Private plans pay so little for so many
National Health Care? We’re Halfway There
By Daniel Gross
The New York Times
December 3, 2006
Out of a total population of about 300 million, 35.6 million elderly Americans were on Medicare in 2005. Of the working-age population, which reached 257.8 million in 2005, some 45.5 million were covered by Medicare, Medicaid or military health programs, according to (Employee Benefits Research Institute). An additional 18.2 million workers had health insurance through jobs in the public sector, which includes state, federal and local governments, public schools and state universities, according to Paul Fronstin, director of the institutes’s health research and education program. Millions of those workers’ dependents are covered as well. Even if those dependents are not included in the tally, taxpayers paid the bill for almost two-fifths of all Americans with insurance in 2005.
But that’s not the full extent of government and taxpayer involvement. Employer-provided health insurance premiums are a form of compensation, yet are not subject to federal payroll or income taxes and are exempt from many state and local taxes. Economists consider these exemptions a form of subsidy. Thomas M. Selden, economist at the federal Agency for Healthcare Research and Quality, estimates that the tax subsidy for employment-related coverage at $208.6 billion in 2006, or 35.4 percent of the amount spent on premiums.
Mining data from the National Health Expenditures Accounts, Mr. Selden found that public expenditures on health care — Medicare, Medicaid, military health care and federal employee benefits — accounted for $888 billion of the $1.96 trillion spent on health care in 2004. Adding in the aforementioned subsidies, and premiums paid for public-sector employees, the total comes to $1.2 trillion, or 61 percent.
Uwe E. Reinhardt, the James Madison professor of political economy at Princeton, suggests adding 5 percent for the federal mandate that hospitals provide free health care to the uninsured. “So government accounts for about two-thirds of health care spending,” Mr. Reinhardt said.
“A rough rule holds that private insurance covers two-thirds of the population and pays for only one-third of all health care,” Mr. Reinhardt said.
The government spends money as if there were a national health insurance program. In 2004, government spending on health care equaled 9.6 percent of the gross domestic product, compared with 6.9 percent in Canada, which has a single-payer universal health care program, said David Himmelstein, associate professor of medicine at Harvard Medical School.
“We’re paying for national health insurance, but we’re not getting it,” Dr. Himmelstein added.
http://www.nytimes.com/2006/12/03/business/yourmoney/03view.html
For the landmark Health Affairs article by Steffie Woolhandler and David Himmelstein, Paying for national health insurance—and not getting it http://content.healthaffairs.org/cgi/content/abstract/21/4/88
Comment:
By Don McCanne, MD
So two-thirds of health care spending already is through our tax system. Percentage-wise that is close to what most other nations with universal systems pay in public funds. Thus the contention that we cannot afford the taxes to pay for a universal system is untrue; we are already paying them. We merely need to establish a financing system that would spend these same funds much more efficiently so that we can include everyone.
What role should private insurers have in an efficient system of health care financing? The inefficiencies of our fragmented system are due in a large part to the participation of the multitude of private insurers, but we should look carefully at the service they do provide us under our current system before we decide that they should be dismissed.
Uwe Reinhardt offers the rough rule that “private insurance covers two-thirds of the population and pays for only one-third of all health care.” Simply stated, the private insurance industry has avoided its purpose of pooling risk by skimming off the healthy sector of our population while leaving the risk of the high-cost individuals with us - the taxpayers. Paying the high costs is the purpose of insurance, yet the insurers have evaded their fiduciary responsibility.
The private insurers’ primary product is not insurance; it is administrative services, and more and more of them, which have contributed significantly to the waste in health care spending.
Just imagine the prospect of the private insurers covering two-thirds of our population and fulfilling their risk pooling responsibilities by paying for two-thirds (instead of one-third) of our health care costs. If you think that private insurance premiums are unaffordable now, just wait until they double!
The private insurers have had their day. They have been ineffective in expanding coverage and affordability, while being the greatest cause of the expanding inefficiency of our system.
Since the taxpayers are already paying enough for an efficient and effective program of national health insurance, it’s time to demand that our public stewards produce the program we need, or we should replace them with leaders who would.