from a public program along the lines of Medicare. Proponents believe this would pressure the entire insurance market to reform itself.

On moral grounds, supporters of the public option advance arguments similar to single payer proponents: Insurer profits amount to blood money, for every penny earned by the company is a penny’s worth of care cheated from the effort to make a human being healthy. In comparison a public program with the lowest possible overhead, its finances open for scrutiny, presents a morally defensible means of paying for care.

But the public option amounts to a moral posture, not a workable reform. Single payer would eliminate the insurance industry from health care, a “public option” cannot. A “public option” won’t liberate the resources squandered by the private insurance companies. Instead it adds duplicative waste in administrative overhead to the system.

The most relevant evidence comes from the state of Maine. Maine has offered a “public option” since 2003. In six years this program has managed to cover only 10% of the uninsured and has not forced its competitors to lower costs.

Perhaps the idea of a “public option,” as a clever market-based scheme, reveals something about popular ideological illusions, for it relies upon a crude kind of “free markets equal low costs plus high quality.” Of course this is not the way the market works. The laws of the health insurance market, in particular, dictate that the successful competitor will avoid insuring people who are sick and/or poor while recruiting customers who are healthy and wealthy.

Does it really make sense to believe that a “public option” tossed amid the heavily monopolized insurance market in the U.S. would stand a chance at competing for the healthy and wealthy patients? In the best case scenario, wouldn’t such a program instead drive the system toward officially sanctioned disparities in care?

Historical note: once upon a time, as Medicare gained momentum required for Congressional passage, the “public option” was put forward by the AMA, Ronald Reagan Republicans, Dixiecrat Democrats and other right-wing opponents of Medicare. The idea was to let seniors voluntarily purchase insurance from a public plan, in addition to private insurers, instead of enrolling all seniors in Medicare. Does it make sense to now embrace a proposal that was objectionable over 45 years ago?

Topsy turvy

The “public option,” much more a political posture and much less a specific proposal, has given liberals and progressives an reason to support reform that would be, at its heart, a spectacular transfer of taxpayer funds to health insurers, a financial services industry – in which the government will hawk the product, coerce customers, and subsidize payments to companies. Even so, the White House seems prepared to jettison the “public option” in exchange for bipartisan support for the individual mandate, in spite of “public option” supporters’ moral indignation.

Prevailing Democratic Party wisdom holds that the tragedy of the Clinton heath reform effort was a failure to maneuver legislation through Congress quickly, thanks to too much dealmaking behind closed White House doors. The nuance of the Obama administration was to move the dealmaking to behind the closed doors of Congressional committees. Meanwhile the White House, in parallel, also sought closed-door deals palatable to “stakeholder” profiteers, hoping to expedite bipartisan compromise. If one accepts such “wisdom,” history seems to have repeated itself, – if the first time tragedy, this time farce.

The Los Angeles Times reported that former Louisiana Congressman Billy Tauzin, President and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA) visited the White House six times. In exchange for a pharmaceutical industry promise to forgo $80 billion in profit over 10 years, Tauzin told the Los Angeles Times that the President promised not to allow importing of drugs from Canada or Europe and not to reform Medicare Part D. (Medicare Part D has been another government-delivered industry bonanza — for it prohibits the government from bargaining for drug prices.) In return PhRMA has pledged $150 million in advertising in support of the Presidents’ reform effort.

Yet the right, in response to the industry-friendly proposals moving through Congress, has attacked the entire reform (not just the public option) as if it were single payer national health insurance!

In the resulting gyrations, when PhRMA lobbyist and former House Republican leader Dick Armey joined the chorus of conservative talking heads attacking the Congressional bills as a “government takeover of health care,” PhRMA forced his resignation from the lobbying firm. Because the reform discussions have included Medicare cuts, the right also found fertile ground among seniors. A Democratic Party-friendly poll found that 39% said “yes” when asked “Do you think the government should stay out of Medicare?”

