Diatribes of Jay: Universal Health Insurance: Nine Points of Common Sense

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Introduction
1. Health care is not health insurance
2. Health care in America is overwhelmingly private
3. Private medicine, health care and health insurance all exist in the United States and always will
4. The purpose and function of government-run “universal health insurance” or (badly named and ambiguous) “Medicare for All” is not to replace private health insurers, but to make sure that every American has the ability to pay for basic, necessary health care
5. What existing health insurers (and their lobbyists) really fear is not government control or restriction, but competition they can’t win
6. Even if outlawing private insurance did not contradict our nation’s fundamental values, there would be no practical reason to outlaw it
7. When universal public health insurance sets a floor on health-care affordability, there will be plenty of room for private insurers to dance on that floor
8. Our current non-system makes it hard to determine how much government-run health insurance actually costs
9. A better system would make health-insurance costs transparent, on both an individual and population-wide basis
Conclusion

Introduction

Nature abhors a vacuum. Pols abhor a vacuum of news, and some pols abhor a vacuum of news about themselves. Just so, ideologues hidden inside Trump‘s White House have taken this time, while we wait for Attorney General Barr‘s scrubbed version of the Mueller Report, to propose repealing and replacing “Obamacare” yet again.

So health insurance is again on people‘s minds. And we don‘t have many more important political things to think about as we wait for the full Report. So now is as good a time as any to turn our collective thinking to health insurance.

I’ve been writing about health insurance on this blog about at least since late 2007. At that time, then-candidate Barack Obama distinguished himself from Hillary Clinton by refusing to push a health-insurance “mandate”—forcing individuals who don’t want health insurance to buy it or pay a fine. In the ensuing dozen years, I’ve thought and wrote often on the subject, I hope with an ex-physicist’s instinct for simplifying and for quantifying only what can really be quantified. The best of my essays can be found here, here and here.

After twelve years of thinking, I’ve come to the conclusion that health insurance in America is perhaps the single most complex subject that pols have to deal with. It’s even more complicated than energy policy.

The complexity arises only partly from the propaganda and disinformation that interested parties spew daily, including the erroneous idea that optional universal insurance would be “socialism.” (According to the standard dictionary definition of “socialism,” it would not.) Most of the complexity comes from the way our system has developed, privately and organically, without anyone thinking about the big picture, let alone planning it.

As a result of that organic and somewhat “random” development, our national system of health care, including health insurance, is not a “system” at all. It’s a non-system, with programs like Medicare and Medicaid (and similar state programs) overlaid on a hodgepodge of for-profit, non-profit, local, state and federal programs and organizations. The organizations include a myriad of private, for-profit, non-profit and government doctors’ offices, hospitals, medical practices, medical laboratories, medical research laboratories, college, university and industrial research establishments and health services, and insurers.

All of these institutions, by and large, have separate charters, missions, rules, regulations, forms, procedures and computer systems. And most of these things are different from and often incompatible with each other. If a superior but perverse intelligence had set out to stymie every human rationalist, simplifier and organizer by creating an unsolvable puzzle, it could hardly have done a better job.

The result is unfathomable complexity. No one really “understands” the American health-care or health-insurance “system” at any level of detail. I mean no one. All we understand is that we Americans spend more on health than any other nation and mostly get worse (or no better) results.

When the numbers don’t add up, the best thing to do is ignore them. That’s what scientists do when their theory doesn’t match their calculations. Then the most fruitful thing to do is to go back to so-called “first principles”—basic things that you know make sense—and see what you can deduce from them.

That’s the purpose of this essay. Health insurance is so complicated that even honest and well-intentioned analysts often live inside separate bubbles of bogus “facts.” Maybe by starting with some simple, unassailable truths, we can start making some sense of our health-insurance debate. So let’s start with nine points of common sense that public debate over health insurance often neglects:

1. Health care is not health insurance.

Health care involves too many specialized professionals to fully enumerate. They include: physicians, postdoctoral researchers, physicians’ assistants, nurses, nurse practitioners, orderlies, phlebotomists, laboratory technicians, and all the various mechanical, electrical, electronic, chemical and computer scientists, engineers and technicians who invent, develop, produce, administer or distribute, repair and maintain medical and diagnostic equipment, drugs, protheses and medical devices. Health insurance involves mostly accountants and lawyers, with some help from computer specialists.

