Back in March 2009, leaks from the White House made it clear that a single-payer health insurance system was “off the table” as an option for health care reform. By doing so, the President had ruled out the simplest and most obvious reform of the disaster that is US healthcare. Instituting single-payer would have meant putting US health insurance companies out of business and extending the existing Medicare or Medicaid to the entire population. Instead, over the following weeks the outlines of the bloated monstrosity known as Obamacare emerged; an impossibly complicated Rube Goldberg contraption, badly designed, incompetently executed, and whose intended beneficiaries increasingly seem to hate.
The decision to abandon the nationalization of perhaps the most unpopular companies in the US is correctly attributed to the fundamental conservatism of the Obama White House, and its unwillingness to take on the health insurers, pharmaceutical companies, or any interest group willing and able to spend millions lobbying, hiring former politicians, and donating to campaigns. Obama’s “wimpiness,” his need to always take the path of least resistance, became common tropes among the American left. Obamacare, liberals claim, is the best possible reform that could’ve been wrangled out of the health insurance industry.
But were the many backroom deals that make up Obamacare really an easier alternative to nationalization? A look at the financial details reveals the opposite conclusion. In strictly financial terms, nationalization would have been the easiest way forward, costing relatively little and delivering immediate savings while making access to health care truly universal. Politically, Obama could have counted on the support of a unlikely ally of progressive causes: health insurance shareholders, the theoretical owners of those very companies who would have been relieved of their then-dubious investments with a huge payout.
As of the end of 2008, the private insurance market covered 60 percent of the US population. For-profit insurers accounted for a large and growing share. The top five insurers accounted for 60 percent of the market — all but one of them for-profit companies. Absent a Bolshevik revolution, implementing a single-payer system would have required proper compensation for the owners of these institutions for their loss of future income — shareholders in the case of the for-profit insurers and, allegedly, the supposed policyholders in the case of most non-profits.
How much compensation? Well, in mid-2009, the total market capitalization of four out of the five top health insurers (the fifth is a nonprofit) amounted to about $60 billion. By then, the stock market had already rebounded nicely from the lows of the crisis, and the uncertainty over Obamacare had largely dissipated, so these were not particularly depressed valuations. Extrapolating this valuation to the rest of the health insurers would have a put a price tag of about $120 billion on the whole racket.
This means that buying out the entire health insurance industry at an enormously generous premium of, say, 100 percent, would have cost the Treasury $240 billion – about 2 percent of 2009 gross domestic product. And this figure is highly inflated —premiums for buying out well-established companies rarely exceed 50 percent and are usually closer to 20 percent. Also, I am valuing the dubious claims of non-profit policyholders on par with the more vigorously-enforced property rights of for-profit shareholders.
Other than the big smiles on the faces of health insurer shareholders across the country, what would have been the US Treasury’s payoff for writing a $240 billion check? Once again, the numbers are simple, and startling. US private insurance, whether for-profit or otherwise, may well be the most wasteful bureaucracy in human history, making the old Gosplan office look like a scrappy startup by comparison. Estimates of pure administrative waste range anywhere from 0.75 percent to 2.6 percent of total US economic output.
Extrapolating again from the biggest four for-profit insurers, in 2008, the industry as a whole claimed to spend 18.5 percent of the premiums it collected on things other than payments to providers. (The other 81.5% that is spent paying for actual care is known as medical loss ratio. Keeping this ratio down is a health insurer CEO’s top priority.) Medicare, by contrast, spends just 2 percent. The difference amounts to $130 billion, to which we must add the compliance costs the private insurers impose on health care providers — $28 billion, according to Health Affairs. The costs incurred by consumers are difficult to measure, although very real to anyone who’s spent an afternoon on the phone with a health insurance rep.
