The Myth Of Private Health Care Efficiency
By Justin Gardner | Related entries in Health CareBill Moyers recently sat down with Wendell Potter, an industry insider who worked for CIGNA, one of the top health insurance companies in the US, for the past 15 years.
Now Potter has now turned into health reform advocate, and the result is a must watch interview. Because not only does it uncover what many of us already suspected (people denied care unjustly), it also puts the lie to the myth that private industry is more efficient.
In fact, it’s nearly 700% less efficient by some measures.
On efficiency…
BILL MOYERS: Why is public insurance, a public option, so fiercely opposed by the industry?WENDELL POTTER: The industry doesn’t want to have any competitor. In fact, over the course of the last few years, has been shrinking the number of competitors through a lot of acquisitions and mergers. So first of all, they don’t want any more competition period. They certainly don’t want it from a government plan that might be operating more efficiently than they are, that they operate. The Medicare program that we have here is a government-run program that has administrative expenses that are like three percent or so.
BILL MOYERS: Compared to the industry’s–
WENDELL POTTER: They spend about 20 cents of every premium dollar on overhead, which is administrative expense or profit. So they don’t want to compete against a more efficient competitor.
On profits above people…
BILL MOYERS: You told Congress that the industry has hijacked our health care system and turned it into a giant ATM for Wall Street. You said, “I saw how they confuse their customers and dump the sick, all so they can satisfy their Wall Street investors.” How do they satisfy their Wall Street investors?WENDELL POTTER: Well, there’s a measure of profitability that investors look to, and it’s called a medical loss ratio. And it’s unique to the health insurance industry. And by medical loss ratio, I mean that it’s a measure that tells investors or anyone else how much of a premium dollar is used by the insurance company to actually pay medical claims. And that has been shrinking, over the years, since the industry’s been dominated by, or become dominated by for-profit insurance companies. Back in the early ’90s, or back during the time that the Clinton plan was being debated, 95 cents out of every dollar was sent, you know, on average was used by the insurance companies to pay claims. Last year, it was down to just slightly above 80 percent.
On a free market system…
BILL MOYERS: So how can you object? How can we object when an insurance company wants to increase its profits? That’s a serious question. I mean, it sounds like a set-up but it’s a serious question.WENDELL POTTER: It’s a very serious question. And I think that people who are strong advocates of our health care system remaining as it is, very much a free market health care system, fail to realize that we’re really talking about human beings here. And it doesn’t work as well as they would like it to. Yeah, there’s nothing wrong. And I’m a capitalist as well. I think it’s a wonderful thing that companies can make a profit. But when you do it in such a way that you are creating a situation in which these companies are adding to the number of people who are uninsured and creating a problem of the underinsured then that’s when we have a problem with it, or at least I do.
Folks, why do you think your insurance premiums keep going up year after year? Because more competition is making it more affordable? Don’t swallow the lie that big corporations can continue to merge and offer better, cheaper services. It’s false and I’m still baffled as to why people believe it as they continue to shell out more every year.
Obviously the health care reform issue is a sobering, multi-faceted problem and I don’t wish to demonize the health care industry because they’ve done a lot of wonderful things for people too. But they’ve also done a lot of really inhumane things that have resulted in a free market version of rationing and you can point to case after case after case of people dying because they couldn’t afford the care due to a pre-existing condition that had nothing to do with the treatment they needed. And that should be enough for us to seriously consider a publicly run option that puts pressure on them to reform their system so all will be covered, regardless of their past medical history.
I welcome your thoughts.
This entry was posted on Monday, August 3rd, 2009 and is filed under Health Care. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
August 3rd, 2009 at 4:17 pm
Um, why would I believe Wendell Potter just on his own say-so, when he’s making the rounds in his new job as PR flack for a decidedly socialist and leftist anti-corporatist activist/advocacy group? I see you left out that part of his current resume. One would think being a PR flack for the Center for Media and Democracy [CMD] is at least as relevant as his time as a PR flack for CIGNA (and Humana, and a Democratic governor).
Of course, Moyers himself is the long-time president of the similarly named-and-aimed leftist Schumann Center for Media and Democracy, which is one of CMD’s biggest funders. Did Moyers mention that tiny detail? One would think such disclosure was ethically mandatory in an unbiased journalist.
Come to think of it, are we also supposed to not notice that Moyers is a former trustee of George Soros’s Open Society Institute? SHouldn’t that affect his (ahem) credibility?
