The Public Health Care Option

The big debate in Congress is now the health care. A number of months ago I posted another option and will repost that again in the next few weeks. The current discussion in Washington, however, is

The big debate in Congress is now the health care. A number of months ago I posted another option and will repost that again in the next few weeks. The current discussion in Washington, however, is

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• Topics: USA / Global, Health,

The big debate in Congress is now the health care. A number of months ago I posted another option and will repost that again in the next few weeks. The current discussion in Washington, however, is largely absent of facts and details with an appropriate understanding of the underlying economics. It is important that everyone understand a few basic truths before deciding where they stand on the federal government entering the health insurance business. Those supporting a public health insurance option point to a couple of important points to make their case, the first is that health insurance companies make a lot of profits and that competition from government will help to reduce costs. Both of these are misnomers. Now, before everyone castigates me for taking the side of the health insurance industry, make no mistake, I do not care about health insurance companies and if I were King for a day and could implement my own health care reform, insurance companies would not be part of my system (but neither would the Federal Government).

I strongly dislike insurance companies for the same reason that I strongly dislike the idea of the federal government getting into the health insurance business. As I have stated many times before, there is no fundamental difference between the federal government bureaucracy and large public companies. Both are disingenuous to their customers and both are managed based on revenue and cost and both the federal government and public insurance companies will deny coverage to people for the same reason; they are trying to control costs to match their revenue. For every story you can trot out about someone being denied coverage or medical help by an insurance company you will be able to trot out just as many people if not more people that will be denied coverage or medical help from the federal government. And either way, when you want to complain you are going to have to talk to some person in another state that does not really care about your individual circumstances. Again, there is no discernable systematic difference that would cause one to be better than the other.

In terms of the profits of health insurance companies, the accompanying slide shows the revenue, net income and profit margin of 3 large health industry companies. Although one can look at the net income (or profit) line and say they are making a lot of money, the profit margin is very low. The fact is that the health industry is already very competitive with hundreds, if not thousands, of companies providing a wide array of services and costs. The health industry is on par with the grocery industry in terms of profit margin and it is tough to argue that the grocery industry needs more competition to bring down prices. The health insurance industry does not have excess profits to cut back on based on their historical profit margins so any reduction in price is going to come from one of a few areas. It is unlikely they will be able to cut back on staff and/or salaries to employees. Basically, a cut in profits is going to translate into a reduction in investments in the future. All of the talk about savings from hospitals or the insurance industry or government is really about reducing the investment in our health care industry. This will translate into fewer new hospitals, fewer hospital expansions, less purchases of new medical equipment, less hiring of doctors and nurses (which means existing doctors and nurses have to help more people). All of these will lead to more difficulty in getting care and ultimately lower quality care. It is great to talk about reducing the cost of health care, but it is important to ask how exactly costs will be saved. The reality is that there is no free money to give back in the health care industry so fewer services have to be provided or less investments made in new technology and increased capacity.

Sidenote: Some people tout the high cost of overhead with insurance companies and that money can be saved there, they then highlight the low overhead of Medicaid. There is no doubt money that can be saved across the board from reducing overhead, but nothing in the current health care reform will address that or cause overhead to change.

In terms of the government providing increased competition which will in turn reduce cost is like saying we need additional gas stations in Bellingham because the price of gas is too high. There is already a tremendous amount of competition as can be seen by the large number of insurance companies and the low profit margins. The Federal Government entering the industry is not going to change the competitive landscape at all, just like adding another gas station is not going to change the dynamics of gas prices either. That argument only works when there are only a few companies and you are close to a monopoly, then competition would bring down prices. For the government to be substantially cheaper it would have to be subsidized by taxpayers and compete on an uneven playing field, which is not really competition, nor is it sustainable.

Let’s not pass another major reform, which no lawmaker has read, that will make a few people feel good but not do anything to fix the problem. Health care is a tough issue, but it is solvable in the right way if everyone is prepared to set aside preconceived notions and work to find real solutions to some fundamental issues. It is disconcerting to hear politicians talk about the importance of doing something at any cost, versus doing the right thing and actually solving the problem. How do we get everyone covered with actual medical services without having to worry about how they will pay for it?

This blog only addresses a small part of the overall issues and hopefully over the next couple of weeks we can address some of the other pros and cons of the current proposals.

About Craig Mayberry

Closed Account • Member since Jan 17, 2008

While writing his articles from 2008 to 2011, Craig lived near Lynden and taught at both Whatcom Community College and Western Washington University. He was active in politics and ran for public [...]

Comments by Readers

Scott Wicklund

Jul 16, 2009

The solution is Single Payer.  Currently only 80% of health care dollars is spent for delivery of care.  Admin litigation and corporate profits siphon the other 20% away.  All of us who have coverage pay for the cost of those without it.  Canada, Mexico, and Argentina all have Single Payer.  That is why Gov Sanford went there!

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Craig Mayberry

Jul 16, 2009

Scott,

I agree that single payer is better than the current proposal, but even single payer has some fatal flaws.  Again, as mentioned above and in my previous post on health care reform a couple of months ago.  You still cannot get around the fact that there is no systematic difference between large public companies and the federal government.  If the insurance companies are going to stiff people and deny treatment, so is the federal government.  The people may be different.  Insurance companies hate people with pre-existing conditions so it is hard to get insurance.  A single payer system will be hard on the elderly wanting a reasonable quality of life for the last remaining years.  Bureaucracies are hard on the customer wanting good service, whether that bureaucracy is a for-profit business or a government. 