Health care and health insurance are two completely different industries. Their only real overlap is that the insurance helps pay for the care. Whenever a reporter or analyst uses the term “health care” in a discussion of insurance (other than to state the obvious payment purpose), his or her supervisor should rap some knuckles with a ruler.

2. Health care in America is overwhelmingly private.

The only clear examples of government-run health care in America are the Medical Corps of our various military branches, the Veterans Administration, a few (rare and emergency) interventions of the Centers for Disease Control and Prevention and some government-run (as distinguished from government-financed) Medicaid clinics. Some public universities also have student health services and teaching hospitals which are owned by government, but most are independently operated.

There is nothing in America like Britain’s National Health Service, which builds and owns hospitals and clinics and employs the doctors, nurses and technicians who work in them. Nor is anything like that contemplated here, even by the most progressive or radical of pols.

The most radical vision now abroad in America is a government-run system that would help pay for care, not own or run the institutions that deliver it. That’s why the term “socialized medicine” is not just inapplicable to what’s under discussion today. It’s a bald lie.

3. Private medicine, health care and health insurance all exist in the United States and always will.

No one—and I mean no one—is proposing to outlaw private care or insurance.

There will always be wealthy and other patients who want to get their health care directly from the source, without paperwork, and are willing to pay cash for it. Even Britain, which does have “socialized medicine,” has private doctors and hospitals that patients can see privately for separate payment. And there are also private insurers who will help pay their bills.

Three fundamental American values demand that we always make room for private health care and private health insurers. First, we are a society of liberty and free markets. If someone can make a buck by offering a non-scam service that people are willing to pay for, she should be allowed to do so. That’s the American way.

The second fundamental American value is progress. Medicine and medical science are always on the move, the more so in America than in most places around the world.

It takes time for both government and private insurers to assess, verify and eventually cover new drugs and devices and new medical procedures. In the interim, more adventurous private insurers can pick up the slack. Medical research will never stop producing new methods of diagnosis and treatment that are not covered by existing insurance, so there will always be room for supplemental, if not the most basic, private insurance. This is the area in which private enterprise can and must contribute most fruitfully.

The final fundamental value underlying private enterprise in health insurance is patients’ freedom. If private or public health-care providers offer care that government insurance doesn’t cover (or doesn’t cover completely) patients must be free to seek supplemental insurance to cover the bills for that care. That’s exactly what tens of millions of Medicare beneficiaries do today when they purchase “Medicare Supplement” insurance from big private companies like UnitedHealthcare.

Just so, American patients are and will remain free to purchase private health care for cash. I recently discovered a medical group in the San Francisco Bay Area that not only won’t accept Medicare patients. It won’t accept any health insurance at all. Apparently its doctors want to practice medicine and not push paper (or hire those who do), and the region in which they work is wealthy enough to support their kind of practice. More power to them: no serious pol is even thinking of outlawing what they do.

4. The purpose and function of government-run “universal health insurance” or (badly named and ambiguous) “Medicare for All” is not to replace private health insurers, but to make sure that every American has the ability to pay for basic, necessary health care.

Universal health insurance has one purpose only. It’s to let every patient pay for some minimum level of care that citizens of a modern, developed nation have a right to expect.

We Americans have never actually had any form of universal health insurance. That fact makes us “exceptional,” but not enviably. It makes us disgracefully exceptional.

When we finally do have universal health insurance, we will avoid people suffering and dying, when medical science could save them, in the richest country in the world. We will have far better public health and “herd immunity” than we do today. People who think they need not concern themselves with others will no longer take a risk that their cooks, nannies, maids, butlers and gardeners will bring pandemics home to their spouses and children.

Universal health insurance will pay for care only up to a specified floor level. It will not set a ceiling, far less allow the sky as a limit. Private insurers will always have the chance to sell insurance for care above that floor.

Of course the floor will change from time to time, presumably in an upward direction, as medical science advances. There will always be legitimate debate about what diagnostic and therapeutic costs ought to be covered universally, especially for new and untested technology. But there is now a general consensus that everyone who is sick or injured ought to be financially able to see a doctor, and that preventatives like vaccines, which protect both the individual and public health, ought to be universally available.

Recently a consensus has arisen that pre-existing conditions ought to be covered. Pre-existing conditions are problems that are most likely to recur, so no insurance can offer patients real assurance without covering them. Anything less is not “insurance”: it’s a sham.

5. What existing health insurers (and their lobbyists) really fear is not government control or restriction, but competition they can’t win.

