How we killed health care, and how we can bring it back to life


America has at least 36 million uninsured citizens. Unpaid medical bills are the leading cause of personal bankruptcy. Approximately, 45,000 Americans die every year because they don’t have health insurance. Many Americans think that they have health coverage only to have it taken away from them through a process called “rescission,” which basically means your insurance company accuses you of lying on your initial questionnaire and refuses to pay. Some have estimated rescission rates to be as high as 50% for the most expensive 1% of health insurance claims. We spend 16% of our GDP on health care, the highest of any nation, and get among the worst results of any OECD country. Insurance premiums have increased more than four times the rate of inflation in the last ten years.

All this is enough to probably make you sick, (although you shouldn’t get sick, because then you’d probably have to go into the American health care system), but don’t worry: the American government is here to save the day.

Let’s take a look at the beginning of this debacle.

The initial hope for reform was the “public option,” which was a collective bargaining arraignment that was supposed to cover 130 million Americans and have rates of Medicare +5%. Initially, the Obama administration was flush with confidence, almost daring private insurers to compete with the “inefficient” government. Obama then started socializing with former GOP Congressman and current Phrma chief lobbyist Billy Tauzin, and quickly realized what was “realistic.” The public option became “negotiable.”

Congress started chipping away at it. The House version of the bill had a public option that would cover a maximum of 6 million people, not the original 130 million, and its rates would not be tied to Medicare. The Senate version did not even bother with a public option. Obama began backing a triggered option, which was like a public option but for only one state at a time and it would come into effect only when federal regulators said so, which of course would be never. Obama even “actively discourag[ed] Senate Democrats in their effort to include a public insurance option.”

Loopholes were drafted into the bill. A $300 million Medicare subsidy was written into the bill for Louisiana Senator Mary Landrieu. Michigan Senator Carl Levin carved out an exemption for non-profit insurers in his state from a hefty excise tax. Vermont, Massachusetts, Pennsylvania, New York and Florida all had Medicare exemptions drawn up for them. Nebraska Senator Ben Nelson got the federal government to cover his state’s portion of the expanded Medicare expenses and also struck a deal that prevented the government from subsidizing plans that cover abortions, a truly monumental concession. Utah Senator Orrin Hatch even had a provision inserted to require insurers to consider Christian Science prayer treatments as medical expenses, a provision supported by Massachusetts Senator John Kerry, whose state is headquarters to the Church of Christ, Scientist.

By requiring that all plans provide first-dollar coverage, Congress effectively killed Health Savings Accounts, which had allowed people to get higher deductibles in exchange for lower premiums and had doubled in popularity from 2006 to 2008. Obama worked with Delaware Senator Tom Carper to help crush an amendment that would have allowed for the cheap reimportation of pharmaceutical drugs from Canada. The amendment would have saved $80 billion for consumers and $19 billion for the federal government, but that was money Big Pharma wouldn’t see, so naturally it had to be crushed. Finally, Congress permitted an amendment to allow insurance companies to place annual limits on the dollar value of medical care, as long as those limits were not “unreasonable.” This amendment undermined the very purpose of insurance.

What did Congress hope would compensate for these losses? Health insurance “exchanges.” The “exchange” is essentially a government entity that attempts to help insurers comply with consumer protections, facilitates enrollment and delivers subsidies. It is strictly supervisory. It supervises a sub-market within the greater health insurance market where ensurers have to abide by certain rules, such as providing mandatory levels of protection. There is an “escape clause,” however, that allows insurers to act outside of this “exchange.” Once they are outside of the “exchange,” they can act exactly as they normally do.

The insurers outside of the “exchange” will be able to use lower prices and offer specially-tailored plans to attract the healthier, lower-risk clients, while the sicker, higher-risk clients will remain the “exchange.” This is exactly what caused the health insurance “exchanges” in Texas, Florida, North Carolina, and California to fail: the healthier clients were cherry-picked out of the “exchange” by insurers operating in the regular market. Also, the insurers inside the “exchange” would have to pay as much as 4 percent of premiums in a surcharge to defray the “exchange’s” overhead costs, putting them at a competitive disadvantage.

There is no financial benefit in these “exchanges” to the consumer, although there is plenty to the insurer. The “individual mandate” ensures that insurance agencies will get millions of new clients, while the “escape clause” ensures that the insurers will not have to take any clients that they consider to be too risky. Instead, the insurers outside the “exchange” can leave these clients to insurers inside the “exchange,” who will surely be heavily subsidized by the government.

