In paradigm Health Care criticism from the left

This Is Not The Way To Do Healthcare Reform: Democrats Propose Windfall For Insurance Industry

By L. Randall Wray

It is beginning to look like Congress is going to vote to pass health care legislation on Sunday. According to the NYTimes, Democrats are practically celebrating already. here
It is interesting, however, that no one is talking about providing benefits to the currently underserved.
Rather, the “good news” is that the bill is supposed to be “the largest deficit reduction of any bill we have adopted in Congress since 1993,” according to House Democratic leader, Rep.Steny H. Hoyer of Maryland. “We are absolutely giddy over the great news,” said the House’s number three Democrat, Rep. James Clyburn of South Carolina. (Of course, deficit hysteria is nothing new. See here


Who would have thought that health care “reform” would morph into deficit cutting?

As Marshall Auerback and I argue in a new policy brief here
, the proposed legislation is not “reform” and it will not reduce US health care costs. I will not repeat the arguments there. But very briefly, the most significant outcome of this legislation is the windfall gain for insurance companies—who will be able to tap the wages of the huge pool of nearly 50 million Americans who currently do not purchase health insurance. Since many of these are too poor to afford the premiums, the government will kick in hundreds of billions of dollars to line the pockets of health insurers. This legislation has nothing to do with improving health services for the currently underserved—it is all about increasing the insurance sector’s share of the economy.

You might wonder how Democrats can call this a deficit reduction deal? Elementary, dear Watson. They will slash Medicare spending. No wonder—it stands as an alternative to the US’s massively inefficient private insurance system, hence, needs to be downsized in favor of an upsized private system.

There is nothing in the deal that will significantly reduce health care costs. At best, it will simply shift more costs to employers and employees—higher premiums, higher deductibles, higher co-pays, and more exclusions forcing higher out-of-pocket expenses and personal bankruptcies. As we show in our paper, the US’s high health care costs (at 17% of GDP, double or triple the per capita costs in other similarly wealthy nations) are due to three factors. As many commentators have argued (especially those who advocate single-payer) part of the difference is due to the costs of operating a complex payment system that relies on private insurers—resulting in paperwork and overhead costs, plus high profits and executive compensation for insurance executives. This adds about 25% to our health care system costs. Obviously, the proposed legislation is “business as usual”, actually adding more insurance costs to our system.

In addition, Americans spend more for medical supplies and drugs. Since the Democrats ruled out any attempt to constrain Big Pharma through, for example, negotiating lower prices for drugs, there will not be any savings there.

Finally, and most importantly, the biggest contributor to higher US health care costs is our American “lifestyle”: too little exercise, too much bad food, and too much risky behavior (such as smoking). here
This is why we spend far more on outpatient costs for chronic diseases such as diabetes—40% of healthcare spending and rising rapidly. Ending the subsidies to Big Agriculture that produces the products that make us sick would not only do more to improve US health outcomes than will the proposed legislation, but it would also reduce health care spending—while reducing government spending at the same time. That would be real healthcare reform! But, of course, no one talks about this.

Interestingly, according to the NYTimes article, President Obama likened the legislation to fixing the financial system or passing the economic recovery act. “I knew these things might not be popular, but I was absolutely positive that it was the right thing to do,” he said. That is an apt and scary comparison. This legislation will do as much to “fix” the US healthcare system as the Obama administration has done to “fix” the financial sector and to put the economy on the road to recovery?

Of course, we have not done anything to “fix” the financial sector, or to put Mainstreet on the road to recovery.

I think the President’s comparison is uncannily accurate. So far the main thing his administration has done is to funnel trillions of dollars to the FIRE sector in an attempt to restore money manager capitalism. The current legislation will simply continue that policy—the trillions spent so far to bail-out Wall Street have not been nearly enough. Hence, the effort to funnel billions more to the insurance industry.

But what is the connection between Wall Street and health insurers? As Marshall and I argue in our brief, they are “two peas in a pod” since the deregulation of financial institutions. We threw out the Glass-Steagall Act that separated commercial banking from investment banking and insurance with the Gramm-Leach-Bliley Act of 1999 that let Wall Street form Bank Holding Companies that integrate the full range of “financial services”, that sell toxic waste mortgage securities to your pension funds, that create commodity futures indexes for university endowments to drive up the price of your petrol, and that take bets on the deaths of firms, countries, and your loved ones. See also here


Hence, extension of healthcare insurance represents yet another unwelcome intrusion of finance into every part of our economy and our lives. In other words, the “reforms” envisioned would simply complete the financialization of healthcare that is already sucking money and resources into the same black hole that swallowed residential real estate. here


Just as the bail-out of Wall Street was sold on the argument that we need to save the big banks so that they will increase lending to Main Street, health care “reform” was initially promoted as a way to improve provision of healthcare to the underserved. What we got instead is a bail-out for insurers and cuts to Medicare. Funny how that happens.

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9 Responses to In paradigm Health Care criticism from the left

  1. warren mosler says:

    Thanks, much appreciated!

    Reply

  2. ESM says:

    RSJ:

    The statistics you see in the media with respect to life expectancy, infant mortality, and WHO rankings for the US are extremely misleading.

    For example, if you adjust for violent deaths (e.g. homicide, car accidents), which I think you’ll agree has little to do with our health care system, life expectancy in the US is the highest in the world.