Private health insurers will always have a place in America. But right now they have a dirty big secret. There are four reasons why government-run (or other nonprofit) single-payer basic insurance will almost certainly undercut the price for any insurance they can offer at the same level of coverage.

The first reason why a nonprofit single payer can beat private insurers is profit itself. A government-run, non-profit or cooperative system makes no profit. In contrast, Wall Street demands that private insurers make a profit, often of ten percent or more, before they can attract needed investment capital. Right out of the gate, that’s ten percent or more that government-run or non-profit health insurance can save consumers.

The second reason why a single payer can beat most private insurers on price is efficiency. Careful studies of foreign single-payer systems, such as Canada’s and Australia’s, show administrative expenses from 5% to 13% lower than those incurred by typical American private firms. Likely the difference derives from economies of scale, as the costs of accountants and computer systems are spread over larger numbers of insureds in government or non-profit systems.

The third reason why a single payer can beat a whole passel of private insurers on price is the intrinsic inefficiency of that passel. Virtually every insurer has its own contracts, rules, procedures, forms and computer systems. If a group of insureds, such as employees of a particular employer, use different private insurers, the employer has to hire and pay people to handle all the insurers’ different systems. The result is higher administrative expenses at the employer level than those it would need to handle a single insurer with a single set of contracts, rules, procedures, forms and computer systems.

The final and perhaps most important reason why private insurers fear competition from a government-run or non-profit single payer is the size of the “risk pool,” i.e., the total number of patients insured by any single insurer. Diseases and injuries seems to strike people at random. That’s in fact the whole reason for insurance: spreading the random loss over a lot of people, so that each pays only a small amount of the burden that a single patient with no insurance would bear if misfortune befell him alone.

Of course, when you increase the number of insureds, you also increase the chance that any one of them will suffer a particular disease or injury. But diseases and injuries can come in clumps, called “statistical fluctuations.” The bigger the risk pool, i.e., the more people insured, the less chance that a clump of misfortune will cause a big bump in premiums.

Take Wyoming, for instance. This year it has a population of some 568 thousand. But it also has some of the biggest coal mines in the nation, and therefore an increased risk (over the average non-mining state) of black lung disease—an expensive and nasty lifelong condition. If the people of Wyoming were included in a risk pool of the entire nation, or 326 million, the increase in premiums caused by black-lung risk would be reduced by roughly the ratio of the risk pools, or 0.568/326 = 0.0017. That’s a reduction of 574 times!

In practice, the reduction would be larger because private insurance plans in Wyoming, as in most other states, don’t cover every citizen of the state, but only the employees of a particular employer. Sometimes they cover even fewer: the employees of a particular plant or subsidiary.

As these four points suggest, private insurers have no realistic fear of being outlawed or expropriated. What they really fear is being done in by competition. And there are four specific reasons, backed by simple arithmetic, why that fear is reasonable.

What insurer’s lobbyists won’t tell you, however, is that their fear is reasonable only for universal basic health insurance, and only because they can’t compete on price. Private insurers will always have a wide-open field for supplemental insurance, including the “exotic” fields of new medical technologies not yet standardized or approved for universal insurance. There will never be a time when private health insurance is not needed, useful and profitable in the United States of America.

6. Even if outlawing private insurance did not contradict our nation’s fundamental values, there would be no reason to outlaw it.

Once a fair, basic system of “universal” public insurance has been established, people will flock to it without compulsion or restraint. There will be no reason to outlaw or even disadvantage alternatives. There are three reasons why.

First, for all the reasons stated previously, the public premiums will be lower for the same coverage than any private ones, if only because every private insurer has to make a profit, and government or cooperatives do not.

Second, a government-run insurer has little incentive to deny valid claims. In contrast, a for-profit private insurer has good reason: every claim denied avoids a direct hit to the insurer’s bottom line. The biggest worry of government claim processors is consistency: they don’t want to be accused of handling similar claims differently. Isn’t that just what you want in a claim processor?

Finally, marketing and promotion rear their ugly heads. Private firms are constantly striving to convince non-customers to become customers, customers of other firms to switch to theirs, and existing customers to buy more expensive insurance. All that promotion and advertising cost money, which is yet another reason, not discussed above, why private firms have to seek higher premiums for the same thing.

But there’s more to it than just cost. With something as important and personal as your health, you as insured want to be sure that your insurer is dealing straight with you. When it’s constantly trying to sell you something, it’s hard to have that feeling of confidence. That’s why I and every senior I know heaved a huge sigh of relief when we got old enough to enroll in Medicare. It was reassuring to feel that our insurer was just doing a boring job, not trying to sell us something and profit from us.

