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The Health Care System Isn't Reformed

Posted at 11:45 a.m. on Nov. 28, 2012

Yves Smith explains why President Obama’s health care reform law doesn’t fix the nation’s health care system, but simply “enriches Big Pharma and the health insurers at the expense of the public at large.”

“Let’s start with some of the inaccurate praise heaped on the ACA: It covers the uninsured. No, it only cover some of the uninsured… It will cover people with preexisting conditions. Um, maybe, until you need costly care. The ACA preserved a loophole you can drive a truck through: But the bill has a giant loophole: insurers can continue to cancel policies in the case of ‘fraud or intentional misrepresentation’ as they do now. And the bar for fraud, per established case law, is remarkably low.”

“Health insurer profit margins are capped. That is technically accurate but substantively misleading. The health insurer have been engaged in price gouging over the last two decades. Health insurers as of the early 1990s spent 95% of health care premiums on medical expenditures. They now spend less than 85%. The ACA requires them to spend 80% on health care costs. So the bill institutionalizes an egregiously fat profit margin.”

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  • molosky

    Taegan, this link is below you.

  • FreeStateLarry

    Those 85 and 95% numbers are misleading. Let’s split the difference and say that without ACA, insurance co’s spend 90% on care. That 90% includes administrative costs and paper pushing, not profit. When you factor in admin and other miscellaneous costs, that 90% quickly falls to a little over half of all premium dollars spent on actual care as opposed to the administration of the insurance company.

    With the ACA, that 80% means 80% of premiums that you pay have to be returned toward your health care, pure and simple. The additional 20% is reserved for overhead, including administrative costs and profit, meaning that most people see a bigger proportion of their premium dollars spent on health care.

    • molosky

      The whole article is disingenuous crap.

      • FreeStateLarry

        How so? I don’t think this is an unfair attack on the law. To paraphrase Ezra Klein, it’s not perfect and won’t work exactly how proponents say it will, but it should be given a chance.

        Trying to fix the problem (Obamacare) is better than denying it (aka the GOP health plan), and getting a balanced look at its criticism and support is what everyone should do, because it will affect nearly all of us.

        • molosky

          The author does not actually care whether it “enriches Big Pharma and the health insurers at the expense of the public at large.” That is an attempt to feign sympathy with left-wing rhetoric in an argument against a government regulation. And, to the extent it is true, it is irrelevant as a critique since such industry benefits were a necessary part of any bargain that undermined their previous means of profit. And finally, the notion that the fraud loophole is going to counteract the entirety of the improvements in access to coverage is preposterous.

          The trade off was a move from autonomous interest group domination to a de facto corporatist model. There was no free market nor fully socialized option at the time. And to the extent it will be replaced to correct for inefficiencies and loopholes, it will be in the latter not former direction (because of, not despite, the corporatist elements.)

          • FreeStateLarry

            So after two months I just saw the notification from this comment. LO-freaking-L. I think you have some good points, especially ” the notion that the fraud loophole is going to counteract the entirety of the improvements in access to coverage is preposterous.”.
            But I’m a little unclear what you mean by autonomous interest group domination vs de facto corporatist.

    • Shma

      No, that is incorrect. The article is referring to the medical loss ratio (see the cited Huffington Post article), which is exactly what the ACA limits to 80%.

      See: http://en.wikipedia.org/wiki/Medical_loss_ratio

      • FreeStateLarry

        This part of the HuffPost article is what sticks out: “The technical term for what Potter cited is the medical loss ratio. When it is at 80%, it means one out of every five dollars that you are paying for insurance premiums is going towards health care. The rest is going to insurance company profits.”

        And in another section: “When the Clinton’s were debating health care in the early 1990′s, 95 cents on every insurance premium dollar went to pay claims. Now it is slightly above 80%.”

        My understanding of the law is that it disallows administrative costs to be a factor in the MLR. Perhaps I’ve been misinformed. Also, isn’t there a difference between all the premiums the health insurance co’s take in and the amount they take in from an individual? In other words, does it mean that an individual has to see 80% of the premiums they’ve paid put toward care?

        What’s really interesting is that 2 of the 3 components he mentions made their way into the law. I’m not an expert or an economist, so forgive it if the vernacular isn’t right.

        • Shma

          “My understanding of the law is that it disallows administrative costs to be a factor in the MLR”

          Yes, this is true, but I don’t believe that companies were actually misreporting their MLR during the Clinton or Bush administration. Rather, I think the 95% statistic from the Huffington Post article does not include administration costs.

          “Also, isn’t there a difference between all the premiums the health insurance co’s take in and the amount they take in from an individual?
          In other words, does it mean that an individual has to see 80% of the premiums they’ve paid put toward care?”

          Presumably not, since a person may not need medical care in a given year, yet they will still pay their premiums. This article about rebates seems to confirm it:

          http://news.consumerreports.org/health/2012/06/am-i-going-to-get-a-rebate-from-my-health-insurance-company.html

          “Note that the rebate is not based on how much your health plan paid out to you, personally. So, for instance, if you paid $5,000 in premiums
          for health insurance in 2011 but only used $1,000 of health care, your insurance company does not have to pay you back anything as long as it spent at least 80 percent of its total premium income on health care for
          all of its insured customers.”

          • FreeStateLarry

            We also tend to forget this bill should be considered as a whole intended to work together. In this case, one should also look at the removal of lifetime caps and cost control measures.

            There’s also a bottom line here: many many more people will see a bigger portion of their health costs returned to them to pay for health care as opposed to administrative costs and other “overhead”.

  • BigGuyDon

    This latest batch of wonkwires are less than wonky. Did we accidently tap into the Fox News feed?

    • FreeStateLarry

      Taegan just reposts things that contribute to the conversation. I’d like to see Ezra Klein get at this.

  • ultragreen

    A single-payer system is the only way to fix the health care system in the U.S. ACA doesn’t even come close to doing this. In a stratified and privatized health care system, people with the best health insurance will receive medical services that they don’t need, while people with inferior health insurance will be screwed over to pay for it.

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