At the end of August the Republican Party took the position of “hands off Medicare.” While this would leave in place “Medicare Advantage” (which pays private insurance companies 12 to 17% more than it pays for the costs of care of traditional Medicare), and Medicare Part D (another huge giveaway to the drug and insurance industry), it was striking to see the Republican Party tie itself in knots after decades of calling for the abolition of Medicare.

Also in the name of “keeping the government out of health care” the Republican Party came out in defense of the Veterans Administration, a socialized health care system directly owned and operated by the federal government. In August the Congressional Budget Office released a study that underscored once again evidence of superior quality of care at the VA: better than Medicare, better than private practice and better than managed care.

If we were to engage a truly evidence-based debate over how to pay for health care using a “uniquely American” model, it would be a debate between single payer, the Medicare model, and socialized medicine, like the VA.

From “off the table” to “on the floor”

Single-payer national health insurance, after more than 20 years of accumulating evidence, now accumulates unprecedented popular support. Although polls have shown for decades that a majority, including physicians, favor national health insurance, the depth and passion of grassroots activism for the proposal is something new. For the first time this fall single payer may be voted on on the floor of the House of Representatives.

At the end of July, as the Energy & Commerce committee completed deliberations on HR 3200, Representative Anthony Weiner of New York, with 6 others, put forward an amendment to replace the text of HR 3200 with the text of HR 676. Committee Chair Waxman interrupted to say that House Speaker Nancy Pelosi offered to allow single payer to be voted on by the entire House of Representatives if the amendment were withdrawn from Committee. Weiner accepted.

Perhaps the prospect of defeating single payer on the floor of the House of Representatives seems, to the Democratic Party leadership, a way to at last get single payer off the table.

Single payer activists have welcomed this turn of events, for it was the direct fruit of grassroots mobilization. The proposals before Congress, with the exception of HR 676 and S 703, will simply not work. Whatever happens in Congress this fall, the system will grow more dysfunctional. And with expectations for fundamental reform now raised even higher, excellent prospects to build a movement for single-payer national health insurance will persist.

Dr. Coates practices medicine in Albany, NY, where he is assistant professor in the departments of medicine and psychiatry at Albany Medical College, secretary of the Capital District chapter of Physicians for a National Health Program and co-chair of Single Payer New York.

Sick and Wrong

By Matt Taibbi
Rollingstone.com
September 3, 2009

All that’s left of health care reform is a collection of piece-of-shit, weakling proposals that are preposterously expensive and contain almost nothing meaningful — and that set of proposals, meanwhile, is being negotiated down even further by the endlessly negating Group of Six. It is a fight to the finish now between Really Bad and Even Worse. And it’s virtually guaranteed to sour the public on reform efforts for years to come.

Then again, some of the blame has to go to all of us. It’s more than a little conspicuous that the same electorate that poured its heart out last year for the Hallmark-card story line of the Obama campaign has not been seen much in this health care debate. The handful of legislators — the Weiners, Kuciniches, Wydens and Sanderses — who are fighting for something real should be doing so with armies at their back. Instead, all the noise is being made on the other side. Not so stupid after all — they, at least, understand that politics is a fight that does not end with the wearing of a T-shirt in November.

http://www.rollingstone.com/politics/story/29988909/sick_and_wrong

This may be the most important week in this window of opportunity for health care reform. Matt Taibbi’s well researched article tells us where we are and how we got here. It’s a must read for those who care. Hopefully it will motivate us to put down our Hallmark cards and join in the fight for real health care justice for all.

By Kip Sullivan, JD

In a previous paper I described the transformation of the “public option” from an enormous program that would insure 130 million people to a tiny program in the Democrats’ health “reform” legislation that will insure somewhere between zero and 10 million people. I predicted that the “options” in the Democrats’ bills would be unable to succeed in all or most markets in the country. I characterized the main barrier facing the Democrats’ shrunken “options” as a “chicken and egg” problem: A person or group trying to create a new insurance company can’t tell prospective customers what the premium will be until they have determined how much they will pay providers; but the person or group can’t know how much it will pay providers until it knows how many people it will insure.

