Road To Single-Payer: Fighting For Universal Health Care At The Federal Level

Editor’s Note This is part 3 of Jon Walker’s series on health care and the path to universal, affordable coverage in the United States. Read Part 2 | View Series Archive | Read Part 4

Politics is what stops the United States from adopting a functioning universal health care system.

Based on past Supreme Court decisions, there are no constitutional or legal reasons Congress couldn’t simply adopt something like Medicare For All. Similarly, there is no financial constraint. The federal government can easily borrow money for any short term transition costs.

Therefore, it is purely politics, which has left millions without coverage—millions who can’t afford care—and almost everyone dramatically overpaying for their care.

To understand the politics stopping something like Medicare For All, one must understand the lobbying forces stopping it. And to understand that, one needs to understand why America spends a far greater share of it gross domestic product (GDP) on health care than any other country.

It is not because Americans, for the most part, use a lot of health care or live better. For some procedures and medications, the U.S. is one of the best countries for such treatment and care. However, the country has a below-average number of doctors and a below-average number of hospital beds. Life expectancy in the U.S. is also below most industrialized democracies.

Administrative Costs and Overpaying For Services

Since we lack single-payer or even an all-payer system, what the United States has is hundreds of insurers with hundreds of different insurance plans that negotiate with thousands of providers over the price of everything.

Keeping all these different reimbursement rates straight and collecting all these different co-pays and co-insurances creates a massive administrative workload for both insurers and providers.

That means billing departments in America are big and complex. For example, traditional Medicare has an overhead cost of 1.8 percent. The average private insurance company has an overhead cost of about 13 percent.

The Affordable Care Act requires only 80 percent of premiums to be spent on care. If private insurance had the same overhead cost as Medicare, Americans would save roughly $100 billion each year.

Even the insurance industry admits, while their profit margins are modest, basically one-fifth of all the premiums they collect are not used on care. It is not the profits of the private insurance companies that drive up costs but the administrative waste created by their existence.

Having so many different payers with different rates and billing processes is expensive for providers. In the U.S., 25 percent of hospital spending is administrative costs, compared to just 12 percent for Canadian hospitals. Cutting that down could save another $100 billion a year.

The reason providers put up with something so chaotic and costly is that it allows them to get away with charging much more. American providers receive dramatically more money for deliveries, hospital stays, and bypass surgeries. American doctors are among the highest paid in the world.

Medicare has such a large pool of patients that it is able to negotiate better reimbursement rates with hospitals. On the other hand, numerous private insurance companies have smaller individual pools and a much weaker negotiating position.

This is what providers like about them. According to researcher Ben Ippolito, the average hospital profit margin on privately insured patients increased from 15 percent in 2002 to 44 percent in 2013. While the massive variation in different hospitals’ list prices has almost nothing to do with cost or quality, they do inflate profits.

The ACA expansion of coverage via private insurance was not just to try to buy the support of insurers. It was also about buying off hospitals by designing the law so that the newly insured would overpay.

This is why one of the American Hospital Association’s (AHA) main goals in ACA negotiations was stopping a public option that would pay Medicare rates.

President Barack Obama campaigned on giving citizens the choice of a government-run insurance plan (the public option) on the exchanges, but as a result of a deal he cut with the hospitals, the public option did not make it into the final law.

The public option was envisioned as a way to effectively let younger individuals buy Medicare coverage.

The AHA reiterated their opposition to it last year during the Democratic convention, stating they had “serious concerns that creating a public option with Medicare-like payments” would “[depress] insurer payments to health care providers.” Expect similar opposition to a functioning all-payer system if providers think it would lower rates.

Waste And Overcharging Is A Bigger Hurdle Than Partisan Politics

These costly inefficiencies in our system create big profits for companies, salaries for tens of thousands of administrators, and create entire markets for auxiliary companies. Industry players are well organized, know their entire business models are at stake, and have some of the biggest lobbying budgets in the country.

Let’s recall: The ACA’s design was not a result of partisan or ideological compromise but rather a product of negotiations primarily with the healthcare industry.

For a telling look at the entire ACA process, it is worth reviewing the original health care expansion proposal offered by the trade association America’s Health Insurance Plans (AHIP) in 2008.

This was effectively the entire health care industry’s vision of how to cover millions more without doing anything that would endanger their profits. The final ACA legislation was very similar to what the private insurance lobby laid out before the congressional negotiations ever started, even though the private insurance industry never fully embraced it.