It always pays to doublecheck on sources making claims, as it can be SO enlightening. Did Potter offer anything other than his own word as support of his claims? When paid partisan PR flacks are touted as independent experts, my level of required proof rises commensurately. Though I’d certainly agree that we shouuld watch the medical loss ratios of insureres.
August 3rd, 2009 at 4:30 pm
Tully:
Is there even a line between PR/Media/politics anymore?
To paraphrase Warhol, in the future everyone will flack for 15 minutes.
Now pardon me, I must get back to the relatively pristine world of writing books for impressionable minds. Books which incidentally are available at all major bookstores and Amazon.com and about which Stephen King said, “I love these books.”
August 3rd, 2009 at 6:58 pm
Tully,
You got a point in there other than you don’t like the messenger?
Why don’t you actually address the points?
The US spends more than any other western nation on healthcare, with no appreciable gain in results.
Now, if you were to make an argument that to compare inefficiency, it is not fair to include “profit” as efficiency you would at least be making a point.
But you’re argument is like a second-grader who raises his hand after another kid gets a math question wrong on chalkboard and says, “Teacher, teacher, 2+2 doesn’t equal 5 because Billy is a poop-head!”
If all you have in your arsenal is “Billy is poop-head” kindly go out to recess and leave the important talk to the grownups.
The truth is healthcare in the US is incredibly inefficient, which is clear when you consider that medicare gets far more for the dollar with similar outcomes than the private insurer–and that doesn’t even take into account that private insurers routinely divest themselves of the most costly patients by dropping them.
There is so much wrong with the private healthcare system it’s mind-numbing.
The rationing argument is laughable–the entire industry is based on not providing healthcare to ensure greater profits–providing healthcare, not profits, is what the industry is supposed to be about. People receive bonuses for rejecting claims. That is crazy.
Meanwhile, the US is at such a huge economic disadvantage when it comes to a workforce because other nations’ businesses don’t have to provide healthcare for workers.
It makes so much sense to have not only a public option, but to have a single payer system one has to wonder why anyone is opposed to it.
It is simply irrational to continue to support a system that costs more and returns less of an return than what other nations provide.
August 3rd, 2009 at 7:15 pm
I call shenanigans! It is so funny to me how these leftist pundits who, for decades, have constantly called for a single-payer system with absolutely no competition, all-of-a-sudden have done a 180 and demand more market competition in health care. What a disingenuous canard.
I’m waiting to see Moyers and Potter demand that not a single dime of taxpayer money be used to subsidize the premiums of constituants to the public option, or to pay out any expenditures; and ask that the government guarantee that if the public plan loses money or has to declare bankruptcy, then no bailouts. Otherwise, its not free-market competition, its socialism.
August 3rd, 2009 at 9:01 pm
The problem I have with the “we should move to a single payer system because it’s more efficient and not burdened with a profit motive” is that current experience with the government doesn’t exactly give me warm fuzzies about the prospect of efficiency…and that the “efficiency gains” don’t really address the problems of the costliness of the system.
I realize that many critics of reform love to point to DMV’s as an example of government inefficiency. I have a better example — the horrors associated with applying for disability benefits through Social Security. If one is young and your disability is not obvious in a missing-limb kind of way, it can take years to have a claim approved. All too frequently, getting a claim approved requires the involvement of an attorney (and a sacrifice of up to 25% of the initial lump-sum benefit) or a politician.
I wouldn’t expect a single-payer system to be that bad…but the experience doesn’t inspire optimism.
In the quotes above, Wendell Potter mentions that 80¢ on the health insurance dollar goes to pay claims. Presumably the balance is profit and insurer overhead. Perhaps in an ideal world, maybe 10¢ can be shaved off by going to a single-payer system.
I hate to point this out…but while that’s significant savings, it’s also savings that would be eaten up in 2-3 years by medical cost inflation. Simply shifting to a single-payer system, even if it works perfectly, only postpones the real problem — that the level of health care Americans seem to think is a “right” is incredibly expensive as it’s being delivered today.
Maybe the “public option” or even a single-payer system is an appropriate element in a reformed health care system. However, it should only be a part of a solution, rather than the holy grail single-payer proponents make it out to be.
August 3rd, 2009 at 9:39 pm
Mike:
Medicare seems to be fairly well run. So is the Marine Corps. And the IRS, the sons of b-tches, had paperwork for a corporation I formed in my mailbox before I could drive home from the lawyer’s office.
