In the past when addressing how private insurance companies can hope to compete with a government healthcare option, President Obama has noted that UPS and FedEx don't seem to have any problem competing with the US Postal Service, and have been doing so successfully for some time. This past week however, something seemed to change. When directly asked about this matter at a town-hall style meeting the President equivocated over whether or not a "public option" would even be in his health care bill and downplayed the importance of such an option as only a small part of the larger umbrella of healthcare reform.
This is a tremendous mistake for two deadly serious reasons. The first and foremost reason is that this country is in desperate need of a public option for health insurance. Private insurance companies have been hiking their rates on average 5x faster than the average American's salary is going up. Were you lucky enough to get a 4% raise this year? Look at your pay stub, most people's health care expense went up 20% on their company's renewal. How is that sustainable? The answer is: it's not. A decade ago the average American's health insurance cost was less than 10% of their salary. Now it's about 20%. A decent PPO plan that doesn't require a referral from your GP every time you need to see a specialist costs about $7,000 per year just to cover one individual. Adding your spouse to the plan will more than double the cost in most cases, not to mention if you have children you would also like to insure.
Wait another ten years and American's will be paying over a third of their annual salary to private health insurance companies, meanwhile hoping they don't actually get seriously ill because then they will have to fight tooth and nail to get the insurance company to actually pay for their health care. Many health insurance companies with supposed prescription benefits don't even cover basic prescription drugs to treat nicotine or alcoholism addiction, and if you should fall seriously ill with a devastating disease like cancer that requires extended hospitalization or continuous regiments of very expensive drugs then you, like many other Americans, may find yourself head to head with an bureaucracy that is determined to find some excuse not to pay for your care or medicine, even in some cases extending to making an initial payment and then dropping coverage entirely.
But if the cost of health insurance is rising 5x faster than people's salaries and insurance companies are giving less and less coverage than ever before, and finding more and more exuses not to pay out claims even in cases where by all rights their client should be covered, where is all the extra money going? Health insurance companies claim it's the "rising cost of health care" but what exactly does that mean? Doctor's are being paid less and less, and making an inflation-adjusted income significantly less than Doctor's in the same field thirty years ago. So where is the money going? Well, a fair chunk of it is going to the drug companies, so let's discuss them for a moment.
Pharmaceutical companies spend a lot of money on research and development, and when that R&D finally pays off in the form of a pill or injection that successfully treats an ailment, they deserve to put a fair market price on that drug, not only to cover their sizeable investment in R&D but also to turn a profit. We are, after all, a capitalist nation and proud of it. The problem is, that's not what drug companies are doing — not at all.
Countries like the UK and Canada, with government-run health care programs, offer their citizens access to medications for heavily discounted prices and this is accomplished in part by paying US drug companies heavily discounted prices for their products. One might think that if a pharmaceutical company wanted to charge $25 per pill and the Canadian agency in charge of negotiating such things was only willing to pay $1 per pill, they would simply not sell their product to the Canadians. What actually happens is they sell the pills to Canada for $1, sell them to the British for $1, and then set the US price at $73 per pill to make up the difference.
Americans started to get wise to this practice, recognizing that they could buy perscription medications from pharmacies in Canada, and even with a middle-man and shipping costs they were saving a ton of money over walking down the block to the local pharmacy. Initially drug companies tried to fight this by putting out propaganda claiming pills ordered over the internet could be counterfeit — but while this is technically true and there have been documented cases of this, it is the extremely, extremely rare exception to the rule when dealing with an established Canadian pharmacy.
Once the US drug companies realized they hadn't been able to scare Americans away from ordering their pills from across the border, they went to congress and lobbies for legislation to make it illegal for Americans to buy their prescription meds from outside the country — again, under the guise of patient safety, when in fact safety was virtually a non-issue. The only real issue is the drug industry cannot sustain their highest level of profitability in a truly free market, so they decided to artificially manipulate the market to prevent American consumers (many of whose lives literally depend on their products) from having access to fair pricing, and pretending it was for those very same people's own protection.
So now we know why drugs are so expensive — it's because American Pharmaceutical companies are giving price breaks to foreign nations at the expense of the American consumers, who subjected to near-forced price gouging. After all, what are you going to tell a cancer patient whose insurance won't cover their medication (or dropped them entirely) and can't legally get their drugs from Canada? "If you don't like our prices, don't buy our product" ?? When lives literally depend on it, our government — and especially the more conservative elements of it — who claim to cherish a free market system and minimal government interference in business, suddenly change their tune and decide it's the government's job to "protect" its citizens from non-existent or barely-existent threats, which coincidentally require them to regulate the "free" market in a way that happens to eliminate American consumer's access to fair prices and competition.
