Health Care Market Madness

Margaret Flowers Oct 31, 2013

The battle lines have been drawn and the Inside-the-Beltway media circus is underway.

As the Affordable Care Act (or “Obamacare,” as it is popularly known) gets off to a rocky start, Republicans are bellowing that the new health care law should be jettisoned, even though it is modeled on ideas hatched 20 years ago by the conservative Heritage Foundation and originally backed by the likes of Newt Gingrich and Mitt Romney.

Meanwhile, the Obama administration insists that once a few computer “glitches” are resolved in the website by the end of November, everything will turn out swimmingly.

“Don’t worry, these plans will not sell out,” President Obama said in late October. “Everyone who wants insurance in the marketplace will get it.”

Lost amid the noise is the fact that not only could we adopt a simpler, more effective single-payer system that is common to other industrialized nations — more about that below — but also that we are witnessing perhaps the greatest corporate scam ever. Not only did the health insurance corporations write the Affordable Care Act in 2009-2010 to enhance their profits, but now they also have the government and non-profit groups doing the work of marketing their shoddy products.

The foundation of Obamacare, the mandate that uninsured individuals purchase private insurance if they do not qualify for public insurance, goes into effect in 2014. The state health insurance exchanges where people can purchase that private insurance opened on October 1. A new organization called Enroll America was created to organize and train grassroots activists to seek out the uninsured (they even provide maps) and assist them in using the exchanges.

The Uninsured

Can you imagine this scenario with any other industry? Billions of public dollars and tremendous efforts are being spent to create new health insurance markets, advertise them, subsidize their products and actively solicit buyers for them. This is being done with the belief that the solution to our health care crisis is to reduce the number of people who are uninsured. But our health care crisis runs deeper than that. And having health insurance in the United States isn’t the same as having access to necessary care.

Obamacare does not resolve the fatal flaw in our health system — that it is a market-based system rather than a public health-based system, as is the case in all other industrialized nations. Market competition does not improve health outcomes because it consists of health insurance corporations competing for profits by selling policies to those who are the healthiest and denying and restricting payment for care. And regulation of insurers doesn’t work either. Although rules in Obamacare give the appearance of changing insurance company behavior, insurers are already working around them. Remember, the health insurers wrote the rules.

This illusion that the health insurance corporations are regulated under Obamacare is one of the reasons that progressives have been seduced to accept a market- based health system rather than continuing to push for the system most of them desire, a single-payer Medicare-for-all national health program. Defenses of Obamacare ignore the long history of private insurance domination and are based on the hope that this time things will be different. But Obamacare has not changed the fact that private insurance companies view their plans as products and have no more allegiance to human health than does Big Energy, which will stop at nothing to drill, frack and blow up the planet for profits.

Experience at the state level with similar reforms and a look at current health trends show that Obamacare will leave tens of millions without insurance, will increase the percentage of people who are underinsured, will increase financial barriers to necessary care and will further privatize health care. Cutting out the multitudes of insurers and creating a single publicly-financed universal health care system is the only way to solve our health care crisis.

Tweaking the System

During and after the health reform process, the President explained that since most people were happy with their health insurance, we should work with the present health system to improve it. This was the reason given for not enacting a Medicare-for-all system.

From the outset, it is important to realize that 80 percent of the population is generally healthy and that this is the population that private insurers prefer to enroll. People may believe that their coverage is satisfactory, until they have a serious health problem and discover that the out-of-pocket costs and restrictions on their care make necessary care unaffordable.

Is it wise to try to tweak the current system? Will that bring us to universal coverage? The answer is no. About the best that has been achieved by tweaking the present system at the state level is reducing the number of uninsured people by half. That is what happened in Massachusetts, where legislation similar to Obamacare was passed in 2006.

There are currently 48 million uninsured people in the United States. At its best, the Congressional Budget Office estimates that Obamacare will leave 31 million people without health insurance when it is completely rolled out. And even that estimate may be too low. Experience at the state level showed that none of the plans that were similarly hailed as comprehensive met their coverage goals before they failed fiscally. Without effective cost controls, care remains unaffordable.

Shifting the Costs

As health care costs have soared in the United States, the trend in health insurance coverage has been to shift more of the costs onto the individual. This has primarily been done through what are called Consumer-directed Health Plans (CDHPs), which require co-pays, deductibles and co-insurance. This means that patients have to pay thousands of dollars in addition to their premiums before and after their insurance kicks in.

