"Sicko" Makes Them Sick

LAKE COUNTY DEMOCRATIC CLUB
HEALTH CARE FINANCE SYSTEM REPORT

June 9, 2007

Our fragmented health care financing system consists of for profit insurance corporations, not for profit health care insurance and delivery corporations, government administered health insurance (Medicare, Medicaid, the Veterans Administration and military health care systems), and various charitable organizations. (The Federal Employee Health Plan which is offered to members of Congress and all other Federal employees is similar to major corporation health plans in that it offers a variety of private insurance plans to the employees and members of Congress).

There are three basic problems with the current health care finance system:

1. Coverage: 47 million Americans and at least 5 million Californians do not have health insurance. This is caused primarily by the high cost of health insurance. All or most other industrial nations cover nearly 100% of their citizens.

2. Outcomes: In spite of having the most advanced health care technologies, the U.S. ranks at or near the bottom of industrialized nations in overall health care outcomes. The poor health care outcome is caused primarily by the large number of uninsured Americans. It is also caused by restrictions in coverage by insurance corporations to hold down costs and by the high cost of the health care finance system.

3. Cost: There are several factors that drive up the cost of insurance;

A. Administrative costs; For profit corporations are the largest providers (in numbers of insured) of health care insurance. Their administrative costs range from 18 to 23% or more of revenues. In comparison, Medicare administrative costs are 2 to 3% of revenues. The multiplicity of health care plans require that health care providers employ additional administrative staff to comply with the different requirements and forms of the different plans.

B. Profits; Stock market pressures for short term exceptional profits drive up the cost of health care insurance corporations, delivery corporations, and manufactures of equipment, products and technologies. Many private non-corporate providers and suppliers also seek higher profits by increasing their prices. The quality of care and the universality of care are diminished and the cost of care is increased by the pressure for higher profits.

C. Employer costs; Most employer based health insurance is purchased from for profit insurance corporations. The high and rising cost to employers of this insurance reduces the employer's price competition with foreign firms and domestic firms that do not provide health insurance.. Employers reduce or curtail their contributions to employee health care plans to reduce costs. Employees then seek other plans or become uninsured both of which increase the cost of health care insurance.

D. Risk pool; The overall costs of health care for all participants in an insurance plan (the risk pool) are divided among the participants by actuary tables. The more participants there are in the plan, the lower the cost to each participant. The smaller the risk pool, the higher the cost to each participant. For profit , not for profit, and government administered health insurance plans divide the population into hundreds of risk pools at a higher cost to each participant than would be the case with fewer risk pools. In addition, for profit health care insurance corporations seek to include only healthy participants to contain costs and increase profits which raises the cost of insurance to less healthy participants and/or increases the number of uninsured who then rely on more expensive emergency room care.

E. Overlapping coverage; Because few if any of the private for profit health care plans offer complete coverage, many participants enroll in more that one plan to get all the coverage they need. This includes high deductible plans for catastrophic events, high premium plans for preventative care, dental plans, vision plans, long term care plans, plans at work, sick pay plans, plans at school, plans included in automobile insurance (including uninsured motorist coverage), plans included in homeowners insurance, separate plans for each spouse, Medicare, Medicaid, Veterans health care and military health care. Any family or even any person can easily find themselves in need of more than one plan to get all the coverage they need even though those plans may well overlap in other coverage areas.

F. Legislation; Our fragmented health care finance system was created and is regulated by legislation. That legislation is full of inconsistencies and loopholes that allow fraud and abuse which increases costs. In addition, legislation allowing general and specific tax breaks and regulatory relief have increased corporate profits with no visible significant cost reductions for participants as exemplified by the Medicare Part D prescription insurance legislation which was written by the pharmaceutical lobby and has enriched the pharmaceutical and health care finance corporations. Additional legislation and regulation further complicates the fragmented system driving up the cost of administration.

G. Economies of Scale: The multiplicity of health care insurance plans reduce the purchasing power of those corporations providing the plans for prescription drugs, equipment, devices, supplies and services that they pay for compared to fewer plans with more participants each.

H. Economic Loss: The lack of universal health coverage and optimal health outcomes results in unnecessary lost work hours, reduced productivity and higher production costs than would be the case with a healthier work force.

Our fragmented health care financing system was created piece by piece in response to particular problems and incentives. The assembled pieces are not well integrated with each other or with the overall system. There are at least several cost spirals within the system that drive up costs and drive down coverage and outcomes. Just two examples are:

1. The rising cost of employer based for profit health insurance causes more and more companies to reduce or eliminate their participation in employee health care insurance. This reduces the size of the risk pools and increases the cost of health care to the remaining employers in the risk pools which causes more employers to reduce or eliminate participation.

2. The rising cost of health insurance forces many people to go without insurance which increases the number of uninsured who then rely on more expensive emergency room service for all their medical care. That cost for emergency room care is then passed on to the remaining participants in the risk pools which forces still more people to go without insurance. The increase in the number of uninsured also reduces the size of the risk pool which increases the cost to the remaining participants in the pool which forces even more people to become uninsured.

These and other cost spirals plus the other problems listed above are driving costs up and driving coverage and outcomes down. The basic problem lies in our very complicated and fragmented health care financing system. No corporation could function profitably if it was so disorganized and inefficient. Any further measures to repair specific problems in this system other than a unifying reorganization will only complicate, and possibly fragment it, further.