In this short essay I want to examine what is really behind the Republicans’ “fix” of Medicare, what its proponents euphemistically call ‘premium enhancement’ and what is more commonly referred to as a voucher program. The idea is that instead of a government guaranteed entitlement to 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 is the plan being put forward by the Romney/Ryan ticket. So let’s look first at the politics of the debate surrounding Vouchercare.
The Democrats’ rejoinder to the voucher program is to cite studies which purport to show that with such a plan in place, seniors would eventually be paying $6,400 a year more for health care 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 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 five years from now, or ten or fifteen. 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 ten or twenty years from now. Absent this information it is impossible to say whether, and if so by how much, the voucher will fall short of a senior’s future medical costs.
Within this black hole of information it is easy for the proponents of a voucher program to simply deny the Democrats’ criticisms, for no one can know if either party is correct in its assessment. What can be known, and known with certainty, is what a voucher program really means, and what it means to do. That the Democrats are not letting on amounts to more than a tactical blunder; it is in keeping with the corporatist policies embraced by the Democratic party since the Clinton administration. To see this 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 a Medicare recipient, who in turn relays it to an insurance company as part of his or her insurance premium. The insurance company then pays the provider, but not before extracting a profit, some of which is paid to its shareholders in the form of dividends, as well as paying 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 to 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 is at the heart of the Republicans’ proposal. It is, to put the matter bluntly, out and out theft. In a moment we’ll see why.
To add insult to injury all this is being proposed under the guise of consumer choice. One hears it argued by Republicans that the consumer should have the choice of not having a government bureaucrat standing between her and her doctor. Forgetting for a moment the banality of this argument, and giving it provisional credence, let’s take the bull by the horns and ask: Which would you rather have standing between you and your doctor, a government bureaucrat or an insurance company bureaucrat? Let’s see.
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. A steel company sells steel, 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. An insurance policy is a contract obligating the company to pay for something that its customer will someday need, viz. health care. But here’s the rub: 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, viz. health care. Every dollar that an insurance company pays out for medical care is a dollar lost to its bottom line.
If you understand this you understand 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 twenty percent gross profit margin across all industries, a dollar of auto sales brings in twenty cents profit to the auto company; and a dollar of steel sales brings in twenty 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 ever filed an insurance claim knows this only too well.
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. In this and this alone lies the power of bureaucratic agencies and their functionaries. 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 do you think I’ll choose? Which would you choose?
That in a nutshell is the politics of the situation. But there is a moral dimension here as well. Is it a social virtue for anyone to profit from someone’s illness? Or is the profiting from illness a corruption of the practice of medicine? And let’s be clear what these questions mean. It is not a suggestion that physicians not be well paid for their services. They should. In order to acquire the skills necessary to diagnose and treat illness a man or women must devote the better part of his or her young adulthood to the arduous study of medicine. Such devotion entails numerous sacrifices: the willingness to forgo years of remunerative work; in many cases putting off marriage and the raising of a family; long nights hitting the books and endless hours of internship and specialized residency. These sacrifices amount to a personal commitment to the wellness of others and to the physical well being of society as a whole. It is only just that society recognizes that devotion by imparting to those devotees a token of its esteem, which, in a market society, is the opportunity to make a lot of money.
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 a doctor is her just remuneration for her labor, no less than the money made by a steel worker is just remuneration for his 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; they did not spend years in study necessary to acquire diagnostic skills; they did not devote their lives to the treatment of illness. In fact they have nothing whatever to do with the practice of medicine. What they are are human equivalents of net mongers, those fish who hang around the nets of fishermen and take their pound of flesh from the fish caught in the nets.
But let’s return to insurance companies. 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 veritable corruption of the very essence of shared risk. Put simply, the imperative of profit-maximization makes a mockery of the very notion of insurance.
Once again let’s be clear. No one is suggesting that the people who carry out the administrative tasks of such a collective project not be compensated for their work. Of course they should. What is being suggested is that no one profits from their work. But in our current health care system a tiny few profit very handsomely from the work of many. And keep in mind that every dollar of profit that an insurance company takes in is a dollar that is not being spent on medical care and the disbursement of its costs. The insurance profiteers are the net mongers of the insurance system. They contribute nothing to its administration; they take their pound of flesh by virtue of the stranglehold they have on our medical economy.
Now back to those insurance bureaucrats whose function it is, first and foremost, to insure not the beneficiaries who are its policyholders, but the profits of the insurance corporations for which they work. And the way they do this is by denying as many claims as they can. Not only is this a patent travesty of the health care system, but the costs of their efforts deal a crippling blow to the ends they allegedly serve. It is estimated that thirty-eight cents of every dollar of premium collected by a private health insurance company is expended 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 simply a waste. The second is an unmitigated evil. Compare this to the eight percent of operating costs expended by Medicare. By a rough back-of-the-napkin calculation I estimate that fully fifty percent of an insurance company’s premiums goes to profits and to the costs of 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 is a writer living in northern New Mexico. He can be reached at: email@example.com