Scuttlebutt: Health Care and Medicare
I am one of the fortunate Americans who are covered by Medicare. Reaching the age of eligibility feels like hitting the finish line of a marathon. After years of trying to navigate the intentionally confusing pitches and ever-rising costs of private health insurance, it felt like reaching a sanctuary where costs are reasonably constant and coverage is guaranteed. It is nice to think my insurer's first response to any illness I may have will not be trying to figure out how to deny me benefits.
So some Democrats, including, of course, Bernie Sanders want to see all Americans be eligible for Medicare. Opponents of this idea ask where the money to pay for this would come from. This is not a difficult question to answer if one is able to envision a new paradigm for health insurance. The money would largely come from the people who have it: the insurance industry.
We could start with the executives. According to Health Plan Week, a trade publication, the CEOs of the 11 largest for-profit companies were rewarded with compensation packages last year totaling more than $125 million. According to Modern Healthcare , CEO of Aetna, Mark Bertolini’s total compensation of $30.7 million in 2013 was 131 percent higher than in 2012. Bertolini made $41.7 million in 2016. This is partly due to Aetna’s revenue nearly doubling to $63.1 billion last year from $34.2 billion in 2010, when Mark Bertolini took over as CEO. Of course, revenue increased largely because of the government requirement in the Affordable Care Act to buy insurance. Bertolini’s pay increased in 2016 despite several stumbles during the year.
One hopes that Congress would pay any attention to the outsized paychecks those CEOs are demanding — and getting — while requiring us to be their customers. Even the average executive at an insurance company makes over half a million a year. The average American income is one-tenth of that. Do you think these executives work ten times harder than the average American?
How about overhead? This is not a simple matter to quantify. There are several ways to look at overhead (and its value), so there is no precise agreed upon figure, but estimates range from 12% to 20% depending on which part of the health insurance business you look at.
Sanders said on NBC’s Meet the Press on Sept. 17, "Private insurance companies in this country spend between 12 and 18 percent on administration costs. The cost of administering the Medicare program, a very popular program that works well for our seniors, is 2 percent. We can save approximately $500 billion a year just in administration costs."
Sanders cited an article from the April 2017 Annals of Internal Medicine by Steffie Woolhandler and David U. Himmelstein who determined average insurers’ overhead costs are about 12%, thus creating $504 billion in savings from converting to a single-payer system. But the article’s authors admitted that "any such estimate is imprecise" and cited other research placing the number closer to $383 billion. Still, not a small number.
The Center for Economic and Policy Research reports that in recent years, health insurance companies have typically spent more than 12 percent of their budgets on overhead, which is over a third higher than the rate from 1970. But those are averages looking across all health care markets. When the Congressional Budget Office broke down costs for individual markets, they put administrative costs in the non-group market at 20 percent. Federal caps on administrative costs reflect this range. Group market insurers have a 15 percent cap and individual market insurers have a 20 percent cap. If exceeded, insurers have to pay a rebate to policyholders under the Affordable Care Act. Oh, no!
Why would overhead be so high? One possible answer would be the enormous amount of paperwork created. I just switched to a different drug plan provider. The always-great Vanessa Ignacio Health Insurance office steered me to a cheaper plan. For those who don't already know, Medicare does not pay for everything or even cover everything. You need private, supplemental plans to complete your insurance coverage. After a welcoming letter and two phone calls to assure me that I am covered, I receive a 236 page booklet explaining my policy. The first four pages listed the 62 languages available. Also included was a cover letter, an address page and another page with a “special” offer. Near the end were three blank pages for me to take notes (are they kidding?), followed by a final page with the- get ready- Paperwork Reduction Act Notice. Also included in the mailing was an 18-page payment book and 12 cellophane-wrapped envelopes. I got similar mailings last year with my old provider.
Another aspect contributing to high overhead is the significantly higher marketing costs incurred by insurance companies. Not a day goes by during the enrollment period, during which you can switch plans, without mail solicitations arriving from insurance companies. One big cost that insurance companies bore, that the Affordable Care Act eliminated, was the screening: insurance companies spent large sums vetting insurance applicants to determine if they should be covered, while public programs accept all eligible applicants regardless of their health status. If Republicans had succeeded in repealing Obamacare during the many, many times they tried, we would have returned to that system.
If masses of people turn to some kind of a single-payer system provided by the government or, horror of horrors, we all get medicare, that is going to significantly reduce the earnings for the health insurance companies. That is going to be a bummer for the stockholders who will be the other group “suffering” as a result of government health care. I'm pretty sure the money markets I have my retirement funds in has stock in health insurance companies, but the hit I would take is well worth having a comprehensive and non-profit national health care system.
Finally, there is the taxpayer. Medicare for all would most likely require some kind of small tax increase to support it, but for very few would the tax increase be close to the savings from not paying the health insurance premiums they now pay.
I am constantly reminded of the story of my friend who, while visiting France, injured himself in a fall. An ambulance was called, he was taken to a hospital, treated and released. He was a foreigner with no health insurance and yet no one at the hospital even asked his name. There was no accounting department.