Lecture 23.


Why is the USA the only advanced nation that licences for- profit, primary health insurance companies? (Primary excludes companies that offer only extended health coverage to clients who wish to be insured against costs not covered by their primary insurer. Except for a deductible amount, these for-profit companies must pay claims validated by the primary insurer. Some nations have privately-owned primary health insurance companies, but they are managed as non-profit organizations.) The answer is simple: American exceptionalism. Americans are exceptionally naïve, suckers for an obvious scam. The other nations will not license a for-profit company because it has an inherent conflict of interest that leads inevitably to corruption: the for-profit insurance company can increase its profit merely by denying a valid claim. If it can be done, it will be done; only those with below- average intelligence would believe otherwise. The other nations also believe that it is immoral to earn a profit by denying succor to the sick. It contradicts the teachings of all of the major religions. America is exceptional in that so many of its most fervent faithful have their most profound faith in the profit motive. They worship Mammon, the free market deity, and actually boast that they are not their brother’s keepers. Aside from questions of conflict of interest and morality, there is a practical reason to avoid a for-profit system: healing sick people is not a service in the same sense that repairing a car is a service. The auto-repair industry serves its customers profitably in a free market for several reasons that do not apply to the health care industry: 1. The cost of an auto repair rarely exceeds 50% of the cost of acquiring an equivalent vehicle and is usually less than 5% of that cost. The cost of an illness may exceed the combined cost of buying a home and raising a family of university graduates. And you cannot acquire an equivalent body! 2. Garages stay in business only by attracting customers with good service at a moderate price. Health care providers stay in business only by conforming to industry standards and statutes. The health care industry (as opposed to the health care insurance industry) does not want customers. The doctor regrets that the patient needs his help. 3. Drivers influence the market by choosing the best bargains. Patients cannot influence the health care market because 80% of all health care is consumed by 20% of the patients and these are generally too sick to worry about price or quality of service. Effectively, their doctors make the decisions. The other 80% hardly have any choices to make after they have chosen an insurance company. And the insurance companies offer very similar products. Market-driven healthcare is an oxymoron. 4. Auto repair is based upon commodities: widely available parts, repair manuals, tools, and mechanics. Costs are well known and prices are regulated by competition. Health care is based upon technological innovation. Doctors are mostly specialists, often researchers and professors with a few students. They sometimes build their own equipment. The customer’s life may depend upon finding the right doctor. If that doctor does not have a contract with the patient’s insurance company, the patient will not get that doctor. 5. Garages profit by offering good service at a moderate price to all customers. For-profit insurance companies profit by cherry- picking the healthiest customers and by charging higher premiums and offering less coverage to the other customers. The poorest customers, with no insurance, avoid doctors until they are really sick and need expensive treatment, usually at an emergency room at public expense. And even middle class families, with minimum insurance coverage at a high price, too often face bankruptcy. 6. A driver who can’t pay the repair bill will stop driving. If too many drivers stop driving, some garages may fail. It’s tough on the losers, but the nation survives. If a patient can’t pay the hospital or doctor bill, the taxpayer pays for it, directly or indirectly: nobody is turned away from the emergency room. In particular, children and students cannot afford to pay for their own care. But they must receive the finest possible health care (and education) regardless of the wealth or poverty of their parents. Parents (and other family members), guardians, teachers, day-care and play-ground attendants, and all other adults that serve children and students, directly or indirectly, must also be healed regardless of income. It takes a village to raise a child and it takes an entire nation to raise a thriving generation. This requirement is enshrined in our Constitution’s Preamble, which obliges us to … promote the general Welfare and to secure the Blessing of Liberty to ourselves and to our Posterity. Posterity is our nation’s only product. We must do it right.