But while the cost of pharmaceuticals is great, it can't single-handedly account for the inexorable climb in health insurance prices. So if Doctors are being paid less and less, and Drug Companies can't explain the entirety of the rising costs, what's left? The insurance companies themselves. Opponents of a government-run option for healthcare often ask, "Do you really want a government bureaucrat standing between you and your doctor?" but the easy rebuttal is that under our current system patients already have a private-industry bureaucrat standing between them and the doctor, and that bureaucrat gets a salary bonus if he figures out a reason not to pay for my healthcare — so YES, I emphatically would prefer a government bureaucrat since it appears whether I like it or not, some bureaucrat is going to be standing between me and my doctor.
Ultimately, the health insurance bureaucracies are so immensely incentivized against paying claims that if there was actual free market competition (which there is not, because the insurance industry is dominated by only a handful of giants) these obviously bloated companies would fail miserably. Because Americans do not have a choice though, because these companies have such a powerful lobby (and grip on congress), they continue to exist in perpetuity — without competition or fear that they will be forced to deliver on the expectations of their clients.
Not only are the internal bureaucrats within the health care insurers incentivized to deny claims (lining their own pockets with cash by doing so), but they also want to please stockholders. At its peak in late 2005 UnitedHealth Group's stock (UNH) was beating the Dow Jones Industrial Average and the S&P 500 by over 40,000% in the last 20 years. Let me drive that home in words: Forty-Thousand Percent growth. Recently that number dropped down to around Twenty-Thousand percent, I wonder if that means we're supposed to feel bad for them?
Take a look at this graph of UNH share prices (thanks to Google Finance) — the mish-mosh of hard to make out lines on the bottom that are all stuck together are The DJIA, S&P 500, and just for fun I've thrown in the much maligned Exxon-Mobil — which recently turned the largest dollar-amount profit in history for a quarter.
One might be surprised to see Exxon Mobil standing so still — seeming almost in alignment with the DJIA and S&P 500 but in fact Exxon Mobil stock did very well. Over a ten year period at it's highest it had 130% growth vs. only 30% from the Dow average. By comparison to UnitedHealth Group though, their stock price may as well have been standing still side-by-side with the Dow and S&P.
So we've established the insurance companies — and the drug companies — are price gouging; What is the best way to deal with that? Naturally the best way to "keep them honest" is to force them to compete with a government-offered program that actually delivers the services people expect, and at a price that both fair and within their financial means. But conservatives say they won't vote for such a plan because it's "socialist" and/or because they claim it's inferior to our existing healthcare system. Let's look at that last claim first.
Per capita, our healthcare here in the US costs twice what it does in any other westernized nation. Yet, the average lifespan for an American is about 78 years while countries like Canada and the UK have average lifespans over 80 years. Right there — with no other information — the case is undeniably made: they pay half as much and live longer than us? Sign me up! But no, opponents of a public option for healthcare make all sorts of claims, like people die waiting to be approved for procedures, or people are simply denied procedures because the government deems them too old or otherwise unlikely to live long enough to make the procedure worth paying for. Some of that may in fact go on under a government-run healthcare system, but what we know for sure is that it goes on all the time right now under our current system with private insurers!
Such (true) anecdotes of people denied necessary medical care doesn't even necessarily have anything to do with the insurance, private, government or otherwise. There are waiting lists for transplants, qualifications to be met just to get on the list, and then further qualifications to determine priority. These rules have nothing whatsoever to do with insurance companies, and some might call the existing system arbitrary or unfair but three things are certain: Some set of rules must be created to determine who gets a new liver, whatever the rules are there will always be people who die because they didn't qualify or get priority, and most importantly for our current discussion neither of those first two things will ever change, no matter who insures whom, whether private corporation or government agency.
In a nutshell, the people who push this line about people waiting painfully long for or or being outright denied coverage under government-run healthcare are hoping no one notices the problems they're being warned about already exist under the current system and there's no reason to suspect they'd get any worse under a government insurance offering. Quite the opposite, at least the government doesn't pay their employees more when they turn down coverage for a procedure or prescription, so there's no incentive for them to deny treatment.
The conservative publication Investor's Business Daily recently published an editorial that pushed this point rather firmly — so firmly in fact that they poked a hole straight through their own argument and proved themselves wrong.
"People such as scientist Stephen Hawking wouldn't have a chance in the U.K., where the National Health Service would say the life of this brilliant man, because of his physical handicaps, is essentially worthless."
