Health Reform: A Beginner’s Guide

Tuesday, September 08, 2009

To say that Americans are confused by the healthcare debate is an understatement. So, as the nation prepares for the next round, to be kicked off by President Obama’s speech to the Congress, I thought it might be useful to provide a beginner’s guide to healthcare in the United States to make it easier to understand what is being debated…or should be debated. The proposed reforms are filled with details and intricacies, but to get our bearings, let’s just deal with the variety of ways that healthcare can be paid for.

 
Methods for providing healthcare range from complete government control to complete personal responsibility…and liability. Currently, there are five broad categories of healthcare in use in the United States, to which Obama has proposed adding a sixth. Keeping in mind that in practice the methods often overlap, here is a brief rundown on where we stand now.
 
1.      Socialized Medicine
You’d never know it from the TV version of the healthcare debate, but the United States already has an extensive system of socialized medicine. In the U.S., we don’t call it “socialized medicine;” we call it “military healthcare.” In socialized medicine, the government not only pays for each person’s healthcare, it also owns and operates all of the hospitals and pays all of the doctors, nurses and other caregivers. If you are a member of the Army, the Navy, the Air Force, the Marines or the Coast Guard, you and your family are using socialized medicine. The government may outsource certain treatments and procedures to private hospitals, but it is still government doctors who make the basic decisions. Many veterans, particularly those with illnesses or injuries caused or aggravated by military service, are also covered by socialized medicine.
 
To those people who, on television or at town meetings, complain about “socialism,” ask yourself: would you be satisfied if, when an American soldier is wounded by an explosion in Iraq or Afghanistan, he has to prove that his private insurance company covers the specific kind of injury he has received? Better to take him to the nearest government-run hospital so that government doctors and government nurses can take care of him.
 
2.      Government Pays, You Choose (Single-Payer)
In the single-payer system, the government pays for everyone’s healthcare, but you choose your own doctors and you make most of the decisions. Again, in the United States, we already have single-payer systems. They’re known as Medicare and Medicaid. If you are at least 65 years old or you are disabled, the government pays for your healthcare, but, generally speaking, you are free to choose your own doctors and hospitals. A full single-payer system would extend such coverage to Americans who are younger than 65 and not disabled.
 
Polls show that a majority of Americans find the single-payer system appealing, yet it was not even considered in the Congressional debate. A full single-payer system would significantly increase government spending, but it would also dramatically decrease the nation’s overall healthcare spending because the insurance industry charges almost 30% in profits and overhead, whereas the figure for Medicare, as an example, is only 4%.
 
Surprising Fact
Add together the military, veterans, civilian government employees, the disabled and seniors, and federal, state and local governments were already paying 45% of all healthcare costs in the United States before Obama even brought up the subject of health care reform. Private health insurance and private funds pay for 40% of all costs and 15% of money spent on healthcare comes directly from people’s pockets.
 
Where Does the Money Go?
According to the Centers for Disease Control and Prevention, in 2006, the most recent year that has been fully analyzed, Americans spent $1.7 trillion on personal health care, an average of almost $6,000 a person. Of that total, about 37% went to hospitals, 25% to doctors, 12% was spent on drugs, and 7% went to nursing homes. Included in the remaining 18% are medical supplies and “nonphysician medical providers.”
 
3.      Employer-Based Health Insurance
Approximately 60% of Americans with health insurance get it through their employer or the employer of a family member. In most cases, the employer chooses the employee’s insurance plan, but the employee has to pay a portion of the expenses. In a majority of cases, the employer contracts with a Preferred Provider Organization (PPO) and employees must go to designated doctors and hospitals. Many Americans are satisfied with their employer-based healthcare; others not so much. This system has been around for about 75 years.
 
Since 1999, the cost of employer-based health insurance has risen at more than quadruple the rate of wages.
 
4.      Individual Health Insurance
If you are younger than 65, not in the military and do not have an employer with a health program, you are left with the responsibility of paying for your own health insurance. About 9% of Americans fall into this category. Although the plans are similar to employer-sponsored plans, individuals have less leverage than groups, so they tend to pay higher premiums and have higher deductibles.
 
5.      Cash for Care
About 15% of Americans (46 million) do not have health insurance at all and must pay for services out-of-pocket. Although some of these are wealthy people or individualists who prefer to go it on their own, most uninsured Americans are those who simply cannot afford it. The most likely outcome of this year’s push for health reform is that these people will be insured. Not only are President Obama, the Democrats and even many Republicans committed to insuring the uninsured, but some other powerful forces are too. If more than 40 million Americans are added to the rolls of the insured, this represents a huge boom in business for doctors, hospitals and drug companies, none of whom care who pays for all these people, as long as someone does.
 
6.      Public Option
To the existing healthcare systems, President Obama has proposed a new one, which has come to be known as “the public option.” This would create a government-sponsored insurance plan that Americans can sign on to instead of the ones provided by private health insurance companies. Consequently, the public option is a big threat to private insurance companies. If Obama is looking for a political victory rather than a policy victory, the obvious solution would be to drop the public option and agree to a system in which the government pays for low-income Americans to buy health insurance from private companies. If Obama and the Democrats accept this compromise, the private health insurance industry, being guaranteed 40 million new customers, would pour money into an ad campaign to support Obama’s program and that would be the end of that.
 
