WASHINGTON D.C. -- Last week, Senate Majority Leader Harry Reid announced that the final Senate health care bill would contain a public option. A public option would be a federally administered program that would compete with the private plans in the health care choices. However, states that object to the public option have the choice of ‘opting out’ - that is, not allowing their citizens to participate in the public plan.

Reid said that he included the public option in the Senate plan because it was the best way to lower costs for health care overall, by creating competition in the health insurance market.

Maine Senator Olympia Snowe has expressed disappointment with the inclusion of the public option, and Senator Joseph Lieberman of Connecticut, who has accepted nearly half a million dollars from health insurance companies for his latest campaign, indicated that he may go so far as to filibuster the bill when it comes to the floor later next week for debate. On Sunday, he said that ‘no health care reform is better than the public option.’

Opinions are running high on a public option. In Maine, emotional (and in some cases, fear-mongering) commercials are running for and against the public plan, exhorting listeners to contact Maine’s senators to weigh in. Polls have consistently shown that the public is strongly in favor of this option. Nationally, the number fluctuates between 60% and 75% in favor of a public option, while in Maine, the number in favor of a public option is above 70%, a 20 point margin.

But what is a public option, and why, in the face of enormous public support, is a public option having such a hard time passing the Senate?

A public option would be an insurance plan, similar to Medicare (and perhaps even administered by Medicare), which simply would be opened up to people of all ages. But unlike Medicare, which is paid for through insurance premiums taken out of our paychecks throughout our working life so that the premiums in retirement are not onerous, people on the public option would pay for their insurance fully and immediately, as well as their retirement Medicare.

The relative costs of a public vs. private option

The cost would eventually be lower for the Medicare option than it would be for private insurance, for a couple of important reasons. First, Medicare’s overhead is lower. According to the U.S. Census bureau, the cost for administering Medicare is something like 3 - 4% of its total income. This pays for all the people who review claims, send checks, and keep track of premiums. The average overhead cost for ‘non-profit’ insurance companies (such as Blue Cross, in most states. In Maine, Blue Cross/Blue Shield is FOR profit) is over 16%. For-profit insurance companies do even worse, at 26 - 30% of total income being used for overhead.

Why?

First, salaries are an issue. Medicare employees are federal civil servants. Their earnings are based on formulae depending on seniority and other factors. They do not earn wildly large salaries, as many insurance company executives do. In 2007, the average Medicare salary was $65,000, with the top executives earning a little over $215,000.

It’s a different world in the private sector. In 2008, Aetna CEO Ronald Williams received $3.14 million in salary, and stock options that increased his pay packet by $10 million more. In 2007, Williams pulled down even more - $40.2 million of compensation, but $32.8 million of that was the value of exercising stock options granted in previous years.

But nonprofits offer large salaries, too. In 2008, Cleve Killingsworth, CEO of Blue Cross of Massachusetts, earned a total compensation package of $4.8 million, even as Blue Cross’ net income slid 49% in the same year.

Secondly, unlike private or nonprofit insurance, Medicare does not hire large staffs to turn down claims or decline coverage for seniors. It has no underwriting staff to speak of, because any adult who has paid premiums and is of the correct age is entitled to insurance.

Private and nonprofits protect their margins by three basic techniques, all of which are staff-intensive. First, they underwrite policies and simply deny coverage to anyone with a pre-existing condition. The condition doesn’t have to be a serious illness, either. Companies have denied coverage to people who are underweight, breast-fed babies who are overweight, women who have been the victim of domestic violence, and teenagers with hay fever. All in all, 36% of people who apply as individuals to an insurance company are denied coverage. This is exceptionally hard on mom and pop small businesses, who must apply as individuals.

Insurance companies also deny many claims. Another department examines claims and routinely denies individual claims either because the claim does not fit the parameters of what the insurance company will accept for a particular diagnosis, or because the patient was accepted with a ‘pre-existing condition’, and somehow, the claim is associated with that. For instance, a patient who obtains health insurance that excludes hay fever may find that pneumonia or bronchitis isn’t covered either. Patients who have reached their annual or lifetime cap also find their claims denied.

Finally, the insurance companies practice something called rescission. When a patient has been given a diagnosis such as cancer, another team at the insurance company reviews the person’s whole initial health status questionnaire. In most states’ individual insurance market, insurance companies can retroactively cancel the entire policy if any condition was missed – even if the medical condition is unrelated, and even if the person was not aware of the condition at the time. At least one insurance company has been found to evaluate employee performance based in part on the amount of money an employee saved the company through rescissions.