Single Payer

For the above reasons, health care (unlike automobile care) must be universal and insurance premiums must be subsidized for those unable to pay. As always, deductible claims will be paid from an insurance pool. For statistical and administrative reasons, the larger the pool, the lower will be the premiums. Because everybody is in the same pool, single-payer systems like Medicare are the least expensive. This is a mathematical certainty. Single-payer can also be a single private nation-wide consumer co-operative or mutual insurance company operating under federal guidelines. Since the Medicare system is already functioning, it would seem to offer the easiest transition. The alternative to one single-payer pool is hundreds of different for-profit insurance pools that add important administrative costs: financing, advertising, customer selection, claims denial, high executive salaries, and profits. These additional costs exceed 20% of the total current healthcare costs and are over four times the single-payer administrative costs. These are unnecessary costs paid to for-profit insurance companies by their customers with no corresponding benefit. Only conservative Americans vote to be scammed and then protest vehemently when liberals try to help them. Opponents of single-payer counter that Medicare administrative costs are higher per patient than the corresponding for-profit costs. This is probably true but irrelevant. Administrative costs are not incurred per patient but rather per visit. They won’t show you those figures because older people visit their providers much more often than younger people. Caveat emptor! And the health outcomes of our for-profit system are inferior to the systems of other advanced nations whose per capita costs are much less than ours. The opponents also claim that universal healthcare costs will be contained only by rationing the care: denying care to the sick. But, without exception, every for-profit health insurance company has a large building with an entire floor or two devoted to a department that does nothing else but ration health care. These claim deniers are answerable only to their highly paid management, not to Congress or to State Legislatures or to voters. The only recourse to denial of a claim is a law suit. Good luck with that, especially after we get tort reform. They also claim that universal health care will increase the national deficit. Actually, well-managed universal health care will reduce the deficit. We already pay for the uninsured and have by far the highest per capita health care cost on Earth due to our for-profit system.

Cost Control

Their corollary objection to single-payer is based upon so- called government inefficiency. It is true that Medicare and Medicaid have serious problems, but this is mostly because Congress has never allowed a panel of doctors to administer the system. Such legislation has now been passed by Congress. The major advance in the new law is the IPAB (Independent Payment Advisory Board), consisting of 15 members from all areas of the health care industry. It has broad powers to set rules and procedures for payment to providers. Its decisions cannot be overturned without a majority vote of Congress and signature of the President. It is no wonder that conservatives are trying to repeal the law. Actually, many branches of government are very efficient (although their mission may be poorly conceived or even a total waste): federal civil service employees that serve Cabinet secretaries, NASA, the military, naval, and air forces. Public employees serve our community police and fire departments, libraries, schools, water supply and waste disposal, highway and bridge maintenance – our entire infrastructure. The DMVs watch over 200 million drivers. The Postal Service loses money because it subsidizes industry’s junk mail and because it must serve Podunk at the same price that it serves Gotham. The Veterans Administration provides excellent care to millions of veterans suffering a wide range of problems at a low cost compared to private industry. (See the Rand survey ). The managers are accountable to the public; when poor conditions were found at Walter Reed Hospital, a general was fired. Also, see this report, which finds the VHA outperforming private US hospitals in every sense. But too often, we are much like the USSR, which beat us into space but couldn’t make toilet paper. This happens when government is run by ideologues who don’t believe that government should serve the public. That is why you get Brownie doin’ a heckuva job. The fact is that, given public support, government can do everything effectively and efficiently. Those who oppose single-payer by parroting the inefficient government mantra can see the culprit in any mirror. If France can do it better for less, why can’t we? The current US law that goes into effect in 2014 is flawed, but much better than the status quo for all citizens. Generally, it is poorly understood. In fact, it is not that complicated. As NY Times columnist, David Leonhardt, describes it: First, people will be required to buy insurance, to spread costs among the sick and the healthy. Second, insurers will be prohibited from cherry-picking only the healthiest customers, again to spread costs. Finally, the government will give subsidies to people, like McDonald’s workers, who can’t afford insurance on their own. Germany, the Netherlands and Switzerland all use a system along these lines to cover everyone, largely through the private sector, for less money per person than this country spends. The current health care law will eventually have to be changed so that our domestic industry will no longer be burdened by costs that its foreign competitors don’t face. The easiest way to achieve that is to: 1. Immediately, bring the healthiest age group, children and youth through university, into Medicare, which has administrative costs that are one-tenth that of private insurance and which grow more slowly than that of private insurance. Much of this group is already a tax burden. 2. Year by year, as feasible, raise the eligibility age for youth and lower the eligibility age for the elderly until health care is universal.

Proceed to: Lecture 24. THE WAR ON DRUGS


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