Ultimately, the CBO estimates premiums in the individual market will rise by 10% to 13% more under this plan than if Congress did nothing. In 2016, (the major reforms of the bill don’t go into effect until 2014), the CBO estimates the lowest individual insurance premium will be $5,300, and the lowest family plan will be $15,000. Individuals will also be required to report employer health spending on their W-2′s, clearly laying the way for it to be taxed. With all of these costs and with such little benefit, you’d think the media would be exposing this deception on a regular basis, but of course they do the opposite.

The issues have been so obfuscated by the media that in September only 22% of Americans felt they understood the reforms that were under consideration in Congress. The most recent CBO scoring was presented by numerous mainstream media outlets as showing “no big cost rise in premiums.” They of course neglected to mention that the reason there was no appreciable increase in the cost to individuals was because 57% of the people participating in the “exchanges” would be getting subsidies, subsidies that the taxpayer has to pay for. Of course, Phrma did spend $150 million on television commercials in August, and has donated more than $19 million to federal candidates since 2007, so maybe in light of that, the media blackout makes more sense.

The real solutions to this problem are simple.

Federal laws that prevent people from going across state borders to get insurance need to be eliminated. They limit collective bargaining and competition. Collective bargaining worked so well in the 1920′s that the government originally got involved in the health care market because the fraternal lodges, which over a fourth of Americans belonged to, had privately negotiated rates with doctors that were so low that the government thought the doctors needed to be “protected.”

Move away from first dollar coverage. If every dollar of cost is covered by insurers, consumers have no incentive to shop for prices, which means health care providers have no incentive to price themselves competitively. Lasik eye surgery is one of the few procedures not covered by Medicare. Its prices have dropped by 30% since its introduction precisely because consumers have had to shop for prices. This, of course, is while the cost of the rest of health coverage has increased four times the rate of inflation.

Eliminate the wasteful paper-based system to keep track of patients and convert to an electronic-based system. Administrative inefficiency and redundant paperwork creates 18% of all health care waste, which amounts to $153 billion dollars a year. 14% of all health care provider expenditures are related to paperwork. This system is actually encouraged by the government because the government does not reimburse health care providers for email, telephone or electronic records keeping.

Eliminate the incentive for employer-based insurance. Government subsidies of employer-based insurance and losses stemming from payroll tax reductions exceed $200 billion annually. Studies show employer-based insurance decreases job mobility by up to 31%. General Motors alone spent roughly $5.6 billion on health care expenses in 2006, which according to them increased the price of every car they sold by $1,500 to $2,000.

Enact tort reform. The overuse of antibiotics and lab tests to protect against malpractice exposure makes up 37% of health care waste, which amounts to $315 billion a year.

Prevent fraud. Fraud makes up 22% of health care waste. This is approximately $187 billion a year in fraudulent Medicare claims, kickbacks for referrals for unnecessary services and other scams.

Break up monopolies. In Hawaii, two insurance companies control the entire market. In California, the most competitive state, two companies control 58% of the market. Outrageously, Congress actually carved out an exemption for insurance companies from antitrust laws in the McCarran–Ferguson Act of 1945, which clearly needs to be changed.

These reforms would cost virtually nothing to enact. Eliminating the paper-based records system, eliminating the tax incentive for employer-based insurance, enacting tort reform and preventing fraud would save Americans $855 billion a year alone. That’s 39% of all total health care expenditures. Moving away from first dollar coverage, allowing people to go across state lines to shop for insurance, and breaking up monopolies would probably save Americans just as much. Of course, that is probably the exact reason why these reforms will be so hard to enact: they keep billions from going into the big boys’ pockets.

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  • Peter

    What do you think ?

  • Josh Fulton

    I’m still not quite sure.

  • markadamsjdmba

    Great article, Josh. Like with the bank bailouts, Congress and the President have once again put the desires of big business above the best interests of the American people, and the mainstream “news” media has also taken the big money and treated the people like mushrooms by keeping them in the dark and feeding them BS.

    You’ve provided a number of examples, but I’ll add a point and expand on another one that you made.

    First, the health insurance mandate is unconstitutional. For example, if the Constitution allows the Federal government to require us to purchase certain products and services, why haven’t we been required to do so before? Also, which enumerated power gives the Federal government the power to require anyone to buy anything from any private entity? Look in Article 1, Section 8. There is none, and then read the 10th Amendment which is supposed to limit the power of the Federal government to those powers specifically conferred upon it by the Constitution. A few others with a legal background agree on this point. For an example, see Illegal Health Reform, one of the very few articles about this in the mainstream “news” media although the talking heads seemed to have missed it.

