24 April 2009

Why retain private insurers at all?

A commenter asked a good question about healthcare market reform -- if the insurers are so inefficient/wicked/etc, why keep them around at all?

Good question, and I direct you over to Physicians for a national heal program for a rousing Amen.  What you are describing is essentially single payer. 

I've expressed it thusly: I'm a supporter of single payer the same way I'm a supported of nuclear disarmament.  Wouldn't be great if all countries got rid of their nukes?   Anyway, back in the real world...

Here are the reasons we can't just "get rid of" all those gosh-darn insurers:

1.  Political realities
There's just no Congressional support for single payer, beyond some less than influential liberal democrats in the House.  Not only are most progressives looking at market-based plans, even those more moderate plans spark fierce opposition from the conservatives, and even some squeamishness from democrats.  Influential business interests are only minimally receptive to the modest plans put forward since their interests are directly threatened by the public plan option.  It would take an absolutely seismic shift of the debate for single payer to even be given serious consideration.

2.  Public acceptance
People are ready for health care market reform, but they are also wary.  Basically, they want something to be done for all those people who are unable to get insurance, but they are mostly satisfied with their own plans and don't want to change.  They may, even dislike their insurance, but the prospect of being forced out of their known coverage to some new unknown national plan is pretty unnerving.  It's difficult to convince people that such radical change isn't very risky, and if there's no public support, the political support will evaporate.

3.  Lob losses
There are literally millions of people working in the private insurance market.  If that industry were legislated out of existence, those jobs would also be lost.  Yes, this is a short-term disruption that would in the long-run be more than made up by the efficiency of single-payer.  Especially in the current job market, tossing a couple of million people onto the unemployment rolls is not a prospect to be taken lightly.  Additionally, there are billions of dollars in shareholder equity in the private insurers that would also be lost, which would be a significant market disruption (and would not incidentally spur furious opposition from the wealthy interest threatened by single payer -- see point number one above).

4.  Monopsony
Though Single Payer has lots of internal efficiencies and ancillary benefits, it has one very big drawback.  Monopoly power allows the only seller of a service to drive up the price as high as possible.  Monopsony power is the inverse, and allows the only purchaser of a service to drive the price as low as possible.  If there was only one health insurance plan with the unilateral power to set prices, provider reimbursement would be rapidly driven down.  Given that Medicare and Medicaid already reimburse at levels that are unsustainably low, the future under single payer looks very bleak for health care providers as an industry.  Competition among multiple insurance agencies to maintain provider networks keeps reimbursement up at reasonable levels.

So much as we would love to be rid of them, the future of health care does require a role for the private insurance companies, both as matters of policy and of politics.


  1. This comment has been removed by a blog administrator.

  2. LAWDhaveMRSA4/25/2009 1:32 AM

    Thanks for your very reasoned and measured response. You maintain your blog very well and have always responded to any question I may pose. Feedback is good. I see your points, I am just a shameless agitator, and cant help but want to see some fatcats hanging by their toenails. The "monumental Shift" in the debate you speak of will surely come some day when enough people are truly destitute, not just the apathetic, and inept, but even the industrious and active folks, but they will probably be taking what they need/want with force....

    but thanks again Shadow, your posts habve enlightened me to quite a few aspects of healthcare reform/political powerplaying I was blissfully unaware of before.

  3. it's nice to see an attempt like this to explain to the layperson why you can't "just get rid of all the insurance companies" as i hear so many people out there advocating. man, i'm with you- i wish they would all just evaporate but i'll see flying pigs before i see that happen!

  4. Very important points. However, real change can only occur when people are strong enough to step up and out the box of traditional thinking. In essence, we are "pack" animals and it will take a pack leader to lead us out into the better of all.

  5. I think the problem with the debate against single payer relies on a fantasy that the health care delivery system is really based on a free market (or that it can be).

    We do not shop around for doctors or hospitals like we do cars.

    We do not understand the costs of health care like looking at a menu in restaurant or getting a quote from a mechanic.

    And, perhaps most importantly, we have different standards. Many people are willing to go with the cheap Chinese-made washer and deal with consequences if it breaks (there's always a warranty). But who's going to use that same decision with open-heart surgery?

  6. Points #1 boils down to, "rich people don't want it." F*** them, they're not the majority, this is supposed to be a democracy, not an oligarchy ruled by the rich.

    Point #2 is largely contradicted by polls and surveys, where when people are asked whether Medicare should be extended to all Americans, they answer "Yes!" more than 53% of the time even when told that their Medicare tax would have to be raised to pay for it. In short, singlepayer gets a larger share of Americans' votes than President Obama did.

    Point #3 basically boils down to a) some unwarranted sense of entitlement on the part of those holding those jobs, a job in America is not a right, and if jobs are eliminated that's just part of how America works, ask the auto workers and steel workers about that, and b) The rich don't want it (see point 1). And BTW, insurance companies don't go away under singlepayer -- there will still be MediGap to cover those things that the national system won't cover.

    Point #4 - is that a flaw, or a feature? Point #4 is how we get the health care savings that will pay for the program and reduce US health care spending to something reasonable and sustainable rather than the current unsustainable 16% of GDP. The notion that the people would allow reimbursements to get unsustainably low, however, seems unlikely especially here in America where everybody feels entitled to the best healthcare in the world -- and we're rich enough as a nation that we can have it. If reimbursements in a singlepayer system get so low that doctors start giving sub-par care, you can bet that pressure on Congress to get the reimbursements back up again will be overwhelming.

    One thing I think you underestimate is just how big an administrative burden the current system puts onto providers. They have literally thousands of insurers that they must handle, each of which has their own codes and own reimbursement standards, and it's sometimes estimated that as much as 40% of providers' budgets is spent handling the paperwork rather than actually providing health care. Some estimates are that this could be reduced by 75% by going to a single payer with one set of codes and one set of reimbursement standards, i.e. there's another 30% savings in healthcare by going to singlepayer. In short, even with #4, doctors may end up coming out ahead in a singlepayer system.

    - BT


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