[Dialogue] Private Health Insurance Is Not the Answer

Sat Feb 24 12:50:26 EST 2007

AlterNet

Private Health Insurance Is Not the Answer

By Phil Mattera, Corporate Research Project
Posted on February 23, 2007, Printed on February 24, 2007
http://www.alternet.org/story/48371/

Healthcare reform is in the air. 

Ideas for dealing with the 46 million Americans without medical insurance
seem to be popping up faster than new cases of the winter flu. President
Bush proposes to use tax deductions to help people buy individual plans.
California Governor Arnold Schwarzenegger wants to make it mandatory for
everyone in his state to obtain insurance and would force employers who
don't provide coverage to pay into a fund. 

Democratic Presidential candidate John Edwards would raise taxes on the
affluent to pay for subsidies to help those with low incomes obtain
policies. Some members of Congress are promoting insurance purchasing pools
for small businesses. An odd bedfellows coalition including the Business
Roundtable, AARP, the Service Employees International Union and Wal-Mart is
pushing for some kind of expansion of coverage but is not saying what form
it should take.

What these varied plans have in common is the assumption that, at least for
the foreseeable future, most of the working population (and their
dependents) will continue to receive coverage through private insurance
carriers. Public officials across the political spectrum are, in effect,
seeking to expand the customer base for a highly profitable industry.

Surely, it is a good thing to provide coverage to the uninsured, but it is
remarkable that almost everyone assumes that coverage has to come from
for-profit (or, in some cases, private non-profit) providers. Despite the
overwhelming evidence from other industrial countries -- and even domestic
programs such as Medicare -- that government-run health plans are much more
efficient, the U.S. political class seems to be on a mission to save private
insurance.

A Paternalistic Reform?

To understand the current debate, it is helpful to recall some of the
tortured history of health insurance in the United States. In the late 19th
Century European countries began adopting government-funded social insurance
plans, but the U.S. failed to follow suit. When progressives made a push in
the 1910s there was opposition not only from corporate interests but also
from organized labor. AFL President Samuel Gompers denounced national health
insurance as a paternalistic reform, fearing that its adoption would weaken
the role of unions in improving the living conditions of workers.

Consequently, Americans both rich and poor continued to pay the vast
majority of medical costs out of pocket. That began to change in the 1930s.
While the Roosevelt Administration focused on retirement benefits and
unemployment insurance at the expense of health coverage, physicians and
hospitals struggling to survive the Depression set up private group
insurance plans to bolster demand for their services. The most successful of
these were the non-profit multi-hospital plans that grew under the rubric of
Blue Cross. These were later followed by Blue Shield plans, which covered
outpatient physician services. Once the Blues paved the way, commercial
insurers also entered the field, though their coverage tended to be more
restricted.

After the end of World War II, there was great momentum toward expanding the
portion of the population with some form of sickness insurance. In 1945
President Harry Truman proposed a national program establishing a right to
medical care and protection from the "economic fears" of illness. But once
again, opposition to government involvement in healthcare emerged, this time
reinforced by a Cold War hysteria about "socialized medicine" stoked by
groups such as the American Medical Association.

As Truman's plan went down to defeat, what grew in its place was a system of
employer-provided coverage, stimulated by aggressive bargaining on the part
of unions that had come to regard improving employee benefits as a mission
as important as increasing wages. This put pressure on non-union employers
to follow suit, and by the mid-1950s, about two-thirds of the country was
getting coverage through either their own jobs or those of spouses or
parents. The Blues, which held the largest share of this booming market in
the early postwar period, began to fall behind the commercial carriers by
the late 1950s.

Around that same time, there was growing concern about the large number of
retired workers who were left out of this workplace-oriented system. This
eventually led to the 1965 creation of the federal Medicare program for
seniors, along with the federal-state Medicaid program for the poor, but
most of those with insurance continued to get it from the private sector.

In the wake of these significant expansions of coverage, liberals renewed
calls for comprehensive national health insurance. These efforts, however,
were drowned out by a rising chorus of concern about escalating health costs
-- a problem that was greatly exacerbated by the growth of for-profit
hospital chains. During the 1980s, Congress created a cost-control system
for Medicare, while growing numbers of employers transferred their workers
from traditional plans into health maintenance organizations (HMOs) -- both
non-profit and for-profit. The Clinton Administration tried to reach the
goal of universal coverage through a complex system that preserved the role
of HMOs and other private insurers, but it was crushed by business interests
and the medical establishment.

Awash In cash

The failure once again to create a system of universal care left the
American people at the mercy of the market. The ranks of the uninsured
swelled as many employers solved their health finance problems by
eliminating coverage or by shifting premium and co-payment costs to workers
to such an extent that they opted out. Many of those who tried to obtain
individual coverage found themselves priced out of the market or rejected
because of a pre-existing condition. Those workers who retained workplace
coverage increasingly had to confront HMOs and other purveyors of "managed
care," whose business plan depended on restricting the use of medical
services. A 1994 Wall Street Journal article stated: "Health maintenance
organizations are all about penny pinching, yet they are so awash in cash
that they don't know what to do with it all."