These up-front costs are barriers to care. Considering that 76 percent of Americans are living paycheck to paycheck without significant savings, the money simply isn’t there to pay for visits to the doctor, tests or prescriptions. A health survey by the Commonwealth Fund last year found that 80 million people reported not getting care due to cost, 75 million were having difficulty paying medical bills and four million (over two years) went into bankruptcy as a result.

The result of CDHPs is that patients self-ration by avoiding or delaying necessary care. And so many people are currently self-rationing that the rise in health care spending in the United States has slowed over the past five years. Reducing access to necessary care is not the kind of cost-control that should be promoted, but Obamacare does just that.

The health insurance exchanges sell four tiers of coverage, identified by metals. The lowest levels, silver and bronze, will pay for 70 and 60 percent of covered services once deductibles are met. “Covered services” is the key phrase. Health insurers are restricting their provider networks for plans sold on the exchanges to exclude places where sick people go, large health centers and safety-net hospitals, and to limit the number of doctors. This will force people to go out of the network and bear more or perhaps all of the cost of their care.

The silver and bronze plans have lowered the bar on what is considered coverage. These are levels that will leave people at risk of financial ruin if they have a serious accident or illness. And these are the levels that most people will purchase. Subsidies are available for those who qualify based on the price of a silver plan, and because the subsidies are inadequate, people will migrate to the cheapest plans.

This model means that people will still get the care they can afford rather than the care they need. It means that more people will have insurance but will not be able to afford care. In Massachusetts, eight out of 10 people who see themselves as “sick” report that health care costs are a serious problem for them.

That’s quite a gift to the insurance companies. Millions of new customers will pay premiums, and because of the out-of-pocket costs, may not actually use health services. A cap on out-of-pocket costs was included in Obamacare, but has been delayed for a year because insurers said their computer systems were not ready to manage the caps.

Thousands of Waivers

The delay on out-of-pocket spending caps is one of the tricks that insurers are using to protect their profits. They have used many others, and we can expect more.

Obamacare was written with the help of large insurance corporation lobbyists and others from health industries. The reform process was led in the Senate Finance Committee by Liz Fowler, a former WellPoint executive and Senate staffer. After Obamacare was signed into law, Fowler was transferred to the Department of Health and Human Services (HHS) to oversee the regulations. Insurance representatives have also played an active role at the state level in forming the exchanges. It is no secret that most state insurance commissioners have close ties to the industry.

The effect that this level of industry influence has had is that thousands of waivers have been issued by HHS to water down provisions in the bill and the industry has participated in writing definitions of terms to their advantage. For example, one area of tension concerned the requirement that insurers spend 80 to 85 percent of what they collect in premiums on health care (called the Medical Loss Ratio, MLR). This requirement simply led to a redefinition of care, and the term was interpreted so broadly as to include insurance brokers. Dr. John Geyman of Physicians for a National Health Program writes, “The insurance lobby won a number of concessions, including counting expenses of quality assurance as medical costs, allowance to deduct many of their taxes from their total premiums before calculating their MLR, and the ability to appeal for a lower MLR standard for up to three years in states where ‘there is a reasonable likelihood that market destabilization could harm consumers.’”

Perhaps one of the most egregious examples of insurance company behavior took place six months after Obamacare was signed. At that point, by law, insurers were no longer allowed to deny new policies to children on the basis of pre-existing conditions. Faced with a potential reduction in profit margins, many health insurers simply stopped selling new policies for children. In essence, they pulled the product from the shelf. HHS was able to entice the insurers to sell policies again by offering increased premiums and limiting open enrollment periods.

This is one of the ways that insurance corporations cherry pick only the healthiest people. Under Obamacare, some large insurers are avoiding most of the insurance exchanges and are focused instead on offering plans to employers or serving as benefit administrators. Another method is restricting networks to avoid facilities that care for the sickest or by reducing the number of providers in a plan. And the third will be to pull out of geographic areas if they prove to be money-losers.

Insurers are not allowed to charge more for people with pre-existing conditions, but they are allowed to charge more for smokers, up to three times more based on age and more in geographic areas where health care costs are high or the population has greater medical needs. As it is with markets, health insurers will sell their products where they can make the most profit.