In this comment I elaborate on this chicken-egg barrier by presenting an illustration of the barrier at work – the departure of the Prudential Insurance Company from the Minnesota managed care health insurance market in 1994. Although Prudential was (and still is) a huge Fortune 500 company, it was unable to survive Minnesota’s highly concentrated group health insurance market and was forced to withdraw. If a company as large and as experienced as Prudential could not crack the Minnesota market, why should we hold out any hope for the little “options” proposed by the Democrats?

A recap of the transformation of the “public option”

Jacob Hacker laid out his vision of what is now called “the public option” in papers published in 2001 and 2007.  Hacker spelled out five criteria he believed the “option” had to meet:

(1) It had to be pre-populated with tens of millions of people;

(2) Only “option” enrollees could get subsidies (people who chose to buy insurance from insurance companies could not get subsidies);

(3) The “option” and its subsidies had to be available to all non-elderly Americans (not just the uninsured and employees of small employers);

(4) The “option” had to be given authority to use Medicare’s provider reimbursement rates (which are typically 20 percent below the rates paid by insurance companies); and

(5) The insurance industry had to offer the same minimum level of benefits the “option” had to offer.

Although I question some of the assumptions Hacker made in these papers, including his assumption that the “option” will inevitably enjoy Medicare’s low overhead costs, I have little doubt that an “option” which met Hacker’s five criteria would stand an excellent chance of surviving its start-up phase in most markets in the U.S. (I am ignoring here the question of whether an “option” as strong as Hacker’s original has a better chance of being enacted than a single-payer system does. Events of the last few months should disabuse the entire world of that myth.)

But when the Democrats drafted legislation early in 2009 that included provisions creating an “option,” they abandoned the first four of Hacker’s criteria and kept only the last one (the one requiring insurance companies and the “option” to cover the same benefits). Proponents of the “option,” including Hacker, did not raise a fuss about this. Not surprisingly, the “option” provisions of the bills introduced in July – one by the Senate Health, Education, Labor and Pensions (HELP) Committee and the other by the chairs of the three House committees with jurisdiction over health care reform – were basically unchanged from those in the draft versions. The Congressional Budget Office estimates the HELP Committee’s “option” will insure approximately zero people and the “option” in the House bill (HR 3200) will insure roughly 10 million people.

The advent of managed care augmented the chicken-egg problem

Prior to the advent of what came to be called “managed care,” an entrepreneur or group seeking to start a new insurance company only needed to focus on amassing a large number of customers as opposed to providers (clinics and hospitals). But with the advent of managed care in the 1980s, groups seeking to start a brand new insurance company also had to amass a supply (or “network”) of clinics and hospitals as well. Some insurers amassed this critical supply of providers by buying them out (or merging with them), but most did so by signing contracts with them.

This new provider-network requirement for market entry arose because the spread of managed care tactics meant that survival and success would go to the insurance company with the greatest ability to exert influence over providers. Insurance companies throughout the country sought to increase their influence over providers by limiting patient choice of provider so that they could steer their enrollees to fewer providers. Developing this power to steer more patients to some providers and away from others gave an insurance company two substantial advantages over an insurance company that did not do that. First, it gave the insurer the ability to force the providers they dealt with to give them discounts off their usual charges. Second, it enhanced the power of the insurer to force providers to play by the insurer’s “managed care” rules (for example, rules requiring providers to get permission from the insurer before hospitalizing a patient).

But creating a network of providers that is large enough to satisfy a widely dispersed customer base but still exclusive enough to give the insurer leverage over the in-network providers is a time-consuming and expensive process. This requirement gives an enormous advantage to the home team – the insurers that have been doing business for a long time in a given market – and, conversely, creates an enormous barrier to entrepreneurs seeking to create new insurance companies.

