What is really behind the Republicans’ “fix” of Medicare, which its proponents euphemistically call “premium enhancement” and what is more commonly referred to as a voucher program. The idea is that instead of government guaranteed medical care, a senior citizen would be given a monthly stipend, or voucher, with which to purchase private health insurance on the open market. This was the plan put forward by Romney/Ryan.
The Democrats’ rejoinder to the voucher program was to cite studies purporting to show that, with such a plan in place, seniors would eventually be paying $6,400 a year more for healthcare than they would under the present Medicare system. How this number was arrived at—indeed, that any such number can be arrived at—is a mystery to me, since so many of the variables are not, or can’t be, known. For one thing, the dollar amount of the voucher is not specified. For another, no one can predict what the cost of medical insurance will be years from now. Will the size of the voucher be scaled to the rising costs of insurance premiums? No one is saying. Nor is anyone saying what the terms and conditions of health insurance will be 10 or 20 years from now.
Within this black hole of information, it is easy for proponents of a voucher program to deny the Democrats’ criticisms, for no one can know if either party is correct in its assessment. What can be known is that a voucher program is in keeping with the corporatist policies embraced by the Democratic Party since the Clinton administration. We need only follow the money.
Under the current Medicare system payroll taxes are collected by the government, which then disburses funds directly to a senior’s medical provider. Under a voucher system, the funds collected from payroll taxes would be sent to Medicare recipients who, in turn, would relay it to an insurance company as part of their insurance premium. The insurance company would then pay the provider, after extracting a profit, some of which would be paid to its shareholders in the form of dividends, as well as for operating expenses, including six and seven figure salaries to its top management and senior executives. So the flow of money is redirected from:
Wages > Medicare Trust Fund > Health Care Providers >
Wages > Medicare Trust Fund > Medicare Recipients >
Insurance Companies > Health Care Providers
Such a rerouting of tax dollars to medical providers via insurance companies is nothing less than a massive redistribution of wealth from workers’ wages to insurance multinationals. This is what’s at the heart of the Republicans’ proposal.
To add insult to injury, all this is being proposed under the guise of consumer choice. Republicans argue that consumers should have the choice of not having a government bureaucrat standing between them and their doctor. Forgetting for a moment the banality of this argument, let’s ask: Which would you rather have between you and your doctor, a government or an insurance company bureaucrat?
The insurance industry is a unique enterprise. Unlike any other industry, the product that an insurance company sells to an end-user is not something that an end-user actually uses. An automobile company sells cars, something its customers need and use. But a health insurance company does not sell health care—something its customers need and use—it sells an insurance policy, a contract obligating the company to pay for something that its customer will someday need health care. But an automobile company makes money only if an end-user buys its cars. A steel company makes money only if an end-user buys its steel. But an insurance company makes money by denying access to the service it purportedly is selling health care. Every dollar that an insurance company pays out for medical care is a dollar lost to its bottom line.
This means that a dollar of a denied claim is worth more to an insurance company than a dollar of sales is worth to an auto company or a steel company. Assuming, for the sake of argument, a 20 percent gross profit margin across all industries, a dollar of auto sales brings in 20 cents profit to the auto company and a dollar of steel sales brings in 20 cents profit to the steel company. But every dollar of a denied claim is a dollar more of profit for the insurance company. There is, thus, an egregious conflict of interest between a health insurance company and its customers. And the job of that insurance bureaucrat standing between the insured and the company’s shareholders is to wring this conflict for all it’s worth. Anyone who has filed an insurance claim knows this.
So what about the government bureaucrat standing between an insured and her doctor? And here we can take the critics of Big Government at their word: government bureaucracies have a built-in incentive to spend all the money appropriated to them—and more. The more money they spend, the more money they receive from congressional appropriations committees. The more money they receive, the more they grow. The more they grow the higher they sit in the bureaucratic hierarchy. There is no constraint on spending that one finds in profit-driven enterprises. So if my choice in having my medical claim approved, my doctor paid, and my health needs met is between an insurance bureaucrat whose incentive is to hoard its company’s capital and a government bureaucrat whose incentive is to allocate its agency’s appropriations, which would you choose?
It is not that physicians shouldn’t be well paid for their services.They should. In order to acquire the skills necessary to diagnose and treat illness they must devote the better part of their young adulthood to the arduous study of medicine.
But the money paid to a doctor is not profit. Let’s not confuse a doctor making a lot of money with an investor making a profit. The money made by doctors is remuneration for their labor, no less than the money made by steel workers is remuneration for their labor. The profit that accrues to an investor is money accrued by the labor of others. Case in point, the profit of an HMO comes from the market value generated by the physicians who work for the HMO. The investors, i.e., the owners of the HMO, contribute nothing to the dispensation of medical care. These owners are its shareholders, in most cases, hedge funds and the wealthy individuals who invest in these funds. They did not go to medical school and, in fact, have nothing to do with the practice of medicine.
What is the essence of insurance? It is the collective protection from fortuitous calamity. It is a communal project whereby the risk to anyone is mitigated by the contributions of everyone. It is a cooperative effort whereby each member of a community contributes a little to ensure that no member bears an excessive burden alone. In this, the concept of insurance is a paradigm case of the virtues of collective security. The intrusion of market forces into such a communal project is a corruption of the essence of shared risk. The imperative of profit-maximization makes a mockery of the very notion of insurance.
In our health care system, a tiny few profit from the work of many. Every dollar of profit that an insurance company takes in is a dollar that is not being spent on medical care. Insurance profiteers contribute nothing to its administration.
It is estimated that 38 cents of every dollar of premium collected by a private health insurance company is spent on operating costs. Some of this is paid to brokers and agents in the form of commissions. Most is used to fund a bureaucracy whose primary function is to form a wall between a policyholder’s claim and the insurance company’s cash. The first is a waste. The second is an unmitigated evil. Compare this to the 8 percent of operating costs expended by Medicare. By a rough calculation, I estimate that 50 percent of an insurance company’s premiums goes to profits and to padding those profits by the denial of claims. To paraphrase Ronald Reagan, insurance companies are not the solution to our health care problems, they are the problem.
F. Ivan Goldberg holds a doctorate in philosophy from Brandeis University and has taught philosophy at MIT, San Jose State University, and the University of California at Santa Cruz. Subsequent to that he was for many years the senior vice president and portfolio manager of a New York investment firm. Between his career as a university professor and that of an executive at a securities firm he herded cattle on a ranch in the Montana Rockies. Currently, he is an independent writer living in northern New Mexico.