March 16, 2010

Not-for-Profit Health Insurance Is the Only Ethical Answer

Matt Davies—Tribune Media Services

The health care “reform” bill that Obama is pushing in speeches around the country – and that the House is threatening to pass without an actual vote – is a gift to the insurance companies. There is no real reform for most Americans, with only the poorest getting any real benefit in this legislation [granted, these people need the help].

The biggest problem with health insurance is that the companies are allowed to cover whatever they want and reject whatever they want, without the consumer having any recourse. Further, they can pay doctors whatever they want and charge consumers whatever they want. The system only works for the insurance companies who are making record profits while we get less coverage for more cost:

Profits at 10 of the country’s largest publicly traded health insurance companies rose 428 percent from 2000 to 2007, while consumers paid more for less coverage. One of the major reasons, according to a new study, is the growing lack of competition in the private health insurance industry that has led to near monopoly conditions in many markets.

This is all driven by the profit motive – not by any concern for consumers.

The new bill that Obama is pushing does nothing to solve these fundamental problems, which is why Dennis Kucinich is opposing the bill:

Comprehensive health insurance is a matter of economic security. While many Americans don’t have health insurance at all, many more Americans have health insurance that doesn’t pay for care when they get sick or injured. When that happens, illness can lead to economic ruin. Half the personal bankruptcies in America occur because health insurance companies refuse to pay medical bills.

Unfortunately, if the president’s plan becomes law without substantive change, you would still be only a major illness or injury away from personal bankruptcy, except the federal government will have required you to buy a private health insurance policy.

Under this legislation, we will no longer have the option to say, “F**k it, I’ll take my chances and not buy insurance.” You will be required to buy insurance that will more than likely refuse to pay for your bills anyway – there is no oversight and requirements for fair coverage in the Senate bill. How is this reform?

Nearly a year ago, in anticipation of a public option in health care reform, Obama had negotiated side deals with the major hospital associations and with the drug companies, only to roll over on the public option without a fight. And now the drug companies are the biggest opponents to reform legislation.

With Medicare needing only 5.2% of revenues in administrative costs (2003, projected to be 1.6% by 2025) and the private, for-profit insurance industry paying 16.7% or more to run their business, a public option, which would be not-for-profit and would have been run very much like Medicare, would have saved hundreds of billions in health care costs each year – and provided all citizens with coverage. In fact, simply opening Medicare to all American citizens would to pay into the system would have been a great beginning for reform.

Now all of that is off the table, largely as a result of fear mongering by conservatives and the insurance industry (and weak Democrats left by the President to write this legislation on their own). So what do we do?

We need to reform the market – take the profit motive out of it in some way. Like Germany and Japan have done (Germany was the first, Japan is the latest).

In Germany, a country with the world’s oldest social health care system, there are 240 “sickness funds,” which are operated on a not-for-profit basis. Those making more than $75,000 a year can opt out of state mandated insurance and buy private insurance.

The difference between mandated coverage there and mandated coverage there is that in Germany, your coverage actually pays the bills.

Here is a summary of how the German system works (US numbers in parentheses):


Population: 82.3 million (US: 302 million)

Life expectancy at birth: 79 (US: 78.1)

Health spending as part of GDP: 10.7% (US: 15.3%)

System type: Universal coverage. Mostly employer-employee based (88%).

Coverage: 99.8 % — all citizens and legal residents (self employed not covered and must be private insurance) (US: 82% of people under 65; 100% of people 65 or over)

Average annual per-person spending:
Total: $3,673 (US: $6,402)

Breakdown: $2,518 on mandatory employment-based coverage, nonprofit insurance; $259 on for-profit insurance; $349 by government; and $547 consumer out-of-pocket*. (US: $2,884 by government; $2,676 for private insurance, with 52% paid by employers, 48% paid by employees; $842 by consumer out-of-pocket)

Financing: Workers split premiums with employers, with each paying about 8% of workers’ gross income to nonprofit “sickness funds.” Those earning over $75,000 may purchase insurance from for-profit insurers.

Notable features: Comprehensive coverage including basic dental and long-term care. Short waits – usually less than a month – for elective surgery. New programs provide extra attention to diabetes and other chronic illnesses.

Biggest challenges: Large and growing aged population, high costs, high rate of specialist visits.

Prescription drug coverage: Full coverage with small copayments. Federal panel controls prices and an expert committee decides which new treatments should be covered.

Doctors: Regional groups of office-based doctors negotiate with insurers over annual budgets. Hospital-based doctors, including most specialists, are salaried.

Hospitals: Insurers negotiate with hospitals over annual budgets.

When Japan wanted to set up their universal coverage program, they looked at all the other systems in the world and developed this model, with low overall costs and universal coverage (again, US numbers in red):


Population: 127.7 million

Life expectancy at birth: 82.1 (US: 78.1)

Health spending as part of GDP: 8% (US: 15.3%)

System type: Universal coverage. Compulsory employer-employee financed national health insurance (52%); government-paid program for people over 70, the poor and small businesses.

Coverage: 100 % — all citizens and legal residents. (US: 82% of people under 65; 100% of people 65 or over)

Average annual per-person spending:
Total: $2,358 (US: $6,402)

Breakdown: $1,927 by government; $71 on private insurance; $360 consumer out-of-pocket* (US: $2,884 by government; $2,676 for private insurance, with 52% paid by employers, 48% paid by employees; $842 by consumer out-of-pocket)

Financing: Employers and employees each required to pay approximately 4% of salary to nonprofit, community-based insurance plan. Public assistance for small businesses and the poor. Co-payments of 30% for outpatient care; 20% for hospitalization. Ceiling on out-of-pocket costs.

Notable features: Frequent doctor visits, long hospital stays. Insurers must cover everyone; can’t deny a claim.

Biggest challenges: Rapidly aging population. Overuse of care. Highest number of hospitals per person in the world. Shortage of physicians in many specialties and rural areas.

Prescription drug coverage: 30% co-payment; government controls set prices at relatively low levels.

Doctors: Government regulates fees via negotiation.

Hospitals: Mostly private; government sets rates.

Both Germany and Japan have lower costs as a percentage of GDP, both cost less for each citizen, both cover all claims, and both are essentially universal in their coverage – AND both are not-for-profit – see a pattern here?

These systems address all the issues that make our system an utter failure for anyone other than the wealthy. BUT our corrupt politicians will never actually seek this kind of REAL reform, and they will continue to create fake reform that does nothing to address the real issues.

However, if you could buy insurance from a company that operates on a not-for-profit status, covers all reasonable claims, splits costs between consumers and employers at around 6-8% of employee income, takes another 6% from the government (same as Medicare, which would no longer be necessary), and that is big enough to leverage some deals with drug companies, hospitals, and doctors to keep costs down – would you buy that product?

It would take some brave people with some big money to change the way business is done. We need a large, not-for-profit insurance company – with administrative salaries based on the numbers of insured (as in Germany) – and it needs to be created by people who have the BIG $$$ to fund a start-up. People like Warren Buffett, Bill & Melinda Gates, George Soros, Oprah Winfrey, John Templeton and others who have the capital to help launch a program such as this.

It’s probably just a deluded dream on my part, but it’s the only ethical solution I can see.

[A slightly different version of this post appeared at Integral Options Cafe.]

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