When the U.S. Department of Justice investigated a proposed merger between Aetna and Prudential in 1999, it concluded that “effective new entry for an HMO or HMO/POS [point-of-service] plan [that is, an insurance company that limits patient choice of provider] in Houston or Dallas typically takes two to three years and costs approximately $50 million.” Because insurance markets have become more concentrated in the decade since the DOJ published this report, the time and money required to break into today’s markets is even greater than that required a decade ago.

Insurance companies which failed to grasp this new rule of the managed care era – that success will depend not only upon the size of your customer base but also your ability to limit patient choice of provider – lost market share and many went out of business. The decision by Prudential Insurance Company to leave the highly concentrated Minnesota health insurance market in 1994 illustrates this trend.

Prudential’s departure from Minnesota’s group market

As of 1994, Minnesota’s four largest health insurance companies insured 80 percent of all Minnesotans who had health insurance of any sort. Blue Cross Blue Shield of Minnesota enrolled 1.33 million people, Medica enrolled 900,000, HealthPartners enrolled 650,000, and PreferredOne enrolled 450,000. Two of these insurers – Medica and HealthParters — were so powerful in the Twin Cities area they could extract discounts from Twin Cities hospitals that were approximately equal to Medicare’s (at that time, a discount of about one-third). They extracted these discounts not because they were as big as Medicare was (nationally Medicare insured 40 times more people than Medica did in 1994 and about 55 times as many as HealthPartners), but because they were big in the Twin Cities insurance market and, unlike Medicare, they made a point of limiting patient choice of provider. This meant they could exercise enormous leverage over the providers they did choose to deal with.

Even though Prudential was and still is a huge company nationally (it is a Fortune 500 company and is among the nation’s largest health insurance companies) and had been selling health insurance for decades, it did not react fast enough to the gradual spread of managed care tactics in Minnesota during the 1970s and 1980s. (Minnesota, along with California, led the nation down the managed care path.) By 1994 Prudential decided it couldn’t compete in the Minnesota market.

Prudential made its decision known on July 8, 1994. As the following excerpt from a Minneapolis Star Tribune article published the next day indicates, Prudential had established a toehold – it was well on its way to creating both a customer base and a provider network – but the toehold wasn’t enough.

… Prudential Insurance Co. said Friday that it will discontinue its Twin Cities managed care health plan due to intense competitive pressures. Eighty metro-area jobs will be eliminated….While Prudential … is now in 42 cities, only the Twin Cities market posed a particular problem and will be shut down….

Prudential Plus of Minnesota operates mainly in the Twin Cities and deals with 800 primary care physicians and 1,500 specialists. Nationwide, the managed care plan has 5 million members. Regardless, Prudential did not grow large enough or fast enough in the Twin Cities market to maintain a substantial lead, analysts said. The firm was easily overshadowed by heavyweights such as HealthPartners and Medica…. And these bruisers and others like them are merging or forming alliances that kept welterweights like Prudential Plus on the ropes. Gary Schultz, executive director of Prudential Plus of Minnesota, said, “Recent mergers, acquisitions and strategic alliances involving health care plans and providers … have combined to make it increasingly difficult to compete in this market place….

“Prudential only has 30,000 (members) in the Prudential Plus plan,” [Prudential marketing director Pat] McLaughlin said. “They are not the big player they needed to be and as a result may not have been able to negotiate the best deals with providers” (Dee DePass, “Prudential to discontinue managed care health plan,” Star Tribune, July 9, 1994, 1D).

An article in BNET reported an identical explanation for Prudential’s demise in Minnesota: “A Prudential spokesperson said the clout of its bigger competitors had made it difficult to recruit a critical mass of new employers and enrollees.”

Lessons for “option” advocates

This story illustrates three facts “option” advocates must address.

