By Jonathan Cohn
TPMCafe Book Club
Health care: The case for thinking big
By Jonathan Cohn
One of the most fascinating products of researching my new book, Sick, was also one of the most depressing: the realization that we’ve been here before.
If you go back to the late 1920s and early 1930s, you’ll find a situation that looks more than vaguely familiar. As medical care was becoming more expensive, large numbers of people were finding they literally could not afford to get sick. Many of these people weren’t indigent in the narrow sense of the word. They had homes. They had jobs. And yet when they got sick, their lives unraveled. Some went into debt to pay for it. Some rationed their own care. The result was financial misery, medical hardship, or both.
That situation eventually gave birth to the insurance system we have today – a system, based primarily upon job-provided private insurance, that is now faltering as the price of medical care rises. If you read the eight stories in the book, you’ll get a sense not just of how devastating loss of insurance can be today, but also of how vulnerable to this problem even the middle class has become – just like it was nearly a century ago.
It’s this increasingly vulnerability that has provoked a new debate about universal health care – and given would-be reformers some cause for optimism. But now that this debate is unfolding, it’s brought us to yet another familiar place: The argument about what kind of system to create.
On one extreme of the progressive political spectrum you have…
(Continued at this link)
http://bookclub.tpmcafe.com/blog/bookclub/2007/apr/10/health_care_the_case_for_thinking_big
And…
Response to Jonathan Cohn’s “case for thinking big” on health care
By Don McCanne
Okay. If we’re going to get anywhere in our discussion on how to fix our health care system, we’d better look at some numbers that will give us a better perspective of the problem.
This year, according to CMS, our projected health care spending is $2.2 trillion, or $7500 per each individual in the United States. With a median household income of about $46,000, it is easy to understand why a family of four would have difficulty paying its equal (not equitable) share of $30,000. (Before you divert the debate into the subject of apples and oranges, keep in mind that that the topic is health care reform, and the numbers are being used to demonstrate merely the magnitude of the problem.)
When there is general agreement that everyone should be covered, these numbers lead us to the insurance function of pooling risk – for all of us. Traditionally, health insurance provided for a transfer from the many who are healthy to the few with significant health care needs. Distributing costs evenly over the risk pool worked.
Something happened in the interim. Health care costs skyrocketed, but we were caught off guard because they were gradually phased in at high single or low double digit annual rates. But here we are. At $7500 per person, health care simply costs too much for average income individuals to pay their equal (again, not equitable) share of any system of universal coverage. Like it or not, we are now faced with the need to transfer not only from the healthy to the sick, but also from the wealthy to average- and lower-income individuals with health care needs.
Our current fragmented system of multiple private plans and public programs is not serving us well in this transfer function. Economists may not have a definition of unaffordability, but polls show that over 90 percent of us recognize it when we see it in our health care system.
Actually, we could resolve this problem quite readily by establishing a single national risk pool and fund it equitably through progressive tax policies. Not only would that make health care affordable for each individual, based on ability to pay, it would also establish a single payer that could use its monopsony powers to slow health care inflation to a more sustainable rate (which raises other issues that may be covered this week).
Regarding reform, there are two basic models under consideration. Either we could establish a single national health insurance program, or we could build on our current system of private plans and public programs (with many sub-variations such as employer mandate, individual mandate, Medicaid and SCHIP welfare programs, or a new Medicare-as-an-option program available to everyone).
A crucial question is how well would private plans serve us in a universal system? Well, let’s see how they are serving us now. 59 percent of us are insured through our employment, yet employer-sponsored plans are paying only 19 percent of our health care costs. Already we have a problem. Private insurers have skimmed off the healthiest sector of our society – healthy, gainfully employed individuals and their young, healthy families – and they are sticking us with the other four-fifths of our nation’s health care bill. The insurers have already defeated the insurance function of transferring funds from the many who are healthy to the few who have significant health care needs.
And how efficient are the insurers in performing this transfer function for their cream-skimmed risk pools of healthy individuals? In 2005, the six largest private insurers in the nation had an average medical-loss ratio of about 80 percent. This means that they used about 20 percent of health insurance premiums for their own intrinsic purposes – administrative functions and profits. Further, about 12 percent of premiums were used by physicians and hospitals to pay for the administrative burden of billing and insurance functions related to the private plans. So one-third of these private insurance premiums were burned up in administrative costs. Who says that the private market is always more efficient than the government?
This leads us to one of the most important questions facing those concerned about the reform process. When private insurers have abandoned their crucial function of transferring risk, and they have demonstrated their profound administrative inefficiencies, why would any policymaker insist that private insurers must be a part of any model of reform? The resources we waste on them would be far better spent on health care for the uninsured and underinsured.
Comment:
By Don McCanne, MD
This week, TPMCafe Book Club features an ongoing discussion on health care reform led off by Jonathan Cohn, timed with release of his new book, “Sick: The Untold Story of America’s Health Care Crisis—and the People Who Pay the Price.”
The online discussion will feature such notables as Jonathan Cohn, Jacob Hacker, Ezra Klein, Matthew Holt, Roger Hickey, Diane Archer, Don McCanne and others (incomplete list). Responses of readers are welcome.
With the renewed enthusiasm for reform, this discussion is very timely and should be very informative, if not provocative. You can follow it at:
http://bookclub.tpmcafe.com/