If we really want a high quality health care system we have to look for more localized solution in the form of a co-op.  The bureaucracy will be much smaller and the people making the decision will be people in the community, not a bureaucrat in Washington DC or some other state.

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John Erickson

Jul 16, 2009

Craig, your notion that the health care fix is to have something localized like a co-op. I see many problems with this approach. Locally our own city and county can hardly agree on medic-one. Imagine every county having their own health co-op, independant of all others, paying and or supplying only the services they choose. Then imagine the problems you are going to have as a whatcom co-op member trying to get medical help when you are on the east coast, or out of the country. Will all of the health providers honor other co-op’s members? This seems like the start of a really bad nightmare. The duplication of management county by county all across this nation will just take this to epic proportions, fraud, default, lack of funding issues as each locale area booms and busts economically. The real answer is single payer health care. Sweet dreams.

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Craig Mayberry

Jul 16, 2009

John,

Go back and read my proposal from a couple of months ago.  Local government does not run or control the co-op, it is ran by an executive director and the board of director that is ultimately responsible is made of local politicians, doctors, nurses, hospital administrators, and citizens.  The overhead being duplicated is not an issue, the overhead amount is not that much money and we do it all of the time in school districts and businesses. 

The fact is my proposal if far less susceptible to fraud and waste then the Federal government trying to run everything.  Coverage outside of the area is easily dealt with, just like any other insurance.  The local organization will pay medical bills for everyone in the county, regardless of where the service is obtained so a east coast hospital sends the bill to the co-op instead of the insurance company. 

For all of those out there touting local business, it is ironic that they then turn around and want the federal government running health care.  My question is then if the federal government is so competent at running health care, shouldn’t we also put them in charge of the food system as well.

I admit the idea of single payer even the current proposed health care reform sounds great.  We never have to worry about paying for health care or getting coverage, we just simply walk into the doctors office and all of our needs are taken care.  The problem is the government can never deliver on their promises, just ask Massachusetts or even our own state that has dramatically cut back on their health insurance programs as soon as state revenue took a turn for the worst.  Does anyone really believe that the same thing would not happen with single payer or the current proposal when tax revenue takes a dive and there is not enough money to pay for it.

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Scott Wicklund

Jul 18, 2009

Craig,  Under the current system, most folks are locked into their jobs since any change means they lose their health care.  Your plan seems to add a new layer to the existing system.  Change locations and lose again.  You imply Single Payer won’t work here and yet it works everywhere else.  This is a case where your ideology prevents you from seeing the obvious…

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Craig Mayberry

Jul 18, 2009

Touche Scott (at least on the ideology comment).  It really depends on what issues you want to face in health care.  No system is perfect in any country.  Everyone claims single payer works in Canada and other countries and there are certainly elements that do work.  However, you are also overlooking much of the health care rationing that does occur in those countries.  It is easy to look past the long wait times, lack of doctors and other infrastructure.  I had the opportunity to experience the English health care system.  I went to the doctor, they did a quick check and then prescribe a bunch of medication, not one which did much to help. The clinic was dirty, crammed pack and far worst then anything I have experienced in the US.  For everyone story about the weakness of the US system you can find a story about the weakness of the Canadian or other single payer type systems (for example the women about to give birth that had to fly, while in labor, to Alberta from Vancouver because there were no hospital beds).  My wife use to work for a doctor that had a number of Canadian patience because they would rather pay cash for the US system then wait for their own free system.

It is time to have a heart to heart conversation about what we really want out of health care.  There is no such thing as a free lunch or a free good, the demand for health care will always be higher than the ability to pay, no matter who pays.  The question really becomes is who do you want making the decision.  An insurance bureaucrat, a government bureaucrat, or someone local that you can look in the eyes.

PS.  If I were really blinded by ideology wouldn’t I be pushing for health savings accounts or some other free market solution.  Also, if I were blinded by ideology why have I been to far more United for Healthcare meetings then you.

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Tip Johnson

Jul 20, 2009

On a business trip to Thailand, the owner of a company I was working for collapsed in a restaurant after a 15 hour day in the tropical heat.  He was taken, unconscious, to the hospital where he spent two nights and part of another day undergoing a battery of tests and getting treatment.  The hospital was clean and well equipped.  The staff and doctors were competent and polite.

When he was approved for release, anticipating the worst as a foreign national, he asked me to come get him, and to bring all his credit cards, my cards and any cash I could lay my hands on. I went to the billing office, was asked to have a seat while the bill was prepared.  After a few minutes a charming young woman came, smiling, and handed me a bill - for $20.

$20? Holy cow! We were both ecstatic.  It meant we could still eat on our way back home.

Health care is not an issue I have studied carefully.  But it is quite clear that other countries offer adequate or better services for much, much less.  Many get better results for a much smaller percentage of GDP.

The paltry grocery industry levels of profit can’t be the only potential savings.  I expect there is rampant waste and abuse in the system.  It also seems that doctors manage their self-regulation to limit the number of new doctors entering practice.  Would ten times the number of doctors bring the cost of their services down?

I say let’s see who does the best job for the least amount and start off by copying them.  We can always tweak it along the way.  At least we’ll have affordable health care available.  Getting the cost of uninsured illness off the tab might be one of the biggest savings we can capture.

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