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									                                     EDITORIAL



         Understanding Insurance: Will a Public Option or Co-op Get Us Where We Want?
         Debra A. Smith, DO, MIHM, MBA


                                                     cians), $34 trillion; and for Medicare        good for the insurance industry because
A     “public option” (ie, allowing indi-
      viduals to purchase government-
run health insurance) has been pro-
                                                     Part D (drug benefits), $17.2 trillion.4
                                                     These numbers represent a grand total of
                                                                                                   they help keep the for-profit insurers
                                                                                                   honest in premium pricing. Conversely,
posed as a solution for achieving                    $86 trillion of unfunded entitlements         the for-profit insurers have incentive to
universal health coverage in the                     that our children and grandchildren will      reduce administrative costs to remain
United States. Politicians have told us              be paying for us.4                            competitive in the marketplace and eke
not to fear a public option because gov-                   Increased longevity and demo-           out a profit. The for-profit competitors
ernment-run programs such as Medi-                   graphic shifts account for part of the        force the nonprofits to keep their admin-
care work well—without any of the                    funding dilemma. The continued expan-         istrative costs from ballooning.
dreaded rationing of care that critics               sion of benefits and increased demand              Politicians claim that public health
claim would occur. Recent town hall                  for costly new medical technology             programs have cheaper administrative
meetings have demonstrated that many                 account for the rest of the problem.          costs than programs in the private sector.
elderly Americans are satisfied with                 Given the extent of our current obliga-       An examination of the evidence, how-
their Medicare coverage and will fight               tions, is the proposal of another publicly    ever, casts doubt on that assertion.
fiercely to protect it.                              funded healthcare program responsible?
     Medicare does provide good bene-                      There are three things that people      How Medicare Works
fits—with the working population                     want in any health plan. First, the plan      The Centers for Medicare & Medicaid
paying for current retirees. Today, how-             should be responsibly administered and        Services (CMS) pays third-party admin-
ever, Americans are living an average                financially solvent. Second, it should        istrators and private insurers to pay the
of 4.3 years longer than they were in                provide good coverage at an affordable        claims of patients. There is no one in the
1965, when the program started.1,2 In                price. Third, the plan should not             federal government who directly pays
addition, the percentage of the US pop-              bankrupt the country, the insurance           claims.
ulation receiving benefits has jumped                companies, or the individuals paying               According to an April 2009 testi-
from 9.5% at the program’s inception to              for it. A key issue to keep in mind is that   mony before the US Senate by the
13% today3—a 37% increase.                           a public program must be underwritten         director of Financial Management and
     As more and more “baby boomers”                 correctly or it will lose money. Nation-      Assurance of the US Government
retire, the Medicare-eligible population             wide, health insurers have been oper-         Accountability Office, Congress refused
is projected to expand to 16% by 2020                ating with only about a 2% profit margin      the CMS’s annual requests for about
and to 19.3% by 2030.3 According to a                in recent years.5,6 Although we want          $580 million to combat fraud in 4 of the
May 2008 speech by Richard W. Fisher,                everyone covered, do we really believe        last 5 years—only to allow the CMS to
president and chief executive officer of             that government is more efficient than        waste at least $36 billion annually in
the Federal Reserve Bank of Dallas, the              the private sector?                           “improper payments.” 8 The chief
present value of unfunded liabilities for                                                          counsel for the Department of Health
Medicare Part A (hospitalizations) is                Nonprofit and For-Profit Private              and Human Services’ Office of Inspector
$34.4 trillion; for Medicare Part B (physi-          Options                                       General recently told Congress,
                                                     Where is the money in private health          “Although we cannot measure the full
                                                     insurance going? About 85% of each pre-       extent of healthcare fraud in Medicare
Dr Smith is president-elect of the American Osteo-   mium dollar goes to pay claims (ie, the       and Medicaid, everywhere we look we
pathic College of Occupational and Preventive        medical-loss ratio), and roughly 10%          continue to find fraud in these pro-
Medicine, and adjunct assistant professor at the
University of North Texas Health Sciences Center—
                                                     goes to administrative costs.7 Highmark       grams.”9
Texas College of Osteopathic Medicine in             Blue Cross Blue Shield, a nonprofit                Thus, it would appear that both
Fort Worth.                                          insurer based in Pittsburgh, Pennsyl-         nonprofit and for-profit private insur-
     Address correspondence to Debra A.
Smith, DO, PO Box 40443, Indianapolis, IN 46240-
                                                     vania, has an explicit policy to keep its     ance carriers have an advantage over
0443.                                                medical-loss ratio near 90%.7                 the government because they can use
     E-mail: contact@healthcaresolved.net                 Nonprofit insurers are granted this      common sense, rather than relying on
Submitted December 8, 2009; accepted February
                                                     special tax status because they provide a     an act of Congress, to administer a plan.
3, 2010.                                             needed public service. Nonprofits are

