Wayne O’Leary

Public Options and Private Interests

One of the more interesting arguments against a public option in health-care reform is that it would hurt private insurance companies. A public option, opponents wail, would mean unfair government competition for the big insurers, many or most of whom would be quickly forced out of business.

The entity likely to create this economic Waterloo for the poor unfortunates of America’s multi-billion-dollar insurance industry, remember, is the federal government, the gang that, according to conservative dogma, can’t shoot straight. Why would you want health care by the same people who run the post office? is a common right-wing refrain. Yet those presumed incompetents are at once deemed capable of competing WellPoint, CIGNA, UnitedHealth, and the rest directly into the ground.

First of all, let’s dispense with the snide, disparaging remarks about the postal system; it does a remarkable job given that Federal Express and UPS are allowed to skim off the cream of the delivery business, leaving the less profitable remainder (commercial junk mail, bills, periodicals, and personal letters) to overburdened government carriers, who must by law process it. If anything, the semi-privatized postal service should revert to the status of a full federal agency, which it was until the Nixon years, and be given a budget increase.

But that’s another story for another time. The reason health-reform opponents strain their imaginations to trash “government-run health care” is that they fear its potential appeal. Medicare, another program ideological antagonists of government depict as inefficient or unsustainable, is the prime evidence. It delivers quality medical services at the rate of 3 cents in administrative overhead for every premium dollar, compared to 20 cents for the private insurers with their built-in profit margins and advertising budgets. And it’s popular, even with the terminally confused town-meeting protesters who rail against a government takeover of health care while demanding their Medicare be left alone.

Private medical insurance, meanwhile, is bleeding the American people dry through its privileged status as a largely unregulated, profit-oriented enterprise within an oligopolistic industry. A large percentage of the health-insurance market is without serious competition; a single insurer controls over half of the market in 16 states and a third or more of it in 38 states, according to an American Medical Association survey. And the name of the game is collecting the maximum in coverage premiums while dispensing the minimum in care reimbursement. The cat was really let out of the bag earlier this summer, when Wendell Potter, former CIGNA vice president turned whistleblower, shined the bright light of truth on his former industry during a PBS interview on Bill Moyers Journal.

“What we have,” Potter informed a rapt Moyers (who later re-ran the interview in its entirety), “is Wall Street health care.” Institutional investors, such as hedge funds and private-equity funds, he revealed, are the primary gatekeepers and ultimate beneficiaries of the system through manipulation of their dominant shareholding position in the health-insurance industry. Investment firms downgrade the stock value of any company that reduces its quarterly profits by honoring too many medical claims; rejecting claims, conversely, raises profits and thereby stock prices, motivating insurers to deny treatment whenever possible.

The means of measuring insurer profitability is the “medical-loss ratio” (MLR) — the percentage of each premium dollar used to pay medical claims. According to Potter, the MLR in the early 1990s was 95%; today, it’s 80%, leaving 15% more for profit. In addition to routinely denying claims, health-insurance firms have achieved this bottom-line breakthrough by aggressively marketing high-deductible “limited-benefit plans,” by purging small-employer group accounts (where one individual worker illness makes a difference), and by increasing “rescissions” — that is, cancellation of utilized coverage on the basis of technicalities. For exposing and explicating the MLR alone, Wendell Potter deserves the Presidential Medal of Freedom.

The tactics Potter described have been made possible by increased consolidation of the health-insurance industry. A recent analysis by Washington Post reporter Ezra Klein found that 94% of statewide insurance markets now fit the Justice Department’s definition of “highly concentrated,” a situation where one company in an industry has 42% or more of the business in a given geographic area. Credit the proliferation of mergers. Since the mid-1990s, over 400 corporate mergers involving health insurers have taken place, allowing the competition- free survivors to double their premiums between 2000 and 2007, and permitting the 10 largest among them to increase their profits by 428%.

No other civilized industrial country besides the US allows such exploitation in the health-care field. Nowhere else do insurer rescission departments (the real death panels) exist. Nowhere else are pre-existing conditions or illness itself a basis for rejecting medical coverage. Nowhere else are annual insurance-premium increases of 10 to 15 percent the rule. And nowhere else do commercial advertising, profit set-asides, and executive salaries consume such a massive portion of the national health-care budget. Yet, any attempt to rein in such practices is termed anticompetitive and disruptive to business. In particular, any proposal for a nonprofit public health- insurance option is demonized by the insurance lobby and its conservative retainers in the political arena as liable to unbalance the industry’s precious “level playing field.”

The fundamental issue, rarely raised, is whether there should be a playing field at all. What’s the justification for a profit-based health-insurance industry? Why, in fact, should medical insurance even be an industry? Aren’t some things too important to be left to the vagaries or manipulations of the marketplace? If a government-run public option diminishes the market’s role, if it eventually forces private insurance firms out of the health-coverage business, that’s ultimately a good thing, not a bad thing. There are plenty of other spheres of enterprise to occupy America’s insurers — life, property, fire, and auto insurance, among others; they don’t need to be the primary arbiters of our health-care system.

The late Ted Kennedy, who fought for a nonprofit system of health coverage for most of his public life, understood this fact. It’s time to memorialize him by enacting a health-care reform that moves away from a preoccupation with Wall Street needs and corporate values. It’s the least we can do for the Lion of the Senate, and for ourselves and our posterity.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, November 15, 2009