We will watch and see what insurers do over the coming years. We can expect them to justify charging higher premiums. In the past, they have reduced premiums temporarily to lure people in or avoid government intervention and then raised them later. We can expect them to push for lower levels of coverage or fewer required services. And we can expect that HHS and state insurance commissioners will be compliant, as they have been.

Towards Greater Privatization

Another myth used to lure progressives to support Obamacare is to say that it is a step in the right direction, meaning towards universal coverage. But Obamacare is actually a step towards greater privatization of our entire health system. It lacks provisions to stop the consolidation of ownership of health facilities by large for-profit entities, something that large insurers are doing more. It cuts funding to safety-net hospitals. And under Obamacare, public insurances are becoming more privatized.

Medicaid is state health insurance for people with low incomes. More states are moving their Medicaid patients into managed care organizations (MCOs). MCOS, such as Amerigroup which was bought by WellPoint after Obamacare passed, are for-profit administrators that compete with each other to cover the healthiest patients and are incentivized to cut care. Currently 75 percent of Medicaid patients are in MCOs and that number is expected to increase further under Obamacare.

Medicare is public insurance for people 65 years of age and older and who are disabled. One of the early goals of Obamacare was to cut back on Medicare Advantage plans, which are essentially private insurance plans paid for through Medicare. The Advantage plans primarily insure the healthiest seniors and cost more than traditional Medicare. Instead of cutting back, the Obama administration boosted payment to the Advantage plans. And enrollment in the plans has increased by 30 percent since 2010.

There is good reason to suspect that Medicare may be completely privatized in the coming years by being turned into a defined premium plan rather than the defined benefit plan that it is now. This means that seniors would receive a certain amount of money each year to purchase private insurance instead of knowing each year that they would have Medicare with its required benefits. This is the plan being pushed by Republican Congressman Paul Ryan. The idea came out of the National Commission for Fiscal Responsibility and Reform created by President Obama in 2010.

Not the Reform We Need

Looking at Obamacare from a distance, it is difficult to see it as anything more than a law designed by and for the health industries that profit from the current health system. The regulations can be circumvented or waived. The insurers can continue to find innovative ways to avoid the sick and not pay for care. And overall the system is becoming more privatized, which is the opposite direction from the real solution, Medicare for all.

Medicare for all, also called single-payer, would create a health system that treats health care as a public good rather than as a commodity. The system would be paid for up front through progressive taxation. There would be no premiums or out of pocket costs, so while taxes would be higher, people would be able to get the health care they need rather than being limited to what they could afford.

In a Medicare-for-all system, every person in the United States would be in the system from birth to death and it would cover all necessary care. It would be much simpler to use because there would be one set of rules and all health professionals would be included. People would have more choices of where to go for care and would be able to change jobs or travel freely without worrying about not being covered. Barriers to receiving care would be removed. There would be no more worries about whether a person qualifies for this or that because everyone would have access to the same standard of care.

Current health care spending in the United States is more than adequate to pay for a Medicare-for-all system. This has been proven time and again in studies at the state and national levels. In fact, a Medicare-for-all system would allow better management of our health care dollars and the ability to negotiate for fair prices for medications and services. And Medicare for all would have a broader impact on our public policy because the bottom line would be public health rather than profits. Clean air and water, access to healthy food and fewer toxins in consumer products would reduce health care spending rather than padding the pockets of the health industry.

The work for Medicare for all continues. There is a bill, HR 676, in the House of Representatives that is collecting co-sponsors and which outlines a Medicare-for-all plan. Single-payer groups throughout the country continue to press forward. And Physicians for a National Health Program will continue to document the problems with our health system and educate about Medicare for all. It’s crucial that single-payer supporters continue to articulate what a real solution to our health care crisis would look like and not silence themselves out of a misguided desire to shield Obama and the Democrats and the poor decisions they have made from attacks by Republican demagogues.

We cannot cross our fingers and hope that Obamacare “works.” That attitude means hundreds of thousands will suffer and die from preventable causes and millions of families each year will continue to go bankrupt because of medical illness and costs. The moral imperative is to realize that health care never has been and never will be a commodity and to stop treating it as such by taking it out of the marketplace altogether.

Margaret Flowers is a pediatrician and co-chair of the Maryland chapter of Physicians for a National Health Plan. She serves on the board of Healthcare-Now and of the Maryland Health Care is a Human Right campaign. She is also an editor at

RELATED COVERAGE from Issue 191:

A Poor Millennial's Health Care Dilemma, by R.K. Owen

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