Back in 2008, Obama campaigned aggressively against an individual mandate. Instead he promised a public option, a national exchange to regulate insurers, to “allow Americans to buy their medicines from other developed countries if the drugs are safe and prices are lower outside the U.S.,” and to “repeal the ban that prevents the government from negotiating with drug companies.”

Such measures would significantly lower costs for regular people by reducing industry profits. None of them were part of the AHIP proposal and none made it into the final law. On the other hand, the individual mandate Obama campaigned against was in the AHIP plan and did make it into law.

Very early in 2009, Obama secretly made a big political trade-off. He chose not to take-on the industry and basically adopted their existing plan instead. He broke his promise to push for proven solutions to bring down health care costs for everyone in exchange for the health care industry’s cooperation.

Specifically, an agreement to spend big on a campaign promoting insurance coverage expansion for the poor was established. He cut a deal with Billy Tauzin, a lead lobbyist for the trade group Pharmaceutical Research and Manufacturers of America (PhRMA), to drop his call for drug re-importation and government direct drug price negotiation. In exchange, PhRMA accepted minor cuts to help finance the ACA and spend $150 million on an advertising campaign.

Obama cut a similar deal with the hospitals in exchange for his promise to let the public option be killed (even as a he still publicly claimed to support a public option).

While the ACA went through more than a year of committee meetings and congressional deal-making, this was mostly a sideshow, which only tweaked the deal. It was broadly an attempt to give the legislation a bipartisan veneer to sell to the public what was already a mostly done deal.

Often the committee meetings were less about real negotiations between members of Congress and more about Obama getting his allies to kill provisions he campaigned on to protect industry deals.

When politicians claim they support the idea of universal care but are worried about whether reform is “politically viable,” oppose it because it will never happen, or think we require an “unique American solution,” what they often truly mean is they do not want to upset these industry players.

Maybe politicians want the industry’s campaign contributions, highly paid board seats, millions of dollars in speaker fees, or a cushy retirement job. Or, perhaps, they just do not want the industry’s campaign dollars spent against them. Last year, Blue Cross/Blue Shield spent at least $13,846,109 on lobbying and AHIP spent at least $6,960,000.

Before Hillary Clinton attacked single-payer as an idea that will “never, ever come to pass,” she was paid $2.8 million by the health care industry for just a few speeches.

Similarly, while former Senator Evan Bayh (D-IN) threatened to hold up the ACA if it wasn’t conservative enough, his wife received $2 million for sitting on the board of a for-profit health insurance company. Then-Senator Joe Lieberman (I-CT), who killed the proposal to let uninsured people over the age of 55 buy into Medicare, received over $2 million from the insurance industry and health care professionals. His wife also previously worked for a lobbying firm that handled health care and pharmaceutical clients.

Back in 2003, before Billy Tauzin was a PhRMA lobbyist, he was a republican congressman from Louisiana who designed Medicare Part D using a convoluted private insurance exchange system that resulted in higher reimbursements for drug companies. It prevented Medicare from directly negotiating for drugs or importation from Canada. Almost immediately, he took a job as a highly paid lobbyist for the drug industry, where Tauzin brokered the aforementioned deal with Obama to prevent the ACA from allow drug re-importation or Medicare drug price negotiations.

In exchange for a $150 million ad campaign from the industry, Obama made a backroom deal with Tauzin to maintain the 2004 backroom deal Tauzin pioneered as a member of Congress, which Obama explicitly opposed as a candidate.

Tauzin was not alone: two dozen other key players behind the Medicare Part D law found similarly lucrative lobbying positions.

How Might Federal Hurdles Be Overcome?

Resistance to change is one of strongest forces in politics. Even if change might improve things for 90 percent of people, many fear uncertainty, and the 10 percent, whose lives will be worse off, find a way to disproportionately make their voices heard.

Many good ideas with broad support have failed because the public feared implementation could go wrong. There is a reason President Obama kept repeating the “you can keep your plan” lie. It addressed this fear.

The failure to address status quo bias has undermined many efforts. Groups often get too focused on selling the long term benefits of their plans when what many people are most concerned about are the short term disruptions.

A significant part of any health care plan should be how to produce a smooth transition. There are ways to do this. For example, you can slowly expand Medicare like the original creators wanted. Cover every child born after the date the legislation is enacted, for example, or lower the Medicare age by two years every year.

The country could also go the route of former Rep. Pete Stark’s old Americare idea. It would basically make a universal Medicare buy-in for companies so appealing almost all businesses would eventually choose it at their own pace.

Advocates could push to expand Medicare to particular groups in need.

Medicare already covers people with kidney failure, and when Sen. Max Baucus (D-MT) wrote the ACA, he had it expand Medicare to all the people in Libby, Montana, who suffered from asbestos exposure.

