Sunday, November 1, 2009

Public Option anyone?
In the debate about the health reform in the works in Congress, the “public option” is frequently mentioned as a particularly controversial item in the health reform plan. What is it?
The public option refers to government health insurance to be offered to some small businesses and private citizens who cannot afford to buy health insurance from commercial insurance companies.
The simplest form of insurance is money prudent persons put aside, if they can, to cover unexpected bills. No one spends their weekly earnings to the last cent--if they can possibly help it--because next week they might need a new pair of shoes or, with the coming of winter, a new hat or overcoat.
Another humble form of insurance takes the form of saving for large expenses that you cannot pay for out of current income--your kids' college education, a down payment on a house, your retirement. But if the anticipated expenses are too large for anyone person or family to cover, people get together and pool their resources. Different members of the group withdraw significant amounts and then pay them back while others draw on the same fund.
The cooperative bank is the most obvious example of that where we all put in money that we don't spend immediately. If one of us has a big expense, she borrows from all of us. While she is paying back her loan, all of continue to pay in and then someone else borrows money to cover a large expense.
In the early 20th century, immigrant communities in the US had such cooperative savings schemes. Everyone paid a few pennies a week into a burial society that would take care of funeral expenses when members died. Similarly people can pool their resources to be ready to rebuild a member's house in case of fire, or flood, wind damage and other perils.
These cooperative schemes are different from commercial insurance. Here the goal is not protection against expensive misfortunes--death, fire, illness, violent weather damage--bu profit. The commercial health insurance company is organized to make as much money as possible. The well-being of its subscribers is definitely a secondary interest. In order to make money as an insurance company you need to reduce risk as far as possible and reduce pay-outs. You want to take in as much as you can and pay out as little as possible. From the point of view of the consumer, commercial health insurance is a rational choice only if there is no better alternative.
As a first strategy for enriching themselves maximally, the commercial insurance companies do not insure persons with “pre-existing conditions.” Here is an example of that. A woman has a drink with a stranger in a bar “The next thing she knew, she said, she was lying on a roadside with cuts and bruises that indicated she had been raped. She never developed an HIV infection. But months later, when she lost her health insurance and sought new coverage, she ran into a problem. The insurance companies examined her health records. Even after she explained the assault, the insurers would not sell her a policy because the HIV medication raised too many health questions.” After she took some anti-HIV drugs, just to be safe, after she had been raped, the insurance company now feared that she might be HIV positive and that was enough to deny her health insurance. The Huffington Post that reported this case also had accounts of other rape victims being denied health insurance on the grounds that they might be suffering from PTSD and need help for that. Since that might cost money, the insurance company refused to insure rape victims. Paul Krugman, the Princeton economics professor and New York Times columnist observed that "The most successful companies are those that do the best job of denying coverage to those who need it most."
The commercial insurance company has a second strategy for making huge profits: not paying out when insured persons put in a claim. An example is the couple who, in middle age, lost their health insurance when the companies they work for went broke. They were forced to sell their house, but still could not get insurance because the husband had a mild heart condition; the wife had a gynecological problem that disappeared after menopause. One kind-hearted insurance agent explained to them that even if they did manage to buy insurance, their insurance companies would try hard not pay any claims on the grounds that their illness was the result of “pre-existing conditions.”
Here is where the public option comes in. The government is not going to enter the health insurance field in order to make money. It will be a scheme like the immigrants burial society or a co-op bank. People pay their premiums; they get their health care paid when they need it. No one is aiming to profit from the sickness of the subscribers as does the commercial insurer. Since profit is not the goal, the government insurance is going to be cheaper than the private insurance.
A few weeks after the government bailed out the AIG insurance company, AIG spent $400,000 at a fancy resort for a retreat for its executives. $20,000.00 was reputedly spent on manicures for the execs alones. When you pay private insurance, you pay for that--and, more importantly, for the big paychecks of the top managers and the income of the investors. In public, that is non-profit, insurance you do not need to pay for all that. So you pay less.
The private insurance will be cheaper. It will serve to keep commercial companies a little bit honest.
You can see why those commercial insurers putting up such a big fight against the public option. They don't like competition from a non-profit insurance company. They don't want to be kept a little bit honest. They want to be sure that they can get their retreats complete with manicures (and, of course, their profits).