August 3rd, 2009 at 11:22 pm
I realize that many critics of reform love to point to DMV’s as an example of government inefficiency. I have a better example — the horrors associated with applying for disability benefits through Social Security.
That’s not the only example of government spending you could use. Public schools, the military, roads,the VA, MediCaid, and Social Security retirement are all much better than most private health insurance companies.
I hate to point this out…but while that’s significant savings, it’s also savings that would be eaten up in 2-3 years by medical cost inflation. Simply shifting to a single-payer system, even if it works perfectly, only postpones the real problem — that the level of health care Americans seem to think is a “right†is incredibly expensive as it’s being delivered today.
Depending on the year the US health systems cost eats that savings in 8 months or less.
The thing you’ve got to keep in mind is that in countries with universal care that doesn’t happen. Even in European countries with so many old people that their population is falling. And their outcomes are no worse than ours overall.
Which means that US health cost increases are probably totally unjustified, an a result of some inefficiency in the market.
The trouble is figuring out who started the price increase race. Activists blame pharma, which blames research, Doctors blame lawyers, who blame malpractice insurance companies, insurance companies blame doctors for useless procedures, doctors blame insurers for high administrative costs…
One nice thing about single-payer is that it would simplify that mess.
August 4th, 2009 at 10:32 am
1. I think its because America wants what it wants, and a a result demand stays greater than supply. Every new supply creates even more demand.
And I think its because America gets most of the newest and best treatment first, and because the cost of R & D is built in.
2. I agree that the healthcare system is in many respects a poor semblance of a “free” market. In fact it often offers perverse incentives. What it is as a “market” is a very highly regulated market that is very complicated and so the regulation is very uneven. People may come out as winners and losers on the basis of random events, which is the antithesis of insurance.
3. Efficiencies of scale are IMO a very reasonable thing to believe in. This idea really shouldn’t be conflated with any overall hypothesis about how healthcare is or is not working. Prices continue to rise because of one big factor: the growth in demand for healthcare services, which Americans consume like locusts, especially as they age. Efficiencies of scale are simply not a powerful enough force to completely counteract our voracious consumption of healthcare services.
To control costs will have to decrease demand, or find a reasonable (rational?) way to ration. That’s the sad and unavoidable news. So few want to swallow it, but it’s going to get rammed down our throats if we don’t.
August 4th, 2009 at 12:08 pm
You can’t compare efficiencies between private insurance and single-payer systems based on cost to the consumer alone. You need to include rationing and waiting times, as well as overall quality.
August 4th, 2009 at 1:56 pm
To point out the obvious, gerryf, even if logic is a bridge too far for you, when one offers the logical fallacy of an argument from authority without supporting evidence of the claims made by said “authority” (as Justin did) there are two primary checks to make in evaluating the claims made. One is as to the bias and basis of the purported authority, and the other is as to the supporting evidence offered for the claims made.
Obviously, the interview failed test one. There is demonstrable unrevealed bias and conflicts of interest in both the interviewer and interviewee that should have been revealed under ANY standard of professional ethics. Also obviously, no supporting evidence was offered for the claims, just the word of the purported authority, so it also fails test two.
Without a verifiable and testable basis for the factual claims made, any argument or claim proceeding from and relying on same is non-credible. It is up to the person offering the argument to provide that evidence — the burden of proof is on the claimant, which would be Potter. Given the close (and unethically concealed) ideological/organizational/activist association between Moyer and Potter, the burden also falls on Moyer. With prejudice.
And yes, when claimants are being demonstrably unethical it’s quite legitimate to call them out on it, and that’s not ad hominem. It’s a valid observation on the tactics being employed amd the non-credibility of the claims given the fashion in which they are being made.
August 4th, 2009 at 2:25 pm
There you go speaking inconvenient truths again, Jimmy. Shame on you!
August 27th, 2009 at 11:36 pm
In other countries, Germany for instance, health insurance providers are not allowed to make a profit. They make money by bundling health coverage with for-profit home/auto/life policies. Since the basic laws of statistics govern the way that risk pools work, it’s entirely reasonable to prohibit profit taking. Unlike other endeavors, there’s simply no way to wring greater efficiencies from insurance. Want to make money? Either deny coverage or inflate premiums (probably both). Even the most ‘innovative’ profit-driven entrepreneur can’t alter the basic math here.
Every other wealthy country with a multiple payer system has realized this, and they demand very high levels of efficiency (say, 95%) from their providers. If our insurance is only 80% efficient, that’s like simply burning 15% of every health care dollar spent in the front yard. What a waste…