Rights And Wrongs Of Health Care Reform

From Forbes (7/13/09)
By Michael Maiello

So far opposition to the Democrats’ efforts at reforming health care has been almost entirely defensive, and that’s probably a good thing.

Similarly, when George W. Bush wanted to privatize parts of the Social Security system, the Democrats didn’t spend time offering alternatives; they simply beat down Bush’s proposals. The difference between Social Security and health care is that Social Security works well for a whole lot of people. Our current health care system doesn’t. So Republicans won’t be able to block reform because the current system is indefensible.

The way things stand, most people get insurance through their employers or through a trade union that contracts with a private insurance company (like UnitedHealth Group, Aetna or Blue Cross and Blue Shield) or HMOs (like Healthsouth) and that’s how they pay their doctor’s bills. This system has not only left 15% of Americans uninsured, but it also leaves 85% of Americans with no choice but to learn to like what they’ve got. The typical tactic embraced by health care reform opponents is to try to convince the 85% that they’ve got the best of all possible worlds and that the alternatives are worse. That won’t fly this time around.

The only Republican proposal that’s gotten a national airing is one of John McCain’s, from the 2008 campaign. His solution is that people should be given a tax credit and sent into the maws of insurance salesmen with that money to pick a plan for themselves. (Anyone with a stockbroker knows how well that works.) It would be cheaper for businesses and unions, who represent groups of employees, to buy insurance than it is for any individual. But there’s not a tax credit on earth big enough to get gold-plated coverage like that for any single person or family–and it’s doubtful, under this plan, that even basic care is affordable.

Meanwhile, the Healthcare Summit, a small, non-partisan think tank in Las Vegas, has theories to help us establish some common ground. If we expose people to the harsh realities of private health insurance, then we have to mitigate the dangers. A for-profit health insurer wants to sign up healthy people who will pay premiums and not make claims. And then, if a claim is filed, it will decline to cover it. Finally, if the healthy people should become sick, the insurance company will have every incentive to drop their coverage.

So the left and the right should agree both that private insurers should have to accept all comers, regardless of health, and that they can’t drop coverage when people get cancer. These principles provide a strong foundation for a public health care option, since that would provide a safety net for the ill and the yet-to-be diagnosed.

One area where the right has a point and the left is behind is medical malpractice. The Healthcare Summit reports that 10% of the premiums people pay go towards the investigation of malpractice claims–and that the vast majority of those claims are found to be without merit. That’s a lot of money to waste on bickering.

Tort reform that limited excessive jury awards and drawn-out litigation would make sense. The FBI says that another 10% of premiums go to pay fraudulent claims. The Republicans are right when they say everyone would benefit from a reduction in all of this waste.

But, again, a strong public option could be solution to this problem. It’s easy for the government to enact laws and rules to protect the taxpayer from abuse. It’s one thing to bring a lawsuit against a private hospital but quite another to go after an agency of the federal government.

One of the most persuasive Republican arguments against a public health insurance alternative is that it won’t do what Democrats say it will. The public plan would bring a new competitor into the arena, the Dems say, forcing companies like Humana and Cigna to deliver better, cheaper service if they don’t want to die. The Republican response is that the companies already out there are providing all the competition we’ll ever need. Aetna can keep Cigna lean and effective, and vice versa. We already have the best health care that competition can offer.

But that isn’t true. Opposition to the Democrats’ health care reform cannot be a defense of a free market because the market for health care isn’t free. My boss, Steve Forbes, admits as much when he says that part of the problem is that insurance can’t be sold across state lines because of local regulations. But beyond that, there is no market without consumer choice. And there’s no consumer choice so long as the health care options for 85% of the population are being decided by human resources executives who are, in the end, more accountable to the owners and shareholders of their companies than they are to the employees that get coverage.

So here’s the problem–and it’s one that the Republicans see, too. Individuals can’t buy insurance at an affordable price, so they have insurance bought for them and get very little say in the matter. This is mostly fine while people are healthy, but it’s really bad in the worst of times.

The only reasonable defense of the current system I’ve heard is that, because it covers 85% of the nation, it isn’t bad. We shouldn’t drop a system that mostly works for the uninsured 15%.

So don’t–offer a public option, but emphasize the “option” part. It offers individuals choice; I can listen to my HR representative or choose the government plan. It means that Cigna and Aetna have to compete not just for the business of corporate purchasers but also people choosing their own care. And it preserves one thing about the system that does work, that buying group insurance spreads risk and costs around.

The problem with the plan that’s going to come out of Congress is that it probably won’t do that. It will likely offer some public option for those over a certain poverty-line level who are uninsured and leave everyone else just as they are, without more choices.

Insurance companies might one day be subject to regulation that prevents them from rescinding coverage from sick people or denying coverage to people with pre-existing conditions–but they’ll jack up everyone’s rates in response. The problem of the uninsured will be somewhat solved, but the problems of rising costs for stingy service won’t.

The real compromise between the two parties, then, involves a public plan that’s open to anyone who thinks it’s the better deal. If we get less than that, we’ll have this debate again before another decade passes.

Michael Maiello is the editor of Markets and Intelligent Investing at Forbes. An Equal Shot, his weekly column, runs on Mondays.

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