The Private Health Insurance Industry: Should It Be Eliminated?

Photograph Source: Backbone Campaign – CC BY 2.0

Many Americans assume that the private health insurance industry is an unmovable fixture in the U. S. health care system, but there is a growing need to re-examine that premise. Over recent decades, its performance has been increasingly profit-driven to the point of now becoming unaffordable for patients, their families, employers and taxpayers. The time has come to consider whether or not it should continue as the major way to finance health care in this country.

Despite the industry’s ongoing claims that it serves us well as the backbone of financing U. S. health care, it has abused the public trust and become a barrier to urgently needed health care reform that can assure access to affordable health care of improved quality for all Americans. Here are compelling reasons to replace the industry with a not-for-profit public financing system such as universal coverage under Medicare for All:

+ Employer-sponsored insurance (ESI), its largest component, has become to unreliable and volatile—66 million Americans left or lost their jobs in 2018, with many not regaining insurance in another job. 1

+ Restricts choice in many ways, including narrowing and ever-changing networks of physicians and hospitals; average denial rate for in-network claims across the industry is 18 percent. 2

+ Our current largely for-profit multi-payer system leaves 28 million Americans without insurance and 87 million underinsured

+ At an average annual cost for a hypothetical family of four, ESI has become unaffordable for both workers and employers, especially small business that represents most businesses on Main Street. Premiums and deductibles have soared in recent years far above workers’ wages.

+ Private health insurers continue to game the system at enrollees’ expense through cost sharing with higher deductibles and copays, as well by limited drug formularies and deceptive marketing practices.

+ Cost sharing at the point of care is a business tool that results in patients delaying or foregoing essential care, often ending in premature death.

+ Excess profit-driven bureaucracy with bloated administrative costs that are 5-6 times that of traditional public Medicare, involving restrictive underwriting, pre-authorizations and denial of services.

+ The so-called “business ethic” prevails over a service ethic, as when insurers often leave unprofitable markets on short notice, leaving enrollees in the lurch.

+ Profiteering during the COVID pandemic, even when claims for non-COVID care, especially for elective treatments and procedures, dropped off precipitously. While tens of millions of Americans were losing their jobs and employer-sponsored insurance, private insurers racked up high earnings in the first quarter of 2020, 3` even then seeking federal help to cover their worries about “extraordinary, unplanned costs in 2020 and 2021.”

+ Little known by the public, the industry has received federal subsidies over many years that today average $685 billion a year. 4 Figure 1 shows how our five largest private health insurers—Aetna, Anthem, Cigna, Humana and United Healthcare—were being kept afloat by federal support of privatized Medicare and Medicaid from 2010 to 2016.

With its dependence on a failing system of employer-sponsored coverage, an outdated private health insurance industry does not deserve ongoing federal bailouts. Dr. Atul Gawande, surgeon and public health researcher, is spot on with this insight:

The central error of our system has been attaching our health care to where we work. A company-sponsored insurance plan for a family adds an average of fifteen thousand dollars to the annual cost of employing a worker—effectively levying a fifty-per-cent tax on a fifteen-dollar-an-hour position. We’re all but paying employers to outsource or automate people’s jobs. The result is to make both work and health care less secure and more fragmented—and to deepen our inequalities. 5

Proponents of the continuance of our private, multi-payer financing system bring forward these arguments as they oppose its replacement by a single-payer public Medicare for All system:

Patients will lose choice.

Contrary to losing choice, patients with Medicare for All will gain choice of

health care provider, hospitals and other facilities anywhere in the country. No longer will they lose choice by being out of network, lose care through denial of services or by living in a state with restrictive coverage.

Elimination of the industry would be too disruptive.

This assertion is a scare tactic by opponents of Medicare for All that disregards the everyday disruptions of health care with today’s volatile and inadequate private health insurance. Instead, the transition to national health insurance that covers all U. S. residents could be as seamless as it was in 1965 when Medicare was introduced.

Medicare for All will break the bank.

There is already plenty of money in the system, to the point that it is already breaking the bank through our dysfunctional, largely privatized multi-payer financing system filled with waste. We taxpayers are already paying for two thirds of overall health care spending, and not getting what we should in return.

Medicare for All, in fact, would bring universal coverage and save money. Gerald Friedman, Professor of Economics at the University of Massachusetts Amherst, has studied its costs for more than ten years and found that we would have saved more than $1 trillion in 2019 had we had it in place that year. Those savings would have come from three big areas—reduction to Medicare negotiated rates for payments to hospitals, drug companies, and medical equipment manufacturers, simplified insurance administration, and a more efficient billing process with providers without the hassles of pre-authorizations, narrowing networks, or drug formulary changes. (Figure 2)

Under a new system of national health insurance through Medicare for All, we will

find health care much more affordable than today. The current high premiums, deductibles, copays, co-insurance, denied pre-authorizations, large out-of-pocket payments, and ruinous medical bills will be long gone. With moderate progressive taxes that we all share by income level, 95 percent of Americans will pay less for health care than they do now.

The status quo is unacceptable and poses an ongoing risk to much of our population. Let’s hope that evidence and caring can prevail for the common good as the political process moves forward.

References.

1) Bruenig, M. People lose their employer-sponsored insurance constantly. People’s Advocacy Project, April 4, 2019.

2) Silvers, JB. This is the most realistic path to Medicare for All. New York Times, October 16, 2019.

3) Appleby, J, Findley, S. Health insurers prosper as COVID-19 deflates demand for elective treatments. Kaiser Health News, April 28, 2020.

4) Ockerman, E. It costs $685 billion a year to subsidize U. S. health insurance. Bloomberg News, May 23, 2018.

5) Gawande, A. A Nation’s Health Care: Rescuing the System. The New Yorker, October 5, 2020, pp. 12-13.

 

John Geyman, M.D. is professor emeritus of Family Medicine at the University of Washington School of Medicine in Seattle, where he served as Chairman of the Department of Family Medicine from 1976 to 1990. His most recent publications are Struggling and Dying under TrumpCare: How We Can Fix this Fiasco (2019) and a pamphlet, Common Sense: The Case For and Against Medicare for All, Leading Issue in the 2020 Elections (2019).

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