All private and nonprofit insurance companies take the costs of declining coverage, declining claims, and all salaries out of the income from premiums first, before they pay a single claim. At the end of the year, nonprofits are not supposed to have any money left, but for-profits, like Aetna, do. This money, the ‘profit’, belongs to the shareholders of the company. The CEO is expected to make sure that his company turns a profit, which often times means that essential care is not provided to policyholders.

Medicare does not have shareholders, except for the American people.

So the basic cost of providing a public option through Medicare is considerably less than what a for-profit or nonprofit insurance company costs before a single claim is paid. Medicare also pays less on average for most covered expenses than do for-profit or nonprofit insurance companies. The reasoning for the lower payments, according to Medicare, is that they do not routinely challenge claims. A claim submitted to Medicare gets paid, albeit at the government rate. Even so, most hospitals earn a profit on Medicare patients. The only time when Medicare does not cover the costs of hospitalization is for a small minority of patients need much more care and more in-patient services than the average patient.

For-profits and nonprofits challenge claims regularly, and hospitals must pay billing staff to submit claims over and over. This creates higher overhead for the hospitals. So while the private insurers, when they pay, pay more than Medicare, they cost the hospital far more, too.

Moving health care reform through Congress

To fully understand why the public option is facing difficulty, given positive public opinion, we have to first look at the makeup of the Congress, and the differences in each house’s rules.

First, while both the House and Senate have wide margins of Democratic control, the House, which has 259 Democrats to the Republicans’ 176, calls a vote very differently than the Senate does. The call for a vote, or to bring a vote to the floor, is vested in one person, the Speaker. Nancy Pelosi (D-San Francisco) decides what bills will come to the floor and what will be voted on that day.

In the Senate, the procedure is different. The Senate can filibuster a bill so that it can not be called for a vote if the minority has at least 40 votes. Once the vote is called, a simple majority is needed to pass it, however. Getting to 60 votes to overcome a possible filibuster on health care reform may be a bit tricky, so Majority Leader Harry Reid (D-NV) will count votes over and over until he is confident he has the votes necessary before he will bring the measure to the floor.

The other issue in Congress has to do with the fortunes being spent on individuals’ campaigns and on lobby efforts. In July, disclosure of health care industry lobbying came out, and the amounts being spent are astoundingly high. Drugmakers, hospitals and insurers continued to pour millions of dollars into lobbying during the second quarter of this year, hoping to limit the damage to their bottom line as lawmakers and the Obama administration wrangle over health care legislation.

Disclosure reports showed familiar players in health care influence peddling, including $6.2 million in lobbying by the Pharmaceutical Research and Manufacturers of America (PhRMA) and $4 million by the American Medical Association.

Many health companies and associations increased their first-quarter lobbying expenditures, sometimes dramatically. The Blue Cross and Blue Shield Association upped its lobbying expenditures by a full million, to $2.8 million dollars in the second quarter; GlaxoSmithKline's spending jumped from $1.8 million to $2.3 million; Novartis grew from $1.4 million to $1.8 million; and Metlife Group reported $1.7 million, up nearly 50%. Allstate, which spent less than $900,000 on lobbying through March, boosted its spending to more than $1.5 million from April to June.

Others simply kept up the pace, including Johnson & Johnson at $1.6 million and America's Health Insurance Plans and Bayer Corp. both approaching $2 million in spending from April to June. The AMA has spent a total of $8.2 million on lobbying through June of this year.

The amount of spending on lobbying alone is at an all-time high. Campaign contributions to both Democrats and Republicans are also at an all-time high: In 2008, Democrats received $90.7 million, and Republicans were not far behind at $76.6 million.

The influence of all this capital investment cannot be ignored when we look at the rationale for why Senators and Congressmen do not vote the will of the people in their state on this issue. Senator Snowe has raised more than $1.1 million in campaign contributions from the health, insurance, and pharmaceutical industries over the course of her career, while Senator Susan Collins has raised almost $1.6 million in campaign contributions from the health, insurance, and pharmaceutical industries over the course of her career.

The end of private health insurance?

Some of the commercials running on television bemoan the ‘government takeover of our health care’, usually, ironically, spoken by senior citizens who already enjoy government-run health care, which Medicare of course is. The implication is that a public option will lead to a universal, single-payer health care plan, run by the government.

The only way that would happen is if the private insurers do not change their ways and fail to compete with a public option on a level playing ground. And if that does happen, it will be because Americans have made a choice - a choice for an affordable, quality government-run health insurance plan that doesn’t deny them coverage when they need it most. If that happens, the insurance companies, not the public option, will be to blame.

 

 

Comments (0)

Show/hide comments

Show/hide comment form