So, to recap, nationalization of the health insurance industry in 2009 would have cost no more (and almost certainly a lot less) than $240 billion. The savings in waste resulting from replacing the health insurance racket with an extension of Medicare would have resulted in no less than $158 billion a year. That’s an annualized return on investment of 66 percent. The entire operation would have paid for itself in less than 18 months, and after that, an eternity of administrative efficiency for free. And, of course, happy shareholders.
by Enrique Diaz-Alvarez, Jacobin | Read more:
Image: uncredited
The decision to abandon the nationalization of perhaps the most unpopular companies in the US is correctly attributed to the fundamental conservatism of the Obama White House, and its unwillingness to take on the health insurers, pharmaceutical companies, or any interest group willing and able to spend millions lobbying, hiring former politicians, and donating to campaigns. Obama’s “wimpiness,” his need to always take the path of least resistance, became common tropes among the American left. Obamacare, liberals claim, is the best possible reform that could’ve been wrangled out of the health insurance industry.But were the many backroom deals that make up Obamacare really an easier alternative to nationalization? A look at the financial details reveals the opposite conclusion. In strictly financial terms, nationalization would have been the easiest way forward, costing relatively little and delivering immediate savings while making access to health care truly universal. Politically, Obama could have counted on the support of a unlikely ally of progressive causes: health insurance shareholders, the theoretical owners of those very companies who would have been relieved of their then-dubious investments with a huge payout.
As of the end of 2008, the private insurance market covered 60 percent of the US population. For-profit insurers accounted for a large and growing share. The top five insurers accounted for 60 percent of the market — all but one of them for-profit companies. Absent a Bolshevik revolution, implementing a single-payer system would have required proper compensation for the owners of these institutions for their loss of future income — shareholders in the case of the for-profit insurers and, allegedly, the supposed policyholders in the case of most non-profits.
How much compensation? Well, in mid-2009, the total market capitalization of four out of the five top health insurers (the fifth is a nonprofit) amounted to about $60 billion. By then, the stock market had already rebounded nicely from the lows of the crisis, and the uncertainty over Obamacare had largely dissipated, so these were not particularly depressed valuations. Extrapolating this valuation to the rest of the health insurers would have a put a price tag of about $120 billion on the whole racket.
This means that buying out the entire health insurance industry at an enormously generous premium of, say, 100 percent, would have cost the Treasury $240 billion – about 2 percent of 2009 gross domestic product. And this figure is highly inflated —premiums for buying out well-established companies rarely exceed 50 percent and are usually closer to 20 percent. Also, I am valuing the dubious claims of non-profit policyholders on par with the more vigorously-enforced property rights of for-profit shareholders.
Other than the big smiles on the faces of health insurer shareholders across the country, what would have been the US Treasury’s payoff for writing a $240 billion check? Once again, the numbers are simple, and startling. US private insurance, whether for-profit or otherwise, may well be the most wasteful bureaucracy in human history, making the old Gosplan office look like a scrappy startup by comparison. Estimates of pure administrative waste range anywhere from 0.75 percent to 2.6 percent of total US economic output.
Extrapolating again from the biggest four for-profit insurers, in 2008, the industry as a whole claimed to spend 18.5 percent of the premiums it collected on things other than payments to providers. (The other 81.5% that is spent paying for actual care is known as medical loss ratio. Keeping this ratio down is a health insurer CEO’s top priority.) Medicare, by contrast, spends just 2 percent. The difference amounts to $130 billion, to which we must add the compliance costs the private insurers impose on health care providers — $28 billion, according to Health Affairs. The costs incurred by consumers are difficult to measure, although very real to anyone who’s spent an afternoon on the phone with a health insurance rep.
So, to recap, nationalization of the health insurance industry in 2009 would have cost no more (and almost certainly a lot less) than $240 billion. The savings in waste resulting from replacing the health insurance racket with an extension of Medicare would have resulted in no less than $158 billion a year. That’s an annualized return on investment of 66 percent. The entire operation would have paid for itself in less than 18 months, and after that, an eternity of administrative efficiency for free. And, of course, happy shareholders.
by Enrique Diaz-Alvarez, Jacobin | Read more:
Image: uncredited
