Monday, August 10, 2009

NYT Primer on the Details of Health Care Reform

Some excerpts from the New York Times Primer on Health Care Reform:

[T]he federal government already holds sway over the health care system through Medicare, Medicaid and various insurance programs for children, veterans, military personnel and other federal employees. The federal government will account for 35 percent of the expected $2.5 trillion in health spending this year, and that does not include subsidies built into the tax code.

Most Americans do not know the full cost of their employer-sponsored insurance. And it is easier for Democrats to paint insurers as greedy than to explain the complex math that shows current health care spending is unsustainable.


Sue asked in the comments:

Mary, Do you agree with their assessment in the second paragraph? Seems to me that insurers add a big layer of wasted spending (even if they aren't greedy) that would go away under single payer.

Sue, I totally agree with you that private insurers add a big layer of administrative costs that would go away with single-payer. Those costs include all the costs that physicians and other providers must incur in time spent figuring out how to deal with all the different kinds of paperwork and different rules that different insurance companies use. Costs that would go away under single-payer also include all the time that insurance companies spend trying to figure out why a DIFFERENT insurance company should pay a particular bill (e.g., arguing over whether a bill should be paid by workers comp, an auto insurance policy, an employer's policy, a spouse's family policy, a parent's family policy, primary vs. secondary coverage, etc.) Costs that would go away under single payer also include all the costs of processing long and detailed applications to screen out bad risks, since single payer would cover everyone.

However, I also agree with the NYT's assertion that current health care spending trends are unsustainable, even if we eliminate all administrative costs and industry profits.

Medicare has low administrative costs but it is projected to grow at rates that will exhaust the Medicare trust fund within a decade, due to a combination of two important demographic factors (baby boom reaching retirement age plus elderly living longer in general) as well as a growing amount of expensive new technologies, not to mention the inadequately funded Part D drug coverage. The projected costs of Medicare are not sustainable without tax increases that the public seems unwilling to countenance.

Very large employers run their own self-insured plans for their employees and retirees and have strong incentives and economies of scale to minimize administrative costs, but they also find the medical cost burdens to be growing, especially in organizations that have large numbers of retirees compared to current employees.

Most small businesses do not self-insure, but rather purchase health coverage from an outside firm. Usually their premiums are "experience-rated," meaning that if usage by their employees goes up one year, the firm's premiums will rise a lot the following year, or the renewal may be declined. I know a worker who worked for a small business who felt obliged to leave it because the health care costs for his family (which included a child with very expensive health care needs) was causing the firm's premiums to skyrocket to the point where other workers couldn't afford their share of the insurance premiums. Even if there had been no administrative costs included in the premiums, it would not have been sustainable for the firm to continue to offer coverage.

So bottom line, yes, I do agree that current health care spending trends are unsustainable, even if we get rid of all administrative costs, unless we are prepared to face some hard mathematical realities. Cutting costs is, at best, a one-time savings, but the underlying growth trends in health care spending, even under current programs, are not sustainable indefinitely, even if it were possible to eliminate all administrative costs.

Personally, I would like to see a system with single payer and universal coverage decoupled from who your particular employer happens to be.

France and Canada aren't perfect, but they are better than the patchwork that most people under 65 have here and now.

Most people under 65 with private insurance are only a layoff away from losing it. (Actually, it doesn't even take a layoff. Just having an hours cutback below the level required to qualify for benefits is enough to lose insurance.) Finding a new job of any sort in this economy is a challenge, finding a job with health benefits is an even greater challenge.

But the public needs to come to terms with the true cost of their health care, which most people haven't been forced to confront up until now. Cutting administrative costs isn't enough to make the system sustainable. Much of the cost of health care is hidden from view, beneath the surface.

It's going to take tax increases that people may not be willing to accept unless they are willing to do the hard math of figuring out what we are already paying. And, realistically, it's not enough just to tax the "millionaires" or just those earning over $250K. There are fewer of those people than there used to be, and many of those who still exist aren't making as much as they used to make.

Tax collections are down, deficits are up, and the reality is that much of our current health care spending is coming out of government borrowing. In the past year, the world has been falling all over itself to lend us that money at phenomenally low interest rates. That situation is not sustainable indefinitely, even if it were possible to cut out all the administrative costs.


  1. Mary, Do you agree with their assessment in the second paragraph? Seems to me that insurers add a big layer of wasted spending (even if they aren't greedy) that would go away under single payer.

  2. That's an excellent question, Sue. I've edited my post to answer it.