Stephen Hawking is of course from the UK, and always has been. He himself responded to this article in a London newspaper last week, stating that he is alive today due to the excellent care he has received under the British NHS (National Health Services). The man has been suffering from ALS (commonly known as Lou Gehrig's Disease) for 45 years, in a wheelchair for most of that time and unable to care for himself. If ever there was an example for a man who would meet the fictional criteria public healthcare opponents have dreamed up for someone that would be denied care by a government bureaucracy, it would be this man — but he in fact proves the opposite: that public health care systems do not throw the elderly and infirm under the bus.
In fact, looking back to the false claim that private companies can't possibly hope to compete with the government, it becomes clear the opponents for public health care are all over the place with illogical and even conflicting arguments. If government healthcare won't pay for old people who get sick, then how could a private insurance company possibly have any trouble competing? All they'd have to do is say, "Buy our insurance, we won't tell your doctors to pull the plug because it's too expensive" and they'd be rolling in cash. Except they already are rolling in cash, and it is in part because they are the ones leaving patients to live or die on their own because of refusal to pay medical claims. And don't we already have a government health insurance program for old people? I'm pretty sure we do, and it's called Medicare.
Most seniors seem to like their Medicare. In fact, many of the seniors who showed up to town hall meetings to speak out against public healthcare seemed utterly befuddled when it was pointed out to them that they already had government health insurance. At one such meeting when asked who wanted to give up their Medicare coverage not a single hand went up. Without further scientific study, I think it's safe to say these people aren't being thrown under the bus by a government bureaucracy that won't pay for their pills or medical care because they're too old or feeble.
But in the title of this article I promised to speak about how the Obama administration is being played by Republicans, conservatives and the private healthcare lobby, and all the way back at the beginning I mentioned that there were two reasons why moving away from a public healthcare option was a tremendous mistake. Well, here is that second, deeply political reason: The Obama administration believes they should be willing to make compromises in order to get more support for their healthcare reform agenda, and that's admirable but what they haven't to-date seemed to realize is that they will never have that support until they've bargained away every good idea they wanted to pass through congress.
Rather than start off with a single-payer system — a system where the government pays for everyone's healthcare, which is how every other westernized nation does it — which is what he suggested he personally preferred, President Obama started off with a compromise. He suggested a system which kept the private insurance industry in place, but offered a public alternative for people that did not want or could not afford to buy their own insurance from a private company. Immediately the opposition demanded a compromise (even though they'd just been handed one) and compromises were made.
This cycle continued, until this past week when Obama suggested a public insurance option may not actually make it into the legislation. When one of the leading pro-healthcare reform (allegedly) Republicans, Sen. Chuck Grassley was asked if he would vote for the bill if the public healthcare option was removed he essentially said probably not. The opponents of a public health insurance option smell blood in the water. They don't see these compromises as conciliatory gestures to achieve broader support, they see them as signs of weakness and an opportunity to exert even more pressure to achieve their own political ends while leaving the supporters of healthcare reform crushed under a pile of rubble. The rubble, of course, created by the collapsing roof over the heads of health care reformers as they bargain away each supporting wall of their legislation to opponents who have absolutely no intention of compromising.
In the end, if this cycle is permitted to continue then the natural conclusion will be a bill that is so compromised (in more ways than one) that it is healthcare reform in name only, offers Americans no real protection against the predatory practices of the private insurance carriers while serving primarily as a vehicle for pork barrel projects or worse. Then the opponents of healthcare reform will say, "See, we were right. The government can't do anything right and it's best when it doesn't even get involved" and some large percentage of the US population, who weren't aware of what went on to reach this point, will see that what they're saying makes sense and believe them.
The only way to avoid this eventuality is to break the cycle. The Obama administration needs to wake up and recognize that they are being played. The compromises they are offering are not met by equivalent concessions from their opponents to bring everyone closer to a middle-ground, but are met instead by demands for more concessions with none offered in return. As much as the president wants to find compromise and middle ground, it takes two to tango and his opponents have turned this into a win-or-lose situation. If President Obama doesn't want to lose — and in doing so not only stain his own legacy with the failure to accomplish one of his major goals but also have that stain forever associated with the first African American presidency — then he needs to win.
Compromise may still be essential to that goal, but now it must be a compromise between the factions within the Democratic Party, because the Republicans have tipped their hand. They will not vote for any bill that is worth passing. Passing legislation, especially legislation this big, with absolutely no Republican votes may be politically uncomfortable, but the alternative is far, far worse. Obama needs to step up his game because as much as his legacy depends on this, the American people will suffer far worse should he fail.
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