First, it clearly illustrates the “chicken and egg” problem facing the “option” program, or to be more precise, facing the corporations that will be hired by the Secretary of the Department of Health and Human Services to create the “option” program. (Both the HELP bill and HR 3200 authorize the Secretary to contract with corporations that the HELP bill calls “contracting administrators” for the purpose of creating the “options” throughout the U.S.) The contracting administrators are going to have to build up provider networks and a customer base from scratch, simultaneously, and market by market, even though they will suffer the disadvantage of entering the insurance business long after the insurance companies they are competing with began introducing themselves to customers and cobbling together their own provider networks.

Second, this story should put the entire country on notice that the “option” may never be able to deliver on the promise, made over and over by “option” advocates, that the “option” will offer complete freedom to choose one’s doctor and hospital. If the contracting administrators who create the “options” around the country refuse to create “options” that limit enrollees’ choice of provider, those “option” programs will have less power to drive provider rates down. That means, of course, those “option” programs will have to set their premiums higher than existing insurers that do limit patient choice of provider. That will in turn make attracting a critical customer base very difficult if not impossible.

The third fact the Prudential story illustrates is that the size of an insurer at the national level is not an important factor in decisions by clinics and hospitals about whether to sign contracts with an insurer and whether to give that insurer discounts. What matters to clinics and hospitals is size at the local level. Minneapolis hospitals, for example, could have cared less whether Prudential insured 20,000 people in Tulsa or half-a million in Florida. (Size at the national level does have some bearing on whether an insurer can extract discounts from drug and equipment manufacturers. But drugs and equipment amount to roughly 15 percent of medical costs for the non-elderly. It is clinic and hospital costs that make or break an insurance company.)

The “chicken and egg” problem is, of course, not limited to entrepreneurs trying to break into the Minnesota market. The conditions that create the “chicken and egg” problem – high concentration levels within the insurance industry and near-universal use of managed care tactics including limited choice of provider – exist throughout the country. As Senator Charles Schumer (D-NY) said in a press release about a May 2009 report from Health Care for America Now, the entire U.S. health insurance industry suffers from “extreme … consolidation.” According to the HCAN report, eleven states have more concentrated insurance markets than Minnesota does.

“Option” advocates should stop comparing the “option” to Medicare

To test your understanding of the “chicken and egg” problem, let me end with a pop quiz:  Did Medicare face a “chicken and egg” problem when it started up?

The answer is:  No, it did not.  It did not because it didn’t have to create a “customer” base from scratch. Its base was created by the law (signed on July 30, 1965) that created Medicare.

Medicare is, by design, the sole insurer for people over age 64. That means that Medicare’s administrators had a precise idea of how many Americans they would be representing on July 1, 1966, the day Medicare commenced operations. Equally importantly, every clinic and hospital in America had a good idea of how many elderly patients they would be getting if they participated in Medicare and, conversely, how many they would lose (and how much money they would lose) if they refused to accept Medicare patients. And because the Medicare law gave the nation’s entire elderly population – the portion of the population with the greatest need for medical care – to Medicare, Medicare’s administrators had a good idea of how much leverage they had on day one over the nation’s providers. This allowed them (eventually) to make an offer to America’s providers that the providers could not refuse – accept Medicare’s below-average rates or lose a lot of money. The offer was not refused. Today, virtually all American clinics and hospitals accept Medicare enrollees even though there is no requirement in the Medicare statute that providers accept Medicare enrollees. In short, having pre-established enrollment, which in turn gave Medicare the ability to set its rates below those of the insurance industry, meant that Medicare did not face the “chicken and egg” problem.

More importantly, Medicare didn’t face a “chicken and egg” problem because it has always been the single insurer for the services covered under Medicare. Medicare has never had to compete with the insurance industry for “customers.”  A pernicious consequence of the tendency of “option” advocates to describe the “option” as “just like Medicare” is that “public option” supporters and members of Congress have been lulled into thinking the “option” is bound to succeed just as Medicare did. The tendency of “option” advocates to ignore the daunting “chicken and egg” problem is one manifestation of the lazy thinking that has been induced by the constant comparison of the “option” to Medicare.  ”Option” advocates should stop comparing the “option” to Medicare.