    If you adjust for teen pregnancy rates (teenagers disproportionately have low birth weight babies), abortion of unhealthy fetuses, and different ways in which stillbirths are accounted for in different countries (the US has the most conservative accounting when it comes to infant deaths), the US is a top performer in terms of infant mortality.

    The WHO rankings give significant weight to “equality” and “affordability” of health care, thus creating a self-fullfilling prophecy in terms of the outperformance of socialized systems.

    And today the US actually does have health care for all. The problem is that unlucky middle class people have to spend all of their assets first before they get free health care. This wouldn’t be the case if we had a free and transparent market in health care — one in which services weren’t billed out to retail customers at 3x, 5x, or even 10x the cost charged to 3rd party payment intermediaries.

    So the problem isn’t that people don’t have access to health care, it’s that some unlucky people are forced to choose between going bankrupt and getting the health care they need.

    Warren’s solution is an excellent one. It provides both a financial safety net and an incentive for consumers to economize.

    Reply

    RSJ Reply:

    At the end of the day, all of the above are just excuses for poor outcomes. We have, at best, “average” outcomes, but we spend much more. Therefore the benefit per unit of output spent is much lower than in the rest of the industrialized world. A sick system that deserves its low rankings.

    “For example, if you adjust for violent deaths…If you adjust for teen pregnancy rates”

    The health-care system of any nation must address the health needs of that nation. That is how the performance is measured. You cannot go to an area with a lot of robberies, and say “well, except in our poor handling of robbery cases, our police force does a great job of solving kidnappings!”

    The fact is that we do have teen pregnancies and violent deaths, and this means that the health care system needs to be able to deliver health care to these populations. Currently it does a poor job of this.

    The focus of the health-care system must be to address the actual health problems of the country, and the results are judged this way — no excuses for poor performance.

    “The WHO rankings give significant weight to “equality” and “affordability” of health care”

    Indeed, any sane person would do this. You don’t even need to be right or left. Health care is useless if it is unaffordable, and provides no benefit if it is not delivered to those who are sick. Particularly as the majority of it is paid for by government, even today.

    Actually, most nations are able to fully fund their entire national health expenditure by spending less per capita than we spend on medicare and the VA system. That should give you an idea of the fraud, waste, legal costs, and excessive salaries that are in our current configuration.

    Reply

    ESM Reply:

    RAJ:

    “The fact is that we do have teen pregnancies and violent deaths, and this means that the health care system needs to be able to deliver health care to these populations. Currently it does a poor job of this.”

    You can’t possibly believe that the high rates of teen pregnancies and violent deaths are the fault of our health care system, do you? I mean that’s just crazy talk. In fact, I am confident that the US health care system is the world leader in the care of low birth-weight babies and the treatment of gunshot wounds. Other systems just don’t have as much experience with these kinds of problems as we do.

    We’re just going to have to agree to disagree, but I have looked into the numbers quite a bit, and I think our health care system is far and away the best in terms of treating injuries and disease. That it costs way more than it should is not in dispute. The fact that this leads to some people not getting the care that they should is not in dispute either. But I do NOT agree with the contention that we spend more AND get worse outcomes, even averaging in the people who skimp on care because of cost.

    “Actually, most nations are able to fully fund their entire national health expenditure by spending less per capita than we spend on medicare and the VA system. That should give you an idea of the fraud, waste, legal costs, and excessive salaries that are in our current configuration.”

    Don’t forget that the rest of the world gets a free ride off of us in terms of medical technology and pharmaceuticals. We pay the full cost of R&D, while the rest of the world mostly just pays the marginal cost of production. We’re headed in the direction of nobody paying for R&D. When that happens, there will be no more R&D.

    Reply

    Tom Hickey Reply:

    Interesting article about Cipla, the Indian company that supplies much of the world with inexpensive pharmaceuticals.

    Wired: The Treasure of Mumbai 

  3. warren mosler says:

    I like my health care proposals a lot more than anything i’ve seen, and they aren’t even an option under consideration

    hopefully i can change that with my senate run, along with a few other things, starting with the 7dif

    Reply

  4. ESM says:

    Although I agree with Wray that the health care reform bill is terrible, I’m surprised that on his list of three things driving up our health care costs, the fact that we lack a free market in health care doesn’t appear.

    What does he think would happen to the price of food if every employee was given a tax-free food benefit by his employer that essentially turned grocery stores and restaurants into all-you-can-eat buffets?

    And two of the things on his list aren’t even problems. High overhead costs from having a fragmented health care insurance system? 25% doesn’t strike me as an unreasonable price to pay to have a free market in insurance and real competition (the fact that we don’t of course is the fault of state government regulation). I have no doubt other industries have similar overhead costs. Would Wray like to save money by merging all PC software companies into Microsoft?

    As for medical devices and drugs, it’s not clear to me that we are paying too much for such things except that demand is artificially boosted by the lack of a free market. It is true that we subsidize medical technology for residents of other countries, but we can get around that by allowing reimportation of drugs and medical devices.

    Reply

    zanon Reply:

    Fair points.

    As Warren says, we only need about 2% of populations to grow all food and make all stuff we need.

    If we don’t spend our money on longer life and better healthy, what should we spend on? plasma tv?

    Reply

    RSJ Reply:

    Would that our current levels of health care spending provided either a longer life, or better living, or, for that matter, health care to all.

    Perhaps if we devote 80% of GDP to it instead of the current 16%, then perhaps we might see a slight uptick in longevity or coverage. :P

    Reply

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