The unraveling of private insurance

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By LEONARD RODBERG
Queens College

“Rising health care costs are undermining the institution of employer-based coverage. We…may well be seeing the whole institution unraveling.… [This] is the byproduct of what should be a good thing: advances in medical technology.”
— Paul Krugman and Robin Wells,”The Health Care Crisis and What to Do About It,” New York Review of Books, March 23, 2006

Americans spend more on health care than anyone else on earth. We are first in spending, but, according to recent surveys, 14th in public satisfaction with our health system. Per person, our government spending alone is more than government plus private spending on health care in any other country. And yet our health statistics are comparatively poor, with life expectancy 24th in the world, infant mortality 27th, and more than 45 million people without any health insurance at all.

So why does the US spend so much and get so little in return? Because of one simple fact: we are alone in the world in relying on private insurance to fund health care.

ONLY IN AMERICA

Many countries have a “single-payer” system, like Canada, in which the government directly funds a system of universal coverage. Some countries (e.g., France or Germany) use employer-supported, nonprofit sickness funds — industry-wide insurance plans created with the support of their union movements. But every economically developed nation funds its health care system through some kind of government- run regulatory or funding mechanism that makes sure everyone has coverage and that costs are controlled.

In the US, employer-based health insurance was a significant advance when it was created by the labor movement in the mid-1930s. It was greatly expanded during World War II and reached its peak of coverage in the 1950s. But now this system, and the collection of private insurance companies it spawned, is a barrier to access to health care for millions of Americans, including union members.

America’s current health insurance system is:

• Wasteful. More than 20% of our spending on health care in this country is simply for administering our multipayer, for-profit insurance system.


• Inflationary. The insurance system is good at denying or delaying care, but incapable of controlling costs and encouraging the efficient use of medical technology.


• Obsolete. It is focused on treating illness when the major modern diseases — heart disease, cancer and stroke — are most effectively dealt with through prevention.

As costs rise, the number of employers who offer health insurance to their employees has steadily declined. Over just the last six years, costs rose by 87% — and the percentage of employers providing health insurance to their employees fell from 69% to below 60%.

SHIFTING COSTS

Those employers that continue to offer coverage pass more and more of the cost on to their employees. Employees now pay an average of 20% of the premiums in plans offered by their employers, on top of the rising co-pays and deductibles.

As employers drop coverage, government has to pick up many of those who are left without insurance — particularly through Medicaid, which covers some low-income people, especially children. In turn, the explosive growth of Medicaid creates financial problems for many states and localities, which share Medicaid costs with the federal government.

UNAFFORDABLE

With the employer-based system leaving increasing numbers of Americans without health coverage, some people propose requiring that individuals purchase insurance to solve the problem. The State of Massachusetts recently passed legislation to create an “affordable” insurance plan and require everyone without other insurance to purchase such a policy. The American Medical Association supports such an individual mandate, and other states are considering the idea.

What’s wrong with it? After all, anyone owning a car is required to have car insurance. The simple answer is that most people who don’t have health insurance today could not afford to buy a policy that would really give them adequate coverage. Today, the average policy for an individual costs more than $4,000 per year and, for a family, over $10,000 each year. Clearly someone earning the minimum wage ($10,000 per year for fulltime work) could not afford to purchase health insurance for her or his family.

While the Massachusetts plan envisions state subsidies that might lower the price for some people, these will be too limited to assure access to quality care. In the end, residents of Massachusetts will be required to spend a lot of money in exchange for very poor coverage.

FOR-PROFIT PROBLEMS

Nor is an individual mandate the solution from the point of view of the nation’s health system. As one wag put it, “If GM can’t keep down the cost of health care, how can we expect Mom and Dad to do it?” Employers have a lot more bargaining power than individual consumers, and they can’t keep a lid on costs.

Ultimately, it is not employer-based insurance that is failing, but the inefficient and increasingly unaffordable private, for-profit health insurance system.

The PSC, along with more than 150 other unions and union locals, is supporting the approach embodied in legislation introduced in Congress by Rep. John Conyers (D-MI). This bill, H.R. 676, the Expanded and Improved Medicare For All Act, builds on the success of the Medicare program in providing efficient, comprehensive coverage for more than 40 million elderly Americans on Social Security. This publicly funded “single-payer” plan gives patients a free choice of doctor and hospital, has much lower administrative costs than private insurance (3% vs. nearly 30%), and can provide the basis for a unified funding mechanism that would cover everyone while spending no more than we do now.

Instead of limited reforms that keep the private insurance companies in place (and which will ultimately fail), a Medicare For All system would be simpler, less costly and more equitable, and would cover everyone. And it would be better for our health.