    Second, as you point out, in spite of the fact that the CBO has estimated that premiums will go up over 10%, the politicians and the “news” media keep telling us that health insurance costs will decrease. Unfortunately, that violates the laws of supply and demand which hold that when there is an increase in demand without a corresponding increase in supply, then price will rise. However, as with the sales job done to require mandatory car insurance in most states, the authorities in the government and the “news” media claim that when everyone is insured, premiums will go down. Of course, premiums always go up when you increase demand for any product or service especially if it is turned into a crime if you dare go without it for some reason.

    By the way, I wonder what the next mandatory purchase law will require us to buy. I think that the bike helmets industry needs to lobby Congress to use its “power” to regulate commerce to require everyone to buy a bike helmet and fine and jail everyone who doesn’t do so and wear one all of the time. After all, you never know when you might bump your head, and if everyone has to buy a helmet and wear it at all times, prices are sure to fall and there will also be less head injuries to treat, at least after everyone is trained to follow the helmet wearing law and the related “law” enforcement induced head trauma declines as helmet head trauma denying criminals disappear.

  • Josh

    Thanks, Mark. I was reading some of your recent articles the other day. Nice work!

    I agree completely with the constitutional aspect. Hopefully, some state will challenge this.

    Also, about the price, I was on the verge of putting in that the CBO “conservatively” estimated the cost would go up 10 – 13.

    I believe Blue Cross and Wellpoint estimated that some plans could go up as much as 3 fold.

    How’s that for a kicker!?

  • markadamsjdmba

    I’m constantly amazed, but not surprised.

    Hey, I thought of a solution to the abortion issue that works to help reform health care and raise the profits of the insurance and pharmaceutical cartels. So, everyone that matters should be for it.

    Since the Federales claim that the commerce clause gives the Federal government the power to do anything as long as it is somehow related to commerce and it has determined that this includes our health care, why doesn’t the government just require all women to take birth control unless they get permission to get pregnant? That would eliminate unwanted pregnancies, eliminate the costs of abortions, save us all billions of dollars, and help reduce the carbon emissions which may result in mankind killing itself off from global warming if Al gore is right, not that he would lie about something just to make a couple of billion dollars off of any scheme.

    Of course, some women may not want to take birth control due to the side effects, like increased cancer, heart attack and stroke risks which might just raise some health care costs, and some people may be unhappy about having to get permission to get pregnant, but they shouldn’t be so selfish. However, China does something like this, and aren’t we constantly told how great they are doing? Only about 90% live in abject poverty, and that’s a lot better than when Mao was alive and killing millions for one reason or another, perhaps it was their lack of rights.

    Anyway, this use of the commerce power would result in ending the disputes about abortion and also control population growth and reduce carbon emissions, so clearly it is for the good even if a few people don’t like it.

    Wow, I’ve come up with two great ways that the Federales can reduce health care by reducing head injuries and eliminating abortions while helping to control the population and reduce carbon output. Imagine what the geniuses who control the government will come up with over the next few years. The dreams of Kurt Vonnegut and George Orwell would surely come true, or were they nightmares. Someone better reorder the library and re-write some books just to be safe.

  • Josh

    I like it. In fact, I’m going to run it by John D. Rockefeller. Maybe we can have this vision of “freedom” before people know what hit them.

  • Michael Collins

    This is one of the best summaries of the health care debate. I’m going to use it as a reference and would ask permission to reprint some of it on my web site (see health series here).

    In the interests of collaboration, let me help out on the selling insurance across state lines. I don’t think that this is advisable and it won’t impact costs. Here’s what it costs to buy insurance at quantity 1 or for very small businesses 100 or less employees. It shows a right wing think tanks “pitch” for interstate sales and the real costs. The think tank didn’t think to look at the full cost, they just compared premiums. The real comparison is premiums plus deductible (the fully loaded cost of using the insurance). When you do this you get the real costs. The pink line in the graph below is fully loaded. There is no difference in state plan charges, none. In fact, Utah, with the very lowest premiums, is actually $5000 higher than Massachusetts (Graphs from Screwing the Self Employed out of Health Insurance).

    Blue line from NCPA analysis (premiums only). Pink line (premiums plus deductibles) from Insure.Com (“Get Quotes”) for the state capitols of each state. Quotes here.

