This Is Not The Way To Do Healthcare Reform: Democrats Propose Windfall For Insurance Industry

By L. Randall Wray

It is beginning to look like Congress is going to vote to pass health care legislation on Sunday. According to the NYTimes, Democrats are practically celebrating already. (here)It is interesting, however, that no one is talking about providing benefits to the currently underserved.
Rather, the “good news” is that the bill is supposed to be “the largest deficit reduction of any bill we have adopted in Congress since 1993,” according to House Democratic leader, Rep.Steny H. Hoyer of Maryland. “We are absolutely giddy over the great news,” said the House’s number three Democrat, Rep. James Clyburn of South Carolina. (Of course, deficit hysteria is nothing new. See here)

Who would have thought that health care “reform” would morph into deficit cutting?

As Marshall Auerback and I argue in a new policy brief (here), the proposed legislation is not “reform” and it will not reduce US health care costs. I will not repeat the arguments there. But very briefly, the most significant outcome of this legislation is the windfall gain for insurance companies—who will be able to tap the wages of the huge pool of nearly 50 million Americans who currently do not purchase health insurance. Since many of these are too poor to afford the premiums, the government will kick in hundreds of billions of dollars to line the pockets of health insurers. This legislation has nothing to do with improving health services for the currently underserved—it is all about increasing the insurance sector’s share of the economy.

You might wonder how Democrats can call this a deficit reduction deal? Elementary, dear Watson. They will slash Medicare spending. No wonder—it stands as an alternative to the US’s massively inefficient private insurance system, hence, needs to be downsized in favor of an upsized private system.

There is nothing in the deal that will significantly reduce health care costs. At best, it will simply shift more costs to employers and employees—higher premiums, higher deductibles, higher co-pays, and more exclusions forcing higher out-of-pocket expenses and personal bankruptcies. As we show in our paper, the US’s high health care costs (at 17% of GDP, double or triple the per capita costs in other similarly wealthy nations) are due to three factors. As many commentators have argued (especially those who advocate single-payer) part of the difference is due to the costs of operating a complex payment system that relies on private insurers—resulting in paperwork and overhead costs, plus high profits and executive compensation for insurance executives. This adds about 25% to our health care system costs. Obviously, the proposed legislation is “business as usual”, actually adding more insurance costs to our system.

In addition, Americans spend more for medical supplies and drugs. Since the Democrats ruled out any attempt to constrain Big Pharma through, for example, negotiating lower prices for drugs, there will not be any savings there.

Finally, and most importantly, the biggest contributor to higher US health care costs is our American “lifestyle”: too little exercise, too much bad food, and too much risky behavior (such as smoking). (here) This is why we spend far more on outpatient costs for chronic diseases such as diabetes—40% of healthcare spending and rising rapidly. Ending the subsidies to Big Agriculture that produces the products that make us sick would not only do more to improve US health outcomes than will the proposed legislation, but it would also reduce health care spending—while reducing government spending at the same time. That would be real healthcare reform! But, of course, no one talks about this.

Interestingly, according to the NYTimes article, President Obama likened the legislation to fixing the financial system or passing the economic recovery act. “I knew these things might not be popular, but I was absolutely positive that it was the right thing to do,” he said. That is an apt and scary comparison. This legislation will do as much to “fix” the US healthcare system as the Obama administration has done to “fix” the financial sector and to put the economy on the road to recovery?

Of course, we have not done anything to “fix” the financial sector, or to put Mainstreet on the road to recovery.

I think the President’s comparison is uncannily accurate. So far the main thing his administration has done is to funnel trillions of dollars to the FIRE sector in an attempt to restore money manager capitalism. The current legislation will simply continue that policy—the trillions spent so far to bail-out Wall Street have not been nearly enough. Hence, the effort to funnel billions more to the insurance industry.

But what is the connection between Wall Street and health insurers? As Marshall and I argue in our brief, they are “two peas in a pod” since the deregulation of financial institutions. We threw out the Glass-Steagall Act that separated commercial banking from investment banking and insurance with the Gramm-Leach-Bliley Act of 1999 that let Wall Street form Bank Holding Companies that integrate the full range of “financial services”, that sell toxic waste mortgage securities to your pension funds, that create commodity futures indexes for university endowments to drive up the price of your petrol, and that take bets on the deaths of firms, countries, and your loved ones. (See also here)

Hence, extension of healthcare insurance represents yet another unwelcome intrusion of finance into every part of our economy and our lives. In other words, the “reforms” envisioned would simply complete the financialization of healthcare that is already sucking money and resources into the same black hole that swallowed residential real estate. (here)

Just as the bail-out of Wall Street was sold on the argument that we need to save the big banks so that they will increase lending to Main Street, health care “reform” was initially promoted as a way to improve provision of healthcare to the underserved. What we got instead is a bail-out for insurers and cuts to Medicare. Funny how that happens.