226 • JAOA • Vol 110 • No 4 • April 2010                                                                                       Smith • Editorial
                                                                                                                              EDITORIAL



Important Points to Consider                      erage would be $95 in 2014, $350 in              The co-op provision in HR 359012
In order to better understand the cur-            2015, $750 in 2016, and indexed there-           necessitates that a number of new non-
rent healthcare debate, it is important to        after. Common sense dictates that                profit companies will pop up and
keep the following ideas in mind when             healthy people will elect to pay the             apply for startup loans and grants
listening to the political pundits:               proposed fine, and then they will join           from the federal government. Who
                                                  a health plan only after they become             exactly will these new nonprofits be?
1. If Medicare was correctly under-               sick. This means that both public and            After paying their premium dollars,
   written, the program would not have            private risk pools will be skewed to             will customers get the services they
   the estimated $86 trillion deficit.4 Cer-      the sick, which—in turn—means that               expect? Will claims be paid in a timely
   tainly, the terms of the policy and the        health insurance will become less                manner? Considering that the new
   premiums would be different in a               affordable for everyone else.                    nonprofits will have no track records,
   responsibly administered program.           5. State laws prevent competition from              what assurance does the public have
2. If a public plan is poorly underwritten,       entering the marketplace in certain              that any of these companies will be
   plan premiums will be below cost.              regions of the country. Health insur-            there tomorrow to pay claims? Does
   Because the private sector—unlike the          ance should be allowed to be sold                this situation open the public up to a
   government—cannot subsidize losses             across state lines.                              substantial amount of potential fraud?
   by printing more money, the below-          6. There is no need to create insurance             Are state regulators prepared to
   cost public plan will wipe out the pri-        cooperatives (ie, co-ops) or to operate          handle the task of monitoring these
   vate sector in time. In fact, the gov-         exchanges to make privately run, but             companies, given the large number of
   ernment will have an incentive to price        government-defined group benefit plans           new entities that will undoubtedly
   its product below cost, as this will           available. Medicare Supplemental                 arise due to the amount of money at
   allow bureaucrats and politicians to           Insurance (ie, MedSup, Medigap) is               stake?
   claim they are providing a needed              such a product, with about a dozen                     Of course, we can always rely on
   “service” to the American public.              standardized options from which to               the government to protect us from the
3. Even if underwritten correctly and             choose. Anyone older than age 65 can             hucksters ... can’t we?
   administered responsibly, a public             buy MedSup coverage from any car-             8. It’s important to remember that the
   plan provides no advantage over a pri-         rier licensed to sell it in their state.         private sector is administering current
   vate group plan with risk pooling. Fur-        Slightly better pricing might be avail-          government health plans. Adminis-
   thermore, more attention will be paid          able with a group, such as the Amer-             trative costs may appear to be lower
   to disease management, utilization             ican Association of Retired Persons,             under public programs because the
   review, and combating fraud under              but other, nongroup plans remain                 government will not pay for services
   private sector coverage.                       competitive. An individual does not              to fight fraud, waste, and abuse. How-
4. Eliminating the insurers’ requirement          have to join a group to be exempt from           ever, the belief that total coverage costs
   that applicants disclose preexisting ill-      underwriting for preexisting condi-              will decrease as part of a public pro-
   nesses or conditions when applying             tions. Co-ops take considerable time             gram is ludicrous, as current govern-
   for a plan will not solve the problem of       and money to build and are advanta-              ment claims data demonstrate.8 In
   lack of universal coverage. Instead, it        geous only for future political organi-          reality, with a public option, there will
   will force insurers to adjust premiums         zation.                                          be less competition—and eventually
   upward somewhat to account for the          7. Section 1322 of the Patient Protection           no competition. At that point, to cut
   added risk of not being able to medi-          and Affordable Care Act12 mandates               costs, physicians and hospitals will be
   cally underwrite customers. Very large         the creation of co-ops. Under this leg-          forced to take whatever payments the
   premium increases will result from             islation, private insurers or related enti-      government decides or they will go
   the fact that individuals are not obli-        ties in existence before July 16, 2009,          out of business. That is not a good
   gated to maintain continuous cov-              cannot qualify as health insurance               plan for sustainability.
   erage—either individually or through           issuers in co-ops. Whatever one may                    Hospitals may close. Doctors may
   their employers—for the privilege of           think about current insurers, they have          emigrate. Where would that leave the
   being exempt from medical under-               the people who know how to do the                American people?
   writing and waiting periods.                   job. Private insurers have the systems
   According to the Patient Protection            and processes already in place to ser-            If you are an advocate for a public
   and Affordable Care Act (HR 3590)10,11         vice the needs of their customers, to         option, please ask yourself a couple
   under consideration by Congress, the           issue insurance cards, to offer a net-        questions. Does Congress have the
   penalties for failing to maintain cov-         work of providers, and to pay claims.         capacity to respond promptly to the