Ironically, while creating a complex system of inefficient exchanges, Baucus knew Medicare was the fastest and most effective way to help his constituents in immediate need.

Why not push to expand Medicare to everyone in Flint, Michigan because of lead? Or everyone with Crohn’s Disease or everyone with HIV, or everyone in an Appalachian mine town after a mine shuts down?

Demand the solution to every medical-economic problem be “give them Medicare” until it is finally expanded to a critical mass.

The ACA has played a big role in politics moving forward. On one hand, the low quality of the exchange plans has probably killed any public will for expanding the private insurance marketplace. On the other hand, it likely increased public skepticism about the federal government’s ability to create brand new health care programs.

Dealing With Industry Opposition To Universal Health Care

Bribing all segments of the health care industry was the path President George W. Bush and Republicans took with Medicare Part D.

Seniors wanted drug coverage, but the industry hated the idea of Medicare using its strong negotiation position to directly buy drugs. Republicans responded by creating a complicated way to give private insurers money to buy drugs for seniors. It funneled billions to the insurance and drug companies at significant extra expense to taxpayers.

As previously explained, the Affordable Care Act took the path of mostly bribing the system combined with some deal-cutting. One would think bribing would be unnecessary because providers should love a plan to increase the number of people with coverage. But the health care industry feared reforms that would expose how much they are ripping off most people, and that fear outweighed their interest in gaining a few million new consumers.

The industry players did make modest concessions in exchange for massive direct subsidies and having the government force people to buy their products. Yet, the ACA still shows the limit of relying on bribery to get to universal coverage.

Theoretically, it might be possible to use the framework of the ACA to make a relatively affordable universal care system. That would require massively increasing subsidies across the board to really bring down out-of-pocket costs on the exchanges.

Making the exchange plans truly affordable would likely destabilize the entire employer-provided insurance system and undermine a big reason for the ACA’s Rube Goldberg design.

Employers would likely switch people to these massively subsidized and very efficient exchanges, at even greater cost to the government. It could work but would be so expensive it would run into serious financial sustainability issues. There also is no guarantee the insurance industry would behave even with this windfall or without Republicans undermining it.

Directly fighting the entire health care industry would likely produce the best, most cost effective single-payer system. It would be required to bring health care costs all the way down to first world averages. However, it would be a massive political challenge. The only way to fight the industry would be to find a way to convince a large share of the rest of economy that they should join the fight.

President Obama did not try to do this with the ACA. The ACA left the employer-provided system basically unchanged, giving them no reason to fight reform and no reason to fight for it either. As a result, the only real choice was bribing the industry.

Back in 2008, Obama’s campaign rhetoric implied he was going to bring a large swath of the population and the economy to fight the industry for broad reform. That would be the only way to make good on his promise to save the typical family “$2,500 every year”, but he quickly abandoned that tactic and promise.

Cutting deals requires painful and costly compromise but makes things politically easier. One obvious option is to try to cut a deal to split those who actually provide care (hospitals, drug companies, doctors) from the insurers.

For example, a deal could keep most reimbursement rates relatively high so that only private insurers are fought against. Private insurers are the least popular part of the industry and add the least value to the system.

A proposal that only reduced the administrative waste they create would still free up a lot of money to improve care. There is no guarantee that providers would go for this deal, though, since they might fear further cuts down the road.

There is also the question of what to do with Health Maintenance Organizations (HMO) like Kaiser Permanente, which are a combination of providers and insurers. Reformers could reduce industry opposition by creating a special carve-out to allow non-profit HMO plans as an option or deductible-free add-on to a single-payer system, but that would add new complexity. Either way, there are systems like Australia that have a very good universal public health system and a large optional private choice.

The Overall Stakes

Advocates of reform are normally aware of the stakes on their side. Medicare for All would save thousand of lives, give peace of mind to tens of millions, provide greater economic security for everyone, improve international competitiveness for American business, and more.

But advocates often overlook what is at stake on the other side, and real reform will mean destroying some fortunes.

The largest private health insurer has a market capitalization of well over $100 billion. Reform will mean shrinking or even putting companies out of businesses. It will mean making thousands of jobs redundant. While they add no value to our system, they are undoubtedly valued by someone.

Winning the policy argument is not enough. Winning the popular argument is not enough. Real reform will require forging a political coalition willing to break some pretty big eggs to make the omelet. It will need a grassroots movement to build pressure, an intellectual outreach effort to get other segments of the economy behind reform, and politicians to carry the message.

Advocates and organizers will have to fight a battle of inches in order to achieve universal health care.