10 responses to “This Is Not The Way To Do Healthcare Reform: Democrats Propose Windfall For Insurance Industry

  1. Great article! It looks like the last sentence of your post is missing a link to deficit hysteria.

  2. "So far the main thing his administration has done is to funnel trillions of dollars to the FIRE sector in an attempt to restore money manager capitalism. The current legislation will simply continue that policy—the trillions spent so far to bail-out Wall Street have not been nearly enough. Hence, the effort to funnel billions more to the insurance industry."More and more I've begun to despair of there being any meaningful public outrage regarding what is and has been happening here. And I've long been convinced that the system that brought it all about is utterly irremediable. The American people naively cast their hopes on what are no more than symbols respecting their interests only later to be failed consistently. The latest illustration, the allegedly reliable, Dennis Kucinich, who yesterday threw aside his pledge never to vote for this legislation. And yet there are his true believers who scratch their heads as did the credulous David Swanson at Counter Punch today, as to how something like this actually could happen: there's an acceptable explanation for Kucinich's perfidy, opines David. That Kucinich, who has spent a lifetime in electoral politics, might be just another liar leeching off the public payroll never seems to dawn on him. After all he's a "progressive", eh? I'll submit to you that not one of the maggots holding congressional office today is worthy of the peoples' trust. More aptly they deserve detention, interrogation and public trial in some enormous football stadium environment. Andrei Vyshinsky

  3. Interesting stuff. What can't be overstated is how deeply our dysfunctional healthcare system is the root of deficit hysteria. Look at how much of federal spending growth is attributable to Medicare/Medicaid. hysteria is a medical condition– but for our healthcare finances, there'd be no hysteria (or deficits). You don't have to be William Hsiao to see that inevitably we'll go to a single payer system, just a question of when (maybe the GOP will realize they can splinter the Democrats with a Nixon Goes to Taiwan move). The entrenched healthcare interests are tough enough, after all, every dollar of "waste" is somebody's profit, but the big hurdle is funding it. Replacing employer-paid insurance and providing universal coverage would probably mean an $800 to $1 trillion increase in annual federal spending (of course, current private healthcare spending would be reduced by a similar amount). That's an awful lot of new taxes for any politician to sign up for.So the question is, what would be the MMT way to finance universal healthcare? I imagine the analysis would be similar to the paper Randy wrote in 1999 about a House bill that'd have funded the Highway Trust Fund with Treasury-created money. This would actually works better now that the Fed can use IOR to manage the FFR instead of having to sell debt.

  4. (Include your own sarcasm where needed please)Our grand health care crisis, what a magnificent thing. We can let barons of monopoly capital control the health of our lives, and hopefully create crisis after crisis, for reasons of profit maximization. I fear one problem with the plan, when people die, no amount of government spending can bring them back to life. Great article R. Wray. Of course we have a health care crisis, because we have a health crisis. Remember it is good capitalism to not solve problems, but convince people that they will be managed by other bad ideas prone to problems. Aw, the miracle of perpetual crisis, supported by fraud, pardoned by power, rinse, wash, and repeat. I'm so glad you and others take time to spread the suppressed truth. Keep on being critical, and try some foul language for flair, I know I can't speak of the current affairs without using it. Thanks again.

  5. The essential Chris Floyd has suggested the "HCR" bill be named "High Corporate Returns".

  6. Yes, thanks. somehow that last sentence got cut from the first paragraph and placed at the end. we are working on fixing it. LRWray

  7. Robert Greenstein of the Center for Budget & Policy Priorities, whose analyses are highly respected endorsed the legislation…. to believe ???

  8. Jiminy, Randy, that is depressing and insightful…and depressing. I have spread the link to the Levy article around. I hope someone is listening (and man am I glad I have dual citizenship!).John

  9. Thanks for all the comments. Agree with most points. Yes I think the most important thing to do is to get Insurance out of the Health Care business. Certainly government needs to take on a bigger role. "Finance" is not a problem for government altho I do recognize all the deficit hysteria. Cost containment can (mostly) be achieved through better health outcomes, which mostly requires better lifestyles. Exactly what form the new healthcare system will take is an open question. I would like to see more public health services–free, open to anyone, paid directly by federal gov't. Beyond that, it has been suggested that the federal gov't simply give every individual an annual account ($5k bucks?) to draw on to pay for healthcare expenses. Buy insurance if you want. Pay out of pocket if you want. If there is any money left at the end of the year, maybe you get to keep a percentage. finally we will need catastrophic coverage–again maybe that should be govt. On despair and Kucinich. I have heard both Michael Moore and Kucinich give plausible explanations for their switch to support the bill in spite of the flaws. In his shoes, I might have done what Kucinich did–mostly for political reasons, which is not to say bad reasons. There are some good things in the bill, and things phase in between now and 2014 and even 2018–so there is a lot of time to make improvements. LRWray

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