Smith • Editorial                                                                                       JAOA • Vol 110 • No 4 • April 2010 • 227
EDITORIAL



changing needs and demands of con-                       2. US National Center for Health Statistics. United   Daly, director, Financial Management and Assur-
                                                         States life tables, table 101, average number of      ance, GAO). http://www.gao.gov/new.items
sumer citizens and to make sound busi-                   years of life remaining by sex, race, and age: 1989   /d09628t.pdf. Accessed March 2, 2010.
ness decisions? Good healthcare policy                   to 2005. National Vital Statistics Reports (NVSR).
                                                         Vol 57, No. 1. Hyattsville, MD: US National Center    9. Ingelhart JK. Finding money for health care
would have dictated that, several years                                                                        reform—rooting out waste, fraud, and abuse
                                                         for Health Statistics; August 5, 2008. http://www
ago, the age of Medicare eligibility be                  .census.gov/compendia/statab/2009/tables/09s0101.     [published online ahead of print June 10, 2009].
increased to 69 years. Yet, because of                   pdf. Accessed March 4, 2010.                          N Engl J Med. 2009;361(3):229-231. http://content
                                                                                                               .nejm.org/cgi/content/full/NEJMp0904854. Accessed
political reasons, there is probably not                 3. International Data Base: Mid-year population by    March 4, 2009.
a single politician who would dare make                  age and sex for the United States. US Census
                                                         Bureau Web site. http://www.census.gov/ipc/www        10. The Patient Protection and Affordable Care
such a suggestion, given that senior cit-                                                                      Act, HR 3590, 1501 (2009).
                                                         /idb/country.php. Accessed March 4, 2010.
izens are among the most active voting                                                                         11. The Patient Protection and Affordable Care
blocks. Isn’t such past political history                4. Fisher RW. Storms on the horizon: remarks
                                                         before the Commonwealth Club of California;           Act, HR 3590, 5000A (2009).
an indicator of future performance?                      May 28, 2008. Federal Reserve Bank of Dallas          12. The Patient Protection and Affordable Care
                                                         Web site. http://www.dallasfed.org/news/speeches      Act, HR 3590, 1322 (2009).
Conclusion                                               /fisher/2008/fs080528.cfm. Accessed March 4, 2009.
It seems a violation of the current Medi-                5. Fortune 500 top industries: most profitable by
                                                         return on revenues. CNN Money Web site. http:
care contract with Americans to take on                  //money.cnn.com/magazines/fortune/fortune500
additional public health plans when we                   /2009/performers/industries/profits/. Accessed
                                                                                                                  Editor’s Note: Dr Smith submitted this
do not have foreseeable means of paying                  March 5, 2010.
                                                                                                                  editorial in December 2009. Although
for obligations already promised to the                  6. Magor G. Health insurers’ profits sink; March         the “Patient Protection and Affordable
insured. A private-sector insurance car-                 26, 2009. TheStreet.com Web site. http://www.the
                                                         street.com/story/10477877/1/health-insurers-profits
                                                                                                                  Care Act” (H.R. 3590) was signed into
rier attempting to lure new customers                    -sink.html. Accessed March 4, 2009.                      law in March 2010, Dr Smith’s comments
with such a scheme would be prohib-                                                                               remain relevant to the future of health-
                                                         7. Stouffer R. Highmark’s profits fell 75 percent
ited from doing business by state regu-                  during 2008; April 2, 2009. Pittsburgh Tribune-          care in the United States.
lators. Why should the federal govern-                   Review TribLIVE Web site. http://pittsburghlive              Dr Smith is the author of Healthcare
ment be held to a lesser standard when                   .com/x/pittsburghtrib/business/s_618919.html.            Solved—Real Answers, No Politics (Book-
                                                         Accessed March 4, 2009.                                  Surge, 2009).
it is proposing to offer similar services?
                                                         8. Improper Payments—Progress Made but Chal-
                                                         lenges Remain in Estimating and Reducing
References                                               Improper Payments. Testimony before the Sub-
1. Bell F, Miller M. Unisex life expectancies at birth   committee on Federal Financial Management,
and at age 65. Actuarial Note. No. 2004.2. Balti-        Government Information, Federal Services, and
more, MD: Social Security Administration, Office         International Security, Committee on Homeland
of the Chief Actuary; September 2004.                    Security and Governmental Affairs, US Senate,
http://www.ssa.gov/OACT/NOTES/ran2/an2004-               111th Cong. 1st Sess (2009) (testimony of Kay L.
2.pdf. Accessed March 4, 2010.




228 • JAOA • Vol 110 • No 4 • April 2010                                                                                                       Smith • Editorial

								
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