Personally, I see private health insurance as a parasitic industry. If you are having health problems, the people who help you are doctors, nurses, technicians and other support staff at hospitals and doctors’ offices. Private health insurers have nothing to do with providing healthcare. They are just middlemen who bully their way in between patients and their caregivers, and reap a large profit just because they can. It’s not unlike an organized crime protection racket, but one that’s legal.
 
Having experienced healthcare in other countries, I would vote for the single-payer system as the one most likely to improve care, while cutting national expenses. The one legitimate criticism of single-payer is that it adds to the cost of government. Obama’s position on single-payer is that it would be the best system “if the nation was starting from scratch. But now we need to build on the system we have.” Translated into English, that means “the health insurance industry is too big and too powerful to be dumped.”
-David Wallechinsky
 
Health Industry Passes Financial Sector in Lobbying Race (by David Wallechinsky and Vivian Kim, AllGov)

Comments

Scott Dowling 5 years ago
Mr. Wallechinsky, I appreciate the fact that you have taken the time to outline what you see as the current system. I would disagree that TriCare/Military care is socialized medicine. It is more a staff-model HMO, similar to Kaiser, where the employer happens to be the United States government. Socialized medicine would not involve insurance companies, in my opinion. Given your example, I would say that military care is not socialized medicine as TriCare is currently administered by Aetna, United Healthcare and TriWest Healthcare Alliance to the tune of about $50 billion. Public Option is much like Rockefeller's Standard Oil in that it will compete in the beginning with the ability to undercut pricing of competitors until it secures the entire market over time and becomes the only player in the marketplace, a defacto single-payer. Separately, and what should be known as part of a beginners guide to health reform, is the role of the insurance company. Insurance is a product that transfers the risk of financial burden in the event of a catastrophic loss. It is also a legally binding contract. The terms of the contract are agreed to prior to purchase, and therefore, prior to any loss being incurred. Insurers and insureds alike, should be held accountable for meeting the terms of the agreement. Also, to be included in a beginners guide should be composition of the cost of insurance and the cost of care. The cost of insurance is comprised of paid claims (i.e. charges from doctors, hospitals, pharma, other providers), reserves for incurred but not reported claims (i.e. charges incurred this year that won't be paid until next year or after), taxes on premiums paid to each state, distribution (cost of brokers, mail, websites, other marketing), overhead (personnel, utilities, supplies, postage, other expenses necessary to run a business), profit. The cost of care - docs, hospitals, pharma and other providers make up 80% of the cost of insurance. Taxes, distribution, overhead and profit comprise 20%. I look forward to reading the next in your series on health reform.
SERMO 5 years ago
10,000 US PHYSICIANS HAVE SOMETHING TO SAY AND WE’RE NOT WASTING TIME. Today, as Congress returns to session all 100 Senators will be listening to physicians on SERMO when they deliver the “US Physician’s Appeal” on Capitol Hill. Wasting no time, me and my physician colleagues, armed with the over 10,000 signatures will deliver the Appeal directly to lawmakers, requesting them to include us in national health reform strategy. We are pledging our commitment to true healthcare reform focused on the real sources of spiraling, bureaucratic costs and by doing this on day one of Congress’ return, we are telling them that true healthcare reform will only succeed IF: 1. Tort and malpractice laws are reformed; 2. Billing is streamlined and pricing made transparent, ending systemic support of the AMA owned billing codes (CPT Codes); 3. The insurance industry is reformed; and 4. Payment systems are simplified so they align with the growing need for preventive medicine. US physicians have a unique perspective on the systemic changes needed because we are on the forefront of care every day-in between patients, hospitals, Medicare, Medicaid, and insurance companies. Physicians more than any stakeholder group understand the need for pragmatic reform, not politically negotiated reform and we must be included for solutions to work. With the Appeal, the SERMO community is seeking participation from every member of the US Senate to work with us to bridge a communication gap dominated by the influence of special interest groups; inviting policy makers to engage directly with us by posting questions, discussion topics and blog entries directly into the largest physicians-only online network, in an electronic online forum to discuss ideas and developments in the healthcare reform debate, in real time. Today, in Washington, we’ll formally deliver the “US Physician’s Appeal” for lawmaker’s consideration to all 100 Senator’s offices. If you can’t be there, find us online at www.sermo.com/reform where you can sign the appeal; and then make your opinion known by getting in touch with your Senators by visiting www.senate.gov and click on “Senators”. We have strength in numbers and if the physician voice is loud enough, it will be heard. Dr. Daniel Palestrant is the CEO of SERMO and was recently named one of the country’s “50 Most Powerful Physicians” by Modern Physician, and Business Week has named SERMO as one of the “Top 50 Tech Startups” globally. SERMO is where over 110,000 physicians are leveraging the power of social media to drive better patient care and have their voices heard.
Jorge 5 years ago
Your "summary" is misleading in many ways. The comment on increased cost over time was for the employer provided option, suggesting (though not saying) that it was the model that caused cost to increase four fold. That also gives the impression that insurance companies are gouging the public when you must know that most of these employer provided plans are self insured. As such, the increased cost is a direct reflection of claims experience. The cost actually paid to provders. The insurance company is not profiting unduly as a result. Figures lie and liars figure. Citing your preference to the single payor option was the real reason for this alleged education piece. Jorge

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