Peddling damaged goods

steffie-himmelstein-combo– Dr. Steffie Woolhandler and Dr. David Himmelstein are both associate professors of medicine at Harvard Medical School and primary care doctors at Cambridge Hospital. They co-founded Physicians for a National Health Program. –

Once they’re finished mandating that we all buy private health insurance, Congress can move on to requiring Americans to purchase other defective products. A Ford Pinto in every garage? Lead-painted toys for every child? Melamine-laced chow for every puppy?

Private health insurance doesn’t work. Even middle class families with supposedly good coverage are just one serious illness away from financial ruin. In a study carried out with colleagues from Harvard Law School and Ohio University we found that medical bills and illness contributed to 62 percent of all personal bankruptcies in 2007 – a 50 percent increase since 2001. Strikingly, three quarters of the medically bankrupt had insurance – at least when they first got sick.

In case after case, the insurance families bought in good faith failed them when they needed it most. Some were bankrupted by co-payments, deductibles, and loopholes that allowed their insurer to deny coverage. Others got too sick to work, leaving them unemployed and uninsured.

Now Congress seems poised to fulfill insurance executives’ prayers; make failure to buy their faulty product a federal offense. We’ve seen this brave new world in Massachusetts. Here, beating your wife, communicating a terrorist threat and being uninsured all carry $1000 fines. Our law has halved the state’s already low uninsurance rate – mostly by expanding Medicaid and similar programs at great public expense.

But reform hasn’t made care affordable for middle class families, or for the public treasury. A middle income uninsured 56 year old is now forced to lay out at least $4,800 for a policy with a $2,000 deductible before it pays for any care, and 20 percent co-payments after that. Skimpy, overpriced coverage like this left one in six Massachusetts residents unable to pay their medical bills last year.

Even among the insured, 18 percent skipped care because they couldn’t afford it. Meanwhile, as costs rise for subsidized coverage our state Senate plans to drop 28,000 people from the insurance rolls, and public hospitals and clinics have suffered draconian cuts as funds were diverted to shore up the reform.

Such shrunken coverage for the middle class and the evisceration of institutions that care for the poor prefigure the ugly reality of the president’s plan. Searching for the $150 billion extra he’d need each year just to cover the uninsured, Obama threatens to tax health benefits for those who are currently insured, effectively increasing its price. And he’d drain Medicare and Medicaid funds from safety net hospitals, anticipating a sharp drop in those unable to pay for care – a drop which has largely failed to materialize in Massachusetts.

The President’s other proposed funding streams aren’t objectionable, just illusory: unenforceable pledges from hospitals, insurers and the AMA to slow health inflation – a repeat of the empty promises made when Presidents Nixon and Carter threatened cost controls; and the assumption of windfall savings from computerization and care management, assumptions that the Congressional Budget Office has dismissed as wishful thinking.

A single payer reform could realize about $400 billion in savings annually on health care bureaucracy – enough to cover the uninsured and to provide first dollar coverage for all Americans. But the vast majority of these savings aren’t available unless we go all the way to single payer.

Adding a public insurance plan option – as the president proposes – won’t fix the flaws in Massachusetts-style reform. A public plan might cut private insurers’ profits, which is why the insurers hate it. But insurers’ roughly $10 billion in annual profits is only a sliver of the money squandered on bureaucracy.

The complexity and fragmentation of an insurance system with multiple competing payers breeds this massive waste. In addition to their profits, insurers spend vast amounts on overhead for marketing (to attract healthy, profitable members); demarketing (to avoid the sick); keeping track of their ever-shifting roster of enrollees and collecting their premiums monthly; fighting with hospitals and doctors over bills; and lobbying politicians. And doctors and hospitals spend tens of billions more keeping track of who got every band-aid and aspirin tablet, and fighting with insurers to collect payment.

A single payer plan would eliminate most insurance overhead, as well as these other paperwork expenses. Hospitals could be paid like a fire department, receiving a single monthly check for their entire budget, eliminating most billing. Physicians’ billing could be similarly simplified.

While a public plan option could save on profits, it would forego most of the other $390 billion that single payer could save. Hospitals and doctors would still have to maintain their elaborate billing systems. And overhead for even the most efficient competitive public plan would be far higher than Medicare’s, which automatically enrolls seniors when they turn 65 and disenrolls them only at death, deducts premiums directly from social security checks, and does no marketing.

Moreover, a kinder, gentler public plan would quickly fail in the health care marketplace. Insurers compete by NOT paying for care: by seeking out the healthy and avoiding the sick; by denying payment and shifting costs onto patients; and by lobbying for unfair public subsidies (as under the Medicare HMO program). Competition in health insurance involves a race to the bottom, not the top.

A public plan that abstained from marketing would soon be saddled with the sickest, most expensive patients, whose high costs would drive premiums to uncompetitive levels. Similarly, failure to emulate private insurers’ schemes that shift costs to patients and other payers would be a crippling competitive disadvantage. To compete effectively, a public plan would have to copy private plans’ bad behaviors.

When addressing liberal audiences, proponents of mandated private coverage with a public plan option conflate it with single payer reform, hoping to deflect criticism from their left. Meanwhile, Republicans warn that such a plan is a back door route to socialized medicine. Both are wrong.

Eight decades of experience teach that private insurers cannot control costs or provide families with the coverage they need. A government-run clone of private insurers cannot fix these flaws. It’s bad enough that insurers are peddling damaged goods. Why make things worse by requiring Americans to buy them?

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