by James A. Bacon
The cold-blooded killing of United Health CEO Brian Thompson has unleashed a wave of invective against health insurance companies. There is widespread sentiment that insurance companies (along with their much-detested brethren, the pharmaceutical companies) are the root of all evil in American healthcare. They make profits, goes the claim, by denying healthcare to people. They cause immeasurable human suffering. Medicare-for-all, they suggest, is the answer.
The U.S. healthcare system is indubitably a hideous mess. Health insurance companies contribute to that mess, but they are hardly the root cause of it. A single-payer healthcare system is no answer at all, just an invitation to more of the over-regulation, rent-seeking, and dysfunction that plagues the American political system.
The problem starts with the idea that Americans see “healthcare” as an entitlement. Denial of any healthcare procedure, regardless of cost or circumstance, is regarded as an affront to justice. The problem, given peoples’ unquenchable desire for health and longevity, is that demand for healthcare is effectively infinite. New pharmaceuticals and medical procedures have been introduced with great regularity, and they will continue to be. Ozembic. Artificial organs. Gene therapy. CAR-T cell therapy. Transgender therapy. Designer babies. It is a fundamental law of economics regardless of how a healthcare system is structured: Society cannot pay for all the healthcare that everyone wants. Healthcare must be rationed. The only question is how.
In the private sector, access to healthcare is governed by contract. Insurance companies negotiate yearly with employers to cover a suite of services at a certain set of prices. We will cover X but not Y. We will cover annual physicals, for example, but not experimental drug therapies of unproven efficacy. We will pay up to $1 million in chemotherapy, to take another example, but not a dollar more. In effect, employers decide how much they are willing to pay and then outsource to insurance companies the job of devising benefit plans, negotiating with providers, and administering the contract.
How, we must ask, did this state of affairs come about? It originated during World War II as a way for wartime employers to entice workers with a fringe benefit without violating wage-price controls. Healthcare benefits were not taxable — and still aren’t — with the result that most private healthcare insurance is acquired through the workplace. In a more rational world, insurers would contract with consumers directly, just as they do for auto and homeowner insurance. Consumers would decide how much healthcare coverage they were willing to pay for, and insurance companies would be responsive to them, not their employers. Consumers would push back in a way they do not now.
Only half of Americans get employer-based insurance coverage. The rest rely upon Medicare, Medicaid, or Obamacare. Medicare and Medicaid dictate reimbursement — they tell healthcare providers what they will pay. And, amidst ever-escalating costs, they pay less than what it costs to provide the services. To cover their costs and stay in business, hospitals, physicians, and other providers shift costs to the private sector, forcing insurers (and ultimately employers) at the cost of tens of billions of dollars. This massive wealth transfer ratchets up the pressure on private insurers (acting with the acquiescence of employers) to control costs by tightening coverage.
To increase their negotiating clout with insurance companies, providers have consolidated the medical sector. Here in Virginia, “healthcare systems” have acquired hospitals, physician practices, outpatient surgery centers, diagnostic centers, mental health facilities, and everything else they can lay their hands on — sometimes even including insurance companies. They have created monopolies and oligopolies everywhere and exclude competitors by manipulating Virginia’s anticompetitive Certificate of Need regulatory process. When one or two healthcare systems control a market, insurers lose power to negotiate lower rates. So, they control what they can control, which is patients’ access to the system.
There is much else wrong with American healthcare. For instance, there is minimal price transparency, making it impossible for patients to shop around for discretionary procedures. Mandated insurance benefits, imposed here in Virginia by the General Assembly, make it impossible to purchase “bare bones” health insurance policies. It’s the Cadillac health plan or nothing at all. Meanwhile, providers mark up charges to insane levels, discounting steeply to Medicare, Medicaid, and private insurers, and then stick uninsured patients with massive costs that bear no relationship to cost. Health insurers themselves contribute to frustration by piling on layers of bureaucracy, forcing doctors and patients to spend endless hours seeking approvals. The administrative expense is horrendous.
Every national healthcare system rations access somehow. Canada’s national creates long waits for diagnostic and specialized services. The United Kingdom’s leaves thousands of patients lying in gurneys as they wait for hospital rooms. But no one in Canada or the U.K. is shooting government healthcare executives for denying service. If Americans adopt the same resignation toward healthcare rationing as Canadians and Brits, national healthcare might work out about as well for us. If patients don’t stand for the rationing of government-funded service, it won’t,
Without question American health care is a mess. It is the outcome of decades of piecemeal government “reforms” at the state and federal level, creeping regulation, subsidies, cross-subsidies, lobbying, industry consolidation, gaming of the system, and rampant fraud, all in the name of serving an American public that feels entitled to limitless care amidst a scientific boom that is creating an endlessly expanding smorgasbord of options.
Brian Thompson didn’t create this tangled, dysfunctional ball of confusion. Those who relish his demise are profoundly misguided.
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