Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

21 April 2009

Three Big Health-Care Lies

[For a more complete discussion of what’s wrong with our health-insurance system, along with proposed solutions, click here.]

The greatest mystery of our health-care debate is how so few got so many to believe such lies for so long. For half a century we have built our nation’s health-care infrastructure on a foundation of falsehoods. Here are the worst three:

1. Government is less efficient. This perennial lie always rested on hot air. Careful studies have shown that private health insurers have administrative costs between 10% and 17% (see sources 1 and 2). Medicare, the “inefficient” government bureaucracy, keeps its administrative costs around 4% to 5%. Government is about three times more efficient.

Simple logic explains why. Health insurers do the same thing over and over again. They review claims for diagnosis and treatment (and sometimes even prevention!) of a limited number of human ailments. When you do the same thing over and over, you get better at it, and you can do it cheaper, the larger you are. You enjoy what economists call “economies of scale.”

Government health insurance is cheaper because it’s bigger. It spreads out the cost of administrators and their computer hardware and software over a larger number of patients. It has more power to negotiate with drug companies and other providers for low rates. It therefore has enormous cost advantages over our atomized private health-insurance industry, whose chief goal is to enrich private owners by maximizing the number of separate firms with separate policies.

Don’t take my word for it. Take the private insurance industry’s. Now that its lies have been exposed for what they are, there is a serious chance that government might create its own insurance policy—just one!—to compete with private industry’s myriad policies of many flavors.

So what does private industry do? Does it laugh and scoff at the prospect of competing with this inefficient weakling? Does it mimic its hero Dubya and say “Bring it on!”?

Not hardly. It lobbies against any competition by government as if its life depended on avoiding that competition, which it does. The so-called “conservatives” who for decades derided the competitiveness and efficiency of government are now deathly afraid to compete with it. Watch what they do, not what they say.

2. Government will put a bureaucrat between you and your doctor. For health care to have any cost control whatsoever, someone has to review your and your doctors’ decisions to see if they make sense. Giving you a triple bypass just because you have an occasional chest twinge and know a surgeon who will do one for you on any pretext is not the way to keep us Boomers from breaking the bank. Nor, as recent comparative studies show, is it the way to insure the best health-care outcomes.

So the need for an intermediary or gatekeeper is not a lie. Any rational health-care system will have one, whether private or public. We are not ever going to see a system in which any doctor can prescribe any test or treatment, regardless of its costs or appropriateness, and regardless of the doctor’s training, specialty, competence, or familiarity with the measure prescribed. That way lies national bankruptcy.

The lie in this second statement comes from its implication that government bureaucrats will be worse than private ones.

In fact, the reverse is true. Even today, both government and private insurers have bureaucrats reviewing health-care claims before granting them. Both government and private bureaucrats have a goal (at least in part) of avoiding waste and fraud and keeping costs down.

But the private bureaucrat’s interest in cost control is much more personal. If she denies your claim and makes the denial stick, her benefit will be personal, immediate and direct. Her company’s profits will increase, raising the value of her 401(k) and possibly her profit-sharing as well. In some private insurance companies, she will get more money and quicker promotions the more claims she successfully denies. Her denying your claim today will put more food on her table tomorrow.

While government bureaucrats also have cost-control motives, theirs are more diffuse and less personal. They get rewarded for eliminating fraud and waste, but they have fixed salaries, no stock to consider, and no profit sharing. So they have no personal incentive to deny claims of genuinely sick people. Furthermore, government bureaucrats also have non-pecuniary motives: they seek advancement in the government bureaucracy in part by serving the public good. Private insurers have one goal only—to make a profit, as much as possible.

So one way or another (unless you pay for all your health care yourself), you will have a bureaucrat looking over your doctor’s shoulder to make sure that the treatment she prescribes is appropriate. One way or another, the review will be more searching the more expensive and exotic the treatment prescribed.

