By Phil Caper, M.D.
Portland (Maine) Press Herald, Maine Voices, Feb. 2, 2019
A commonly held misperception is that Medicare is simply one more type of health insurance. But there are many important differences. Medicare is social insurance, created to facilitate medical care for its beneficiaries. In contrast, commercial insurance is dominated by publicly traded, for-profit companies whose focus, necessarily, is to create wealth for their owners.
Underlying the core business of commercial health insurance companies is a practice known as “medical underwriting.” Underwriting divides insurance beneficiaries into risk pools based on the probability they will use medical services. The practice of denying coverage for pre-existing conditions is but one example of medical underwriting, and is currently outlawed by the Affordable Care Act. But that restriction is now under political attack.
Medical underwriting is a key tool, widely used by insurance companies, to enable them to discriminate against people who are sick or are likely to become sick.
Medical underwriting is complicated and costly. It requires the collection and analysis of detailed and intrusive data.
Using such data, policyholders are segmented into many different risk pools that are priced accordingly. Multiple factors come into play in assessing the likelihood that somebody will need medical care, many completely beyond the policyholder’s control. They include age, gender, occupation, previous medical history, lifestyle, place of residence and access to medical care.
In contrast, social insurance programs such as Medicare use a fundamentally different mechanism to deal with risk. Instead of segmenting and pricing risk, Medicare groups all eligible individuals into a single pool. Instead of charging many different premiums and designing different benefit packages for each, they use public sources to generate a common pool of money and create a common package of benefits that covers most or all eventualities that could face any of the beneficiaries of the program.
By doing this, social insurance eliminates the need to have detailed data, and with it much of the complexity and administrative costs of the commercial insurance system.
In 2012, the National Academy of Medicine (then named the Institute of Medicine) estimated the inefficiencies in our current for-profit health care system to be $190 billion a year nationwide, much of it attributable to medical underwriting and the resulting complexity of our health insurance system. For Maine alone that cost works out to about $800 million a year, money that can and should be used to provide coverage to every Mainer.
Having everybody in a single pool has another benefit – the ability to restrain the now out-of-control overall costs of health care. A single financing pool can be budgeted, something that is impossible in the current multipayer system, leaving us no choice but to attempt to manage costs one service at a time – a very costly, intrusive, contentious and ineffective approach.
There are other advantages to financing health care using a single pool. Our current balkanized and highly fragmented system sets the stage for a great deal of political conflict. Everybody is concerned primarily with making sure their own piece of the system – private insurance, Medicare, Medicaid, the Veterans Affairs system, Obamacare and others – works for them.
A program with just one pool of beneficiaries that serves everybody, such as Medicare, is perceived to be much fairer. Americans sense fairness. Our current balkanized system is perceived to be anything but fair.
That is the key to understanding both Medicare’s efficiency and its broad public appeal. People like it because it’s fair, it works well for everybody and it costs far less than commercial insurance. Public funding also ensures that everybody pays only what they can afford. That’s why such systems work well in most other wealthy countries at a fraction of the cost of ours.
In a universal “Medicare for All” system, we would all have a stake in making sure that system is adequately funded and continues to work well. The public strongly supports universal healthcare for economic, moral, political and practical reasons. It’s time to make the transition to “Improved Medicare for All.”