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: How We Got Into It and How We’ll Get Out of It (AuthorHouse, 2006).

As we recall, a high-profile event at the White House in May 2009 brought together most of the major corporate stakeholders in the U. S. health care system in an effort to build momentum toward reform. The Obama Administration welcomed the cooperative spirit and combined pledges of some stakeholders to shave 1.5 percent off the growth in health care spending over ten years, amounting to “savings” of about $2 trillion. The meeting was proclaimed “an historic event” boding well for the goals of reform — gaining near-universal coverage to affordable health care while reining in costs and improving quality of care.

Having considered the voluntary, unenforceable pledges, together with the agendas and subsequent actions by five of the major stakeholders, it is now useful to re-assess the impacts on reform by the corporate “alliance” struck at that time. Table 1 summarizes the pledges and agendas, as well as the tactics and likely rewards, for the Big Five stakeholders.

As is evident from Table 1, all five stakeholders, with the possible exception of some
Large employers, will do well with health care reform along the lines of bills now before Congress. The House bill (H.R. 3200), with a cost of some $1 trillion over 10 years and without effective cost containment mechanisms, would add greatly to the revenues of all corporate stakeholders in the medical industrial complex. Their revenues, of course, are our costs, especially since the insurance industry will likely be protected by lenient standards (such as by a requirement being considered by the Senate Finance Committee that insurance should have to cover only 65 percent of health care costs).

The Big Five that we have looked at are only part of the cost problem. There are many other major players in the health care industry, mostly investor-owned, with a primary mission to make money, not save the money of either patients, their families or taxpayers. These players range from medical device and medical equipment industries to nursing homes to information technology. As just one example, General Electric, the 12th largest corporation in the world, has a big market share for imaging equipment and information technology. It has initiated a big national advertising campaign supporting health care reform, while its lobbyists fight against cuts in Medicare reimbursement for imaging procedures.

Congress goes on break, health lobbying heats up. Wall Street Journal, August 5, 2009: A1) The 3,300 lobbyists now in Washington, D.C. lobbying for one or another health
care interest, for or against specific provisions in the proposals before Congress, are
consuming $1.4 million dollars a day in this effort.

Most health care industries welcome government subsidies to grow the insured
population, but not at the price of burdensome regulation. There is little common ground among the stakeholders in the medical industrial complex except the goal to expand markets and grow future profits for each industry The “alliance” is in name only, hardly partners in most instances. When their respective interests conflict with other corporate stakeholders, the circular firing squad starts shooting. Examples include the insurance trade group AHIP’s battle against physicians’ high out-of-network fees, while medical organizations sue insurers for non-payment of fees and call for elimination of overpayments to private Medicare plans.

As the battles rage on between and among corporate stakeholders, their lobbyists, and reformers in and out of government, the public interest is being overlooked as stakeholders work toward carving out a bigger piece of an expanded pie for themselves. The neutering of the public option is but one of many examples whereby the public is losing out. (Link to Blog 21) Instead of cost-containment in a reform bill, we can expect to see continued inflation of health care costs at rates much higher than cost-of-living or median wages. Judging from the bills taking shape in Congress, the outcome will be a bonanza for health care industries and a bail-out for an unaffordable and dying insurance industry.

Bob Herbert, well-known Op-Ed columnist for the New York Times, is right on target with this observation:

“The drug companies, the insurance industry and the rest of the corporate high-
rollers have their tentacles all over this so-called reform effort, squeezing it for
all it’s worth. Meanwhile, the public — struggling with the worst economic
downturn since the 1930s — is looking on with great anxiety and confusion. If
the drug companies and the insurance industry are smiling, it can only mean that
the public interest is being left behind.”

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008. With permission of the publisher, Common Courage Press

Buy John Geyman’s Books at: http://www.commoncouragepress.com