Wednesday, April 6, 2011

GOP plan to privatize Medicare depends on a non existent free market system

One of the most indelible impressions I had attending town halls in the 2008 presidential campaign was the look of fear and anger on the faces of some waiving signs:” Do not let the government take away my Medicare”. Funny: Medicare is a government program.  In 2010 the under  55 crowd ought to be waiving signs that read: “do not let the Republicans take away my Medicare”.
 The fear that “Obamacare” would have taken $400 billion from the Medicare program became an issue exploited by the GOP who beat the drums of deceptive talking points to raise the fear levels   every chance they had. The Democrats responded, meekly and weakly, that the $400 billion did not change the benefits seniors received, it only ended the 13% markup private insurers charged the government to administer a Medicare on the government’s behalf.  The amount of money saved by cutting the administrative costs of Medicare, intense prosecution of frau d and abuse funded in the health reform law and greater use of home health care and other more efficient use of senior care funding, would  help save  billions over 10 years and trillions later.
 So important was the savings to Medicare afforded by health care reform law, that the Simpson Bowles debt commission concluded that reform be retained to help cut the deficit in the future.   The Republicans, of course, have not given up their attempt to defund or cripple “Obamacare”. Neither have private insurers and they are using their muscle:   Per www.opensecrets.org  health insurers spent over $21 million on lobbyists in 2010.
In the name of deficit reduction, the Republicans last week repackaged their 40 year old platform of privatizing Medicare with a proposal to give seniors vouchers to buy private insurance.   This privatization scheme is based upon a theory that   the insurers would compete for your voucher, driving down costs.  To head off voter outrage, seniors over 55 would see no change. Only their children and grandchildren would be shortchanged in the name of reducing the debt burden..
  The problem with the free market theory is that here is little free market in health insurance.  In fact, there is an oligopoly …a few companies in the market who are free to set prices and terms of coverage among themselves and carve out markets. .  What it means for seniors is that, for example, if you have a choice of between three similar plans.  Without real competition, insurers are free to provide customers with a choice of three with the highest price and lowest benefits   agreed upon among the insurers.
What?  Isn’t that illegal? No.  Health insurers are exempted from antitrust laws.     Ok, you say, and then we will go to another state and buy our insurance (the same argument was used to provide a very insufficient substitute for “Obamacare”).  The problem is that if you go to a neighboring state to avoid the high cost of an insurer like Blue Cross, Blue Shield, or United Health Care, you have a great chance of having to choose  between a Blue Cross/Blue Shield, United Health Care plan or their subsidiaries in that state as well. Vouchers change nothing if the market is not free.   
  There is also no assurance that a voucher would be sufficiently subsidized to give seniors the ability to afford a policy that would offer benefits similar to the current ones.    The amount of those subsidies is critical since insurance policies issued just for seniors would be very expensive. Senior care costs most because it covers deteriorating health. 
                The greatest beneficiaries of GOP policies would be the private insurers, who would be freed to charge an administrative markup, to set anti-competitive prices, and limit care to increase their profit margins. Without  free market competition there is nothing in the GOP plan to control costs except by reducing subsidies.   Without addressing these realities, those younger than 55 would either be the biggest losers or the deficit would still be their problem.
    Data on the lack of competition in the health insurance industry is from a study released in Feb 2010 conducted by the American Medical Association.  From an AMA press release:

AMA Study Shows Competition Disappearing in the Health Insurance Industry

For immediate release:
Feb. 23, 2010

CHICAGO – Competition in the health insurance industry is disappearing with more markets across the country dominated by one or two insurers, according to the American Medical Association’s newly released edition of Competition in Health Insurance:  A Comprehensive Study of U.S. Markets.
In 24 of the 43 states reported in the new AMA report, the two largest insurers had a combined market share of 70 percent or more.  Last year, just 18 of 42 states had two insurers with a combined market share of 70 percent or more.
“The near total collapse of competitive and dynamic health insurance markets has not helped patients,” said AMA President J. James Rohack, M.D. “As demonstrated by proposed rate hikes in California and other states, health insurers have not shown greater efficiency and lower health care costs. Instead, patient premiums, deductibles and co-payments have soared without an increase in benefits in these increasingly consolidated markets.”
The new AMA study analyzed 43 states and 313 metropolitan markets against an index used by federal regulators for measuring market concentration. Markets that rate “highly concentrated” according to the federal index are areas of the country where insurer consolidation may have harmful effects on patients, physicians, employers and the economy.
By reviewing enrollments in private health maintenance organizations (HMOs) and preferred provider organizations (PPOs), the new AMA study found:
  • Ninety-nine percent of metropolitan markets are “highly concentrated” according to federal merger guidelines (up from 94 percent metropolitan markets the year before).
  • In 54 percent of metropolitan markets, at least one insurer had a market share of 50 percent or greater (up from 40 percent of metropolitan markets the year before).
  • In 92 percent of the metropolitan markets, at least one insurers had a market share of 30 percent or greater (up from 89 percent of metropolitan markets the year before).
“An absence of competition in health insurance markets is clearly not in the best economic interest of patients,” said Dr. Rohack. “The AMA has urged the Department of Justice (DOJ) and state agencies to more aggressively enforce antitrust laws that prohibit harmful mergers.”
To restore a competitive balance to health insurance markets, the AMA has also urged the DOJ to consider the following steps:
  • Perform a retrospective study of health insurance mergers similar to that performed by the Federal Trade Commission on hospital mergers;
  • Commission new research to identify causes and consequences of health insurer market power; and
  • Create a system for predicting the effects health insurer mergers will have on consumer and provider markets.
Competition in Health Insurance: A Comprehensive Study of U.S. Markets is free to AMA members. Non-members can purchase the study for $150. To order the study, please visit the AMA Bookstore online, or call (800) 621-8335 and mention AMA Bookstore item number OP427109.

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