Neolib:
While I respect your reasonableness, I think you’ve hitched your wagon to a premise that is unsupportable in today’s world regarding universal health care. As a preliminary matter, universal health care is being accomplished quite effectively throughout most, if not all, of the developed world. This dailykos dairy (yes, yes, wacky liberal source…) is a very good synopsis of what is happening worldwide with links to the underlying data.
dailykos.com
Hoverer, let me address your main point – if I understand you correctly.
It is fine to fault the existing system, but please try to isolate what the issues are. To claim as Geode does, that the problem is profit, without being able to offer any reasonable argument for why profit causes problems in health care but not in other fields is unreasonable.
Message 23247081
Let me attack this argument from the management / investor perspective and talk about “profit”. As I said in a prior post,
…Insurance companies are not in business to pay claims: Insurance companies are in business to collect premiums….
You can refer to said post for some interesting statistics on Aetna.
Message 22866816
First – in general – what value do insurance companies provide? Simply insurance companies are arbitrageurs. They buy risk and bet that claims (expenses) are less than premiums (revenue) for which they earn profit.
POINT 1: What “value add” do health insurance companies provide? As little as 20 years ago one could say that the “value add” was the sophistication in their forecasting (actuarial forecasting of sickness and mortality) part of which was shared with their customers the remainder resulting in higher rates of return on equity and assets than their industry brethren.
Well as a consequence of the computer & software revolution that value add is effectively “dead.” With a PC and Excel I can forecast better than the best company of 20 years ago. The distinction between one company and another due to this factor is probably now in the fractions of a percent rather than being the primary factor – as it was in the past.
POINT 2: As a general rule let’s says the capital markets demand that a publicly traded company increase earnings at a rate of at least 10% annually. How the heck do you do that when what used to be the principal competitive differentiator is now available to a 15 year old kid with a laptop? Furthermore, your addressable market (i.e., your potential customer base) is only growing at the rate of population growth (approximately 0.6% to 0.8% annually?
Well the answer is simple and brutal. (1) You do everything in your power to overweight your customer base with “healthy people” (2) You do everything in your power to avoid paying claims (3) To the extent you can, you control general and administrative expenses (overhead).
It is simple percentages I won’t bore you with but comparatively it is easier to maintain earnings growth with (1) and (2). Controlling expenses (overhead efficiency) is only marginally effective. This is a SCALE business.
Now in the competitive market for all insurance companies, the first item is most effective because it is a nasty game of “musical chairs” (or churn out higher risk enrollees) among the insurance providers which of course drives up marketing cost. The second item all providers engage in to the detriment to society as a whole (and their customers specifically). No one can succeed at Item 3 with multiple providers because again – it’s a SCALE business – and it is a COMMODITY business (see the point above about value add).
Now let’s look at what would be a typical “common size” income statement:
Premiums 1.000
Benefits (0.570)
Gross Profit 0.430
SG&A (overhead) (0.200)
Income from Operations 0.230
Income Taxes (0.081)
Net Income 0.150
SG&A is selling, general and administrative and I’m assuming a 35% effective income tax rate. Either from the top down or bottom up only 43 cents of every premium dollar goes to pay benefits (actual medical care). Compare the 20% SG&A (overhead) to the 5-6% for Medicare.
Now let’s make the assumption that we went to single payer, but as a consequence the overhead percentage (using Medicare’s) doubled from 5% to 10%. I’ll note that this assumption is highly unlikely because it violates the concept of economies of scale – but I’ll grant it anyway for the sake of argument (comparing “apples to apples” I would immediately concede that pure administrative overhead will be lower for private versus public on a unit cost or per claim basis). The effective saving going from private health insurance to single payer is now 33 cents on every premium dollar. (15 profit 8 tax 10 net on overhead)
Now, let’s see if – overall – if we’d save or lose money if we went to single payer assuming a US population of 300 million with 45 million uninsured. That’s a coverage percentage of 85%. Assuming for simplicity each covered person paid $1 dollar that would be total premiums of $255 dollars. The benefit cost of those not insured is $26 dollars ($45 dollars of uncollected premiums times 57% benefits payout ratio). However, we have 33% profit, tax and overhead costs per premium dollar. 33% of $255 (total premium paid) is $84 dollars.
Thus in my example in our existing system the 45 million uninsured represent $26 of benefits not paid to lack of insurance. However, the efficiency gain from single payer is $84 dollars. Thus, we could move to single payer, cover everyone and still have more than 2x dollars ($58) left over – even assuming a doubling of current government overhead due to inefficiency. While its true that the uninsured are typically far more sickly and thus more costly to cover, a large percentage of the uninsured are children so the overall effect is mitigated. Regardless, the math is powerful and undeniable. Moving from private to single payer would let you cover everybody – with no decrease in quality or service and probably save money to boot.
Conceptually, if one is going to prostrate themselves on the altar of competition, there must be a BENEFIT to CONSUMERS. The lack of a “value add” or “competitive differentiator” means that competition creates NO benefit for consumers in the aggregate – it is just a vicious game of musical chairs playing one segment of the buying market against another to the overall detriment to society as a whole.
The entire argument against single payer is a perversion of basic micro and macro economic fact (to the benefit of the capital markets). For example, free traders and market purists will passionately argue that Wal-Mart is good. Why? Putting aside the specific arguments about Wal-Mart as a company, this is principally so because a Wal-Mart serving a rural town of 1000 people might drive 10 shop owners out of business but the other 990 people benefit from lower prices and a greater availability and selection of goods. All the foregoing are a result of economies of scale and scope.
To be redundant, in our current private health care market, there is no “value add” or “competitive differentiator” between multiple health insurers AND economies of scale and scope can never be captured to their full extant. Societal gain is the standard we should judge by – not some ideological idea about “competition.” Moreover, the only societal gain I've shown here is monetary - and there is plenty of room for error in my math and the substance of the argument still to be true. Start to add in the intangible asset value for society as a whole from the uninsured being insured and taking the stress away from the other 85% regarding continuation of coverage and the premise is undeniable. That is why all the other developed nations have moved this way and all the arguments against are smokescreen, hand waving and hooey.
And I’m a capitalist through and through….
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p.s. Gosh this is long. I guess I've used up my personal post quota for another 6 months. |
