Opinion: The upside-down economics of the health insurance system

Democrats and Republicans in Congress got it all wrong

  • Sunday, December 8, 2019 7:00am
  • Opinion

Every year, the General Accounting Office (GAO) delivers a detailed report to Congress that identifies ways to improve efficiency and effectiveness of the federal government. Since 2011, implementation of their recommendations has saved taxpayers $262 billion.

But when America’s health care insurance system is plagued by the same problems, Congress can be trusted to be the most ineffective entity throughout the federal government.

A quarter billion dollars might seem like pennies compared to the $6 trillion-dollar federal budget deficit between 2011 and 2018. But I think we’d all agree Congress would be neglecting its duty to taxpayers if they ignored the GAO, even if cutting that wasteful spending put some federal and contractor employees out of work.

Now, along comes a study by the Political Economy Research Institute (PERI) that tallies up the inefficiencies in our health care system. The authors argue that replacing the current private/government hybrid with Medicare for All would streamline administrative billing and insurance-related activities. They estimate that alone could deliver a $50 billion annual reduction in America’s health care bill.

Don’t expect Congress to get excited though. Democrats won’t be interested eliminating 1.8 million private sector jobs. And Republicans aren’t likely to support a program that increases the size of the federal government by taking over an entire private business sector.

But the PERI study is worth examining because it flips the conventional thinking about government versus private sector efficiency upside down.

Under our current system, billing and insurance-related activities are riddled with inefficiencies. Burdensome government regulations are part of the problem. But it’s mostly caused by “all parties operating in the system having to deal with a large number of insurance providers with their own sets of rules and claims-processing requirements.”

That description matches the three efficiency problems identified by the GAO. Fragmentation is multiple entities engaged in the same broad area of need. Overlap and duplication happen when they engage in similar activities to provide the same services across the same market of beneficiaries.

Eliminating that kind of administrative waste “has appeal to economists who prioritize efficiency,” Rachana Pradhan wrote in an article about the PERI study. “But politically it can be a challenge when what looks like an ‘excess cost’ from a distance looks like a good-paying job to the person who holds it.”

Pradhan discussed the problem with Janette Dill, a researcher at the University of Minnesota who has studied health care-related employment. Her explanation sounds more like a warning against reducing the size of the government bureaucracy.

“We vilify the health care industry,” she said, “but it provides jobs to a lot of people, and not just jobs for wealthy people but jobs for everyday people.”

About 874,000 of those good-paying jobs are with private insurance companies. Another 1.6 million work primarily on health insurance administrative matters in hospitals, clinics, doctors and dental offices.

Under Medicare for All, some processing clerks and accountants would still have jobs, either with the new government agency managing it or in the office of health care service providers. But 1.8 million would join the ranks of the unemployed.

This is what you’d expect when a dozen or more large businesses get absorbed into one large monopoly.

But eliminating competition is supposed to drives prices up, and that usually has a negative impact on product demand. And the PERI authors are telling us something different.

If Medicare for All is implemented, they predict the demand would rise by 12 percent as the currently uninsured and underinsured people and families start seeking health care. And as I’ve already pointed out, improved administrative efficiencies would drive the cost of those services down.

To be sure, a new government program means new taxes. But combined with lower service and no insurance premiums, PERI claims the bottom-line average is “households and private businesses will be able to pay into Medicare for All about 9.6 percent less than they are presently contributing to the U.S. health care system.”

Is there a way to accomplish this without the government running a monopoly? Congress could pass legislation that forced insurance providers to clean up their act.

But as we’ll learned from Obamacare, the new regulations made insurance premiums rise, as did insurer profits. Proving both Democrats and Republicans in Congress got it all wrong.


• Rich Moniak is a Juneau resident and retired civil engineer with more than 25 years of experience working in the public sector. My Turns and Letters to the Editor represent the view of the author, not the view of the Juneau Empire.


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