7. When universal public health insurance sets a floor on health-care affordability, there will be plenty of room for private insurers to dance on that floor.

In fact, politics will have a lot to say about where that floor is. For the purpose of universal health insurance is not to make sure that everyone has access to the latest or most expensive treatment. It’s to make sure that everyone has a basic right of access to the now-routine “marvels” of modern medicine. What constitutes a basic “floor” for which universal public insurance will pay will vary from time to time. The floor level will always be a matter of politics: no market principles can decide it.

There will always be means of diagnosis and treatment that are nascent, under test, under doubt, or (even if safe and effective) too expensive to give to everyone for free. Private insurers will have free rein to fund those means for people who can afford their premiums. And private patients rich enough to afford those means without insurance can always have them.

In the end, even people who can’t afford the means or insurance to cover them will benefit indirectly from the “experiments” that rich people or supplemental insureds support. Over time, those experiments will prove the benefits and reduce the cost of the experimental technologies.

Thus, in reality, as distinguished from conservative propaganda, public and private systems of health insurance fit together like hand and glove. They do today, and they always will.

Private insurers will have to be more nimble and forward looking than government, offering supplemental coverage to augment what we Americans consider basic health care. But they will have plenty of opportunities to serve their customers and make money, especially as “designer medicine” based on a patients’ individual DNA comes to the fore.

What private insurers won’t have is a way of making easy money by offering inadequate or deceptive insurance at “bargain” prices, at the cost of keeping our current non-system in force. That non-system is , after all, responsible for excluding some 45 million people from reasonable access to health care in what is still the richest nation, with the most advanced medical technology, in the world. As we encounter those 45 million in our daily lives, the thought that they can’t afford to see a doctor when they are sick—perhaps coming down with a budding pandemic—should give us all pause.

8. Our current non-system makes it hard to determine how much government-run health insurance actually costs.

Seniors like me know how much we pay each month for Medicare. For convenience, we can have our premiums taken out of our Social Security payments, so we never miss a payment.

But those payments don’t reflect the full cost of the insurance because the insurance is subsidized. So I know, for example, how much I pay to Medicare per year—$2,150, according to my latest Social-Security Form 1099. I also know that my payments, based on my income, are at the higher of two standard levels. That is, the premiums are progressive, and I pay at a higher rate than most.

But how much of my taxes should I allot to the cost of my Medicare? Should I just multiply my total taxes by the percentage of everyone’s taxes that go to Medicare? How do I account for the fact that federal income taxes, too, are progressive, so I pay them at a higher rate than the average taxpayer. Without official guidance, I haven’t a clue. (That’s just another reason why it’s impossible to determine how much health insurance actually costs us nationally, as asserted in Point 1.)

9. A better system would make health-insurance costs transparent, on both an individual and population-wide basis.

A better system would be transparent not only as to amounts, but also as to tax subsidies, so that everyone could see how much his or her government health insurance costs. Not only would that transparency promote honest political debate about the cost of health insurance and the attempt to reduce economic inequality through progressive premiums. It would also induce a faster natural, unforced transition to the government’s “universal” program by allowing patients to compare the real, total costs of government-provided insurance (including tax subsidies) with premiums offered by (presumably more expensive) private counterparts.

Conclusion.

See? In analyzing what is probably the most unnecessarily complex health-insurance system in our Galaxy, you can make some progress by reasoning just from first principles. What you can’t do is trust any of the numbers that various advocates for this or that bruit about today. There are just too many rigged accountings, too many caveats, too many qualifications and ignorable footnotes—which advocates ignore in their summaries. You can’t even trust your own Medicare premium today, because you don’t know precisely how much your health insurance or health care is subsidized by your taxes, or how much you ought to pay for supplemental private insurance for things Medicare doesn’t cover. And your own premium always seems to be going up.

But you can trust three general conclusions derived here. First, a single-payer system for universal basic health insurance will almost certainly drive average premiums for that insurance down. Second, such a system will make it possible—and far easier than our current non-system—to calculate what health care and health insurance in America actually cost. Finally, such a system will show conclusively how there will always be private health care and private insurance in America, and precisely what the private sector can do better than government.

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Diatribes of Jay

30 March 2019

Universal Health Insurance: Nine Points of Common Sense

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