At the forefront of these service (non)providers was U.S. Healthcare, which
grew out of the first for-profit HMOs in the 1970s. By the early 1990s, it
was the largest publicly traded HMO, with annual revenues of more than $1
billion. The company -- a notorious proponent of gag clauses in physician
contracts that prevented doctors from giving patients a thorough description
of their treatment options -- took on the mission of revolutionizing the
insurance industry. In a 1992 interview with Business Week , U.S. Healthcare
founder and chairman Leonard Abramson expressed scorn for traditional
carriers, calling them "dinosaurs" and saying they operated in "a dying
world."

Four years later, U.S. Healthcare agreed to be acquired by one of those
dinosaurs, Aetna Inc., for $9 billion. It was clear from the start that
Aetna was going to be adopting the style of U.S. Healthcare and not vice
versa. "Strong forms of managed care, gated managed care, is really coming
into its own," said Aetna chief executive Ronald Compton, who also announced
that Abramson would join the board of the parent company.

Aetna's marriage with U.S. Healthcare was part of a larger consolidation of
the industry and a shrinkage of the non-profit portion. Aetna itself went on
to acquire healthcare operations from New York Life and Prudential
Insurance, while rivals such as United Healthcare (later UnitedHealth Group)
also bought various competitors to rise rapidly in the field. For-profit
hospital chains such as Columbia-HCA gobbled up insurers. Even the Blues
were abandoning all pretenses that their main mission was to serve the
community. Some set up their own HMO subsidiaries, and by the late 1990s a
bunch were preparing to take the next step: abandoning their non-profit
status and becoming for-profit enterprises. A few such as Anthem Inc.,
formerly Blue Cross and Blue Shield of Indiana, went yet further, becoming
publicly traded companies.

Meanwhile, there was a growing effort to tame HMOs through the courts. In
1999 several of the country's leading trial lawyers announced plans to bring
a wave of racketeering lawsuits to pressure companies to provide better
coverage. Some physician groups also sued managed-care firms over
restrictions on their members. The legal assault was counting on the fact
that HMOs had become the most reviled industry in the United States, but the
judiciary was a harder sell.

In 2002 a federal judge in Miami hearing the consolidated cases granted
class-action status to claims that managed-care plans systematically denied
and delayed payments to more than 600,000 doctors, but he rejected that
status on behalf of some 145 million members of the plans. Five companies
ended up paying nearly $650 million in settlements with the doctors and
their lawyers, while two others (including UnitedHealth) went to court and
had the charges against them dismissed.

What ails private insurance

These lawsuits may have shaken the industry somewhat, but they did not put
an end to the abuses that characterize managed care. Here are some of the
key remaining issues that surround the business:

Consolidation has continued unabated. There are now two superproviders that
increasingly dominate the for-profit healthcare field. One is UnitedHealth,
which capped a long series of acquisitions with the 2005 purchase of
Pacificare for some $8 billion. In 2006 United's health services revenues
reached an astounding $64 billion, and its medical enrollment rose to about
28 million individuals.

The other giant is Wellpoint Inc., created through the blockbuster 2004
merger of Anthem Inc. and Wellpoint Health Network, formerly Blue Cross of
California. Wellpoint later spent $6.5 billion to acquire WellChoice, the
publicly traded parent of New York's Empire Blue Cross Blue Shield. By 2006
Wellpoint controlled the Blues in 14 states, had some 34 million members and
took in annual revenues of about $52 billion.

The second tier consists of Aetna (2006 revenues and members, respectively:
$25 billion and 15 million), Humana ($21 billion and 11 million), Cigna ($16
billion and 9 million) and Health Net ($13 billion and 7 million). The
non-profit wing of the industry also has big players, led by Kaiser
Permanente with 8.6 million members.

There is no evidence that the consolidation has enhanced efficiency or
improved the quality of coverage. Instead, the big carriers simply
accumulate more power over healthcare providers and patients, using it to
their own advantage.

While millions remain uninsured or underinsured, the industry's profits
swell. Last year, the top six health insurance companies had combined
profits of more than $10 billion. What's amazing is that they netted so much
after spending prodigious amounts on marketing and administration. In 2006
Wellpoint alone burned up nearly $9 billion in such costs -- nearly one
quarter of what it paid out in actual benefits. By contrast, in Canada's
government-run single-payer system, administration accounts for only about 3
percent of total costs.

Legal controversies continue to plague the industry. Lawsuits over the
denial of care are still being filed against the big insurers. For example,
two hospitals in Queens, NY recently sued UnitedHealth, alleging a "pattern
of racketeering activity." At the same time, UnitedHealth has been the
subject of a federal investigation following reports last year that the
company was routinely backdating stock options awarded to executives,
especially long-time chief executive William McGuire, who -- on top of
annual salary and bonuses totaling $10 million -- had accumulated some 29
million shares through option awards. Thanks to the backdating scheme,
McGuire had racked up paper gains of more than $1 billion on those shares.
In October McGuire was forced to resign and to give up an undisclosed
portion of those gains.

McGuire's excesses are emblematic of the fundamental conflict in the
industry -- the clash between maximizing gains for executives and
shareholders, and the need of its customers for services that are often a
matter of life and death. Public officials should abandon the mission of
saving commercial insurance and devote themselves instead to creating a
healthcare system that substitutes the public interest for private profit. 

Philip Mattera heads the Corporate Research Project
<http://www.corp-research.org> , an affiliate of Good Jobs First
<http://goodjobsfirst.org> . 

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