Health Care Reform and the Insurance Industry

With the recent global financial crisis spawning unprecedented rates of unemployment, more and more Americans are facing financial catastrophe as the result of inadequate or nonexistent health insurance coverage.

Sadly, this situation is not new, nor is it solely the result of our country’s current economic woes.

Medical Bills Have Long Been the Cause of Most Bankruptcies

A 2005 Harvard study showed that 46.2% of all 2001 bankruptcies resulted from sickness, or injury-related medical bills. When expenses secondary to births, deaths, and gambling addiction were added to the mix, the total rose to nearly 55%.

Notably, 76% of those individuals filing for court protection in 2001 had health insurance coverage at the onset of the illness that led to their bankruptcies. (Health Affairs Web Exclusive, February 2, 2005)

These findings – and data showing that the trend is worsening – were echoed in another study completed earlier this year. (Himmelstein D, Woolhandler S, et al. Medical bankruptcy in the United States, 2007: results of a national study. AJM. 2009;122[8]:741-6)

Due to the recession, an estimated two-thirds of all American bankruptcies are now the result of medical indebtedness, and three-fourths of those going bankrupt have purchased health insurance that does not cover their medical bills.

Dr. Steffie Woolhandler, senior author of the newest study, remarked, “Unless you’re a Warren Buffet or Bill Gates, you’re one illness away from financial ruin in this country.”

Shortfalls in American Health Insurance

Unfortunately, the spectrum of individuals whose medical bills outstrip their insurance coverage spans all types of health plans. No insurance instrument – private or employer-sponsored – seems to offer more insulation from ruin than another.

Due to inadequate coverage, arbitrary rescission of coverage by insurance companies, denial of payment for services, or the lapse of insurance when a job is lost, the gap between insurance benefits and actual medical expenses is sufficient to financially ruin many previously stable families. Most medically bankrupt Americans are average citizens who happen to get sick.

In Massachusetts, where failure to buy insurance is punishable by a $1,000 fine, only 5.4% of residents were uninsured in 2007. In spite of near-universal coverage through a plan designed with insurance-industry input, medical expenses are still at the root of 60% of the state’s bankruptcies…the same proportion as the remainder of the country.

Therefore, mandating coverage for all Americans at the behest of the insurance industry will probably not alter the picture.

Solutions for America’s Healthcare Crisis Require Elimination of Current Insurance Industry Policies

According to Jonathan Oberlander and Joseph White, health care policy experts at the University of North Carolina and Case Western Reserve University, respectively, successful health care reform cannot be achieved without effective control of health care expenditures. They believe that no reform bill currently before Congress can be relied upon to control spending. (Oberlander J, White J. Systemwide cost control – the missing link in health care reform. NEJM. 2009;361(12):1131-33)

Costs could be contained within a single-payer system, they say, but any option that challenges the position of the American insurance industry is politically untenable.

However, other countries that support multiple insurers – most of whom boast health outcomes superior to those of the United States – use all-payer regulation to reign in health care spending. Either insurers form coalitions that negotiate costs, or the government establishes overarching payment rules for medical care (like the U.S. does for Medicare).

Nations that use this approach incur significantly lower costs than the United States due to system-wide oversight of reimbursement and service allocation.

All-payer regulation would also eliminate the possibility that some insurers would shift costs to other insurers (i.e., “cherry picking” younger or healthier patients while denying coverage to sicker individuals), because all payers would be on equal footing.

Standardized payment rules would simplify billing – not to mention patients’ ability to interpret benefits and co-payments – and reduce the horrendous costs associated with administering the plethora of vacillating rules and requirements promulgated by a multi-payer system. Interestingly, the growth of administrative positions in American health care outstrips all other segments of the industry; limiting this trend would only reduce costs.

If all-payer regulation became the norm, a public option could easily run alongside private insurers; all payers, public and private, would reimburse at similar rates. All-payer regulation (in lieu of the ideal single-party payer) would defuse political efforts directed at weakening the public option in order to protect a powerful and understandably anxious insurance industry.

Dr. Woolhandler, testifying before the Subcommittee on Administrative and Commercial Law (House Judiciary Committee) in July, 2009, stated, “Reform needs to replace the defective private insurance that most families have with insurance that is always there. That’s the kind of coverage people in other wealthy nations get through single-payer national health insurance. But the overwhelming evidence indicates that the reform you seem poised to pass will fail to protect American families.”

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