    Here’s are the actual dollar amounts:

    There is NO difference in pricing. In addition, it only helps the 46% of the population not covered by employer self-funded plans.

    The market forces to reduce costs have already played out. Those 54% covered by corporate paid (self funded) plans have already done the job, as much as can be done. They operate at a low overhead (using insurancne companies to administer the programs at a relatively low cost, 10% or less ). These are healthier people, for the most part, than any aggregation of under or uninsured that can be put together.

    Tort reform would help a great deal as long as it doesn’t give a pass to lousy providers.

    Exchanges, co-ops, etc. and the other touted opportunities are simply a joke.

    There are three places to make a difference.

    Drug prices. The VA negotiated great deals with the drug companies for their system. This can be extended to Medicare and Medicaid with huge savings. It’s one federal program to another. It’s a head to head negotiation that doesn’t take place because Congress bars such a deal. Why could that be? At any rate, it’s ridiculous not to do this.

    Facilities. There’s a huge waste in facilities utilization. I don’t have the answer but someone should figure it out because there’s too much duplication.

    Fraud – good idea but those figures are exaggerated. If we wanted fraud to stop, we’d go after a few major organizations and it would stop quickly. They’re left alone, for the most part.

    Finally, get rid of the poorly functioning and unnecessary middle man – health insurance companies. Who has trouble with their car or life insurance. Some but not many people on a regular basis, which is the case for health insurance. Unlike other insurance companies, health insurance providers offer no value added. They take 15-40$ of the premium costs for overhead and profits compared to 5% or less for Medicare’s overhead. They’re nasty too, allowing people to simply die through delayed processing and errors repeated again and again.

    Leave providers alone, no privatization at all. Create a single payer fund at rates currently in place for providers and seriously enforce fraud legislation. Add negotiations with drug providers for on patent drugs and real patent limitations so generics can hit the market. Provide incentives for facilities management and consolidation.

    With the savings and the 20-30% current funds opened up by the absence of insurance overhead and bonuses, we’ve got the money to pay for this.

    But most importantly, define health care as a right. I know Mark can call me on constitutional issues. But we’re routinely ignoring that any way and this would be one instance, if I’m on the wrong side of the Constitution, where the violation would help people rather than kill or maim them. But I think that there is a compelling argument that the Constitution is there to protect the people (not just some peoples’ property) and that this is THE fundamental right – to live without suffering. The way the system is set up now, it steals from the people while in many instances, actually torturing them through lack of care.

  • Michael Collins

    Images didn’t come through. Here are the links and placements.

    Graph 1. (Between para 2 & 3)

    Chart 1. (After Graph 1)

  • Josh

    Hey Mark,

    You can definitely take some of this and put it up on your website. I’d be glad if you did that.

    That said, it seems to me that the chart in your 8/22 article shows a vast difference in prices between states. Massachusetts has a premiums + deductibles cost of nearly $18,000, while Michigan has one of about $9,000.

    That’s a pretty amazing difference to me. Plus, the fact that people can’t go across states prevents competition, which favors entrenched insurers. So, even if there weren’t a price difference now (which is actually not what I saw), the reason for that could be, and probably would be, because we’re dealing with a distorted market and not a free one.

    I’m not sure that those fraud numbers are exaggerated. You can take it up with the Reuters article I’m quoting. I also read that the rate of Medicare fraud has increased 3 fold over last year. Pretty absurd. There was a 60 Minutes story a couple of weeks ago about how blatant it was.

    I agree about drug prices. There was just something added into it about how they were giving subsidies to brand name drug manufacturers and not generic ones. Then of course, there’s the whole reimportation thing.

    I’m not exactly sure what single-payer means here, just because I’ve heard it used to mean different things. If it means socialized medicine, I strongly disagree. I believe my Lasik example gives my reason why. If it means some sort of central entity that makes payments for everybody while there is still private health care still going on, I dislike it less than socialized medicine, because it’s essentially only giving the role of the insurance company over to the state, but I still dislike it.

    It seems like things, when they’re not distorted by government intervention or the unequal enforcing of laws, work best when there’s competition involved.

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  • Greg Campbell

    Life, liberty and the pursuit of happiness? Good health and health care are only a few absolutes, that affect all three.

    Did Barrack teach Constitutional Law, before he urinated on us in January of 09?

    I wasn’t out of my mind, when I DID NOT vote for him in 2008. And I won’t throw away my vote, when I return the favor next time either.

    From now on, it’s a P.H.D. with O’Bama…


    …you can throw an “impeach” in with this utter coward and fool as well!!