But which would you prefer—a bureaucrat who gains directly and personally by denying your claim, or one whose motivation is just doing a good and honest job to help people and cuts costs, and who stands to gain nothing directly by denying your claim? I know how I feel, and it doesn’t take me very long to decide. I don’t want a private bureaucrat balancing food for her children (or her vacation in France) against the cost of my health care.

That the private insurance industry has kept the public so confused about this simple truth for so long is a tribute to the corrosive power of modern public relations (dare I say “propaganda”?).

3. Government insurance will reduce consumer choice. This lie is a bit of razzle-dazzle, playing on our over-the-top consumer culture. As anyone who’s ever had to rely on one knows, health insurance is not like a restaurant meal, automobile, or home-entertainment system. It’s not something you buy for its flavor, color, appearance, attractiveness or aura of power and status. It’s insurance.

Insurance is not something you get pleasure out of. It takes money from your pocket reliably, month after month, year after year. As long as you stay healthy, it gives you nothing back. Its sole value is what it does when, God forbid, you are injured in a serious accident or get that fateful diagnosis of cancer or another serious disease. Then there are only two “flavors”: does it pay for the treatment you need to save your life and keep you solvent, or does it put you through the ringer, deny your claim and leave you destitute and dying? Variety is not what you want; you want reliability.

There is some merit in trading off higher deductibles for lower premiums. But that’s about it. Proper state-of-the art treatment for any serious accident or illness will cost the average middle-class person far more than he or she earns in several years, and far, far more than most people imagine. That was the conclusion of a recent exhaustive, independent study in Consumer Reports. [For an older, on-line version of a similar report, click here (subscription required). The subtitle tells it all: “Why 4 in 10 Americans can’t depend on their health insurance.”]

Insurance companies that offer “variety” don’t offer the coverage that people need when a health crisis strikes. Instead, they offer the chance (for lower premiums) to gamble with your health and your financial future. But if you’re going to gamble on not getting sick or hurt, why bother with insurance anyway? Insurance isn’t supposed to be a gamble.

“Variety” and “consumer choice” are red herrings fermented by the health-insurance industry’s professional prevaricators. They’re not things that most people need, at least not in health insurance. You don’t need “variety” or “choice;” you need prompt and willing payment for medical treatment that you have to have to stay alive or healthy.

* * *

The proof of the pudding is in the eating. Every since Harry Truman proposed universal health care, private insurance companies have been telling us how well off we are under their beneficent care. Now we have 47 million uninsured people—a number growing daily in our economic downturn. Now we have millions of personal bankruptcies and cases of homelessness caused by people’s inability to afford basic health care. And now virtually everyone in America knows or loves someone who has had basic health care denied not by a doctor or government official, but by a private bureaucrat.

But the most telling fact is private insurers’ abject terror of competing with a single government-run alternative. Just one. After four decades of telling us how efficient, effective, and helpful they are, how incompetent and clueless government is, and how wonderful variety and choice are, our private insurers don’t want any government competition at all. They just want us to continue playing their shell game, which gives us many options, too many of which lose. Doesn’t that simple truth speak volumes?

P.S. Yet Another Industry Lie. While on the subject of lies about public policy, check this out. As the New York Times reported, the fossil-fuel industries set up something called the “Global Climate Coalition” to deny the reality of human-caused climate change. This sham spent millions of dollars trying to confuse the public by claiming that climate change was “poorly understood.” At the same time it was making this claim, it had a memo in its files from scientists it had hired secretly to evaluate climate change. Here’s what that memo said:
“The scientific basis for the Greenhouse Effect and the potential impact of human emissions of greenhouse gases such as CO2 on climate is well established and cannot be denied.”
When a individual denies reality, we call him “insane.” What should we call whole industries that, for decades, deliberately deny reality for their own short-term profit, as private health insurers, tobacco companies and the fossil-fuel industries have done? Would it be too harsh to call them liars bent on destroying society to slake their own greed? Is there any way to hold these liars accountable?


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