Problems of US health care are rooted in the private sector

One attempt to discredit President Obama's health care programme has been the insidious claim that high US health care costs are the result of government involvement in the sector.

Mark Weisbrot

A RECENT report by McKinsey and Company was seized upon by opponents of health care reform to create a new myth: that President Obama's health insurance reform (the 2010 Patient Protection and Affordable Care Act - PPACA) will cause huge numbers of employers to drop health insurance coverage that they currently provide for employees.

The McKinsey study was soon shown to be worthless, and McKinsey itself acknowledged that it 'was not intended as predictive economic analysis'. But the myth seems to not be completely dead yet. For a more reasonable estimate of the impact of the health insurance reform, we can look to the non-partisan Congressional Budget Office. They estimated that the number of people (including family members) covered by employment-based insurance would be about 1.8% fewer in 2019, as a result of the PPACA legislation. Of course, this is more than counter-balanced by the fact that the percentage of the (non-elderly) population with insurance would increase from 82% to 92% - the main purpose of the reform.

Right-wingers, insurance companies, and other opponents of health care reform in the United States are always looking for ways to blame the government for the failures of our health care system. But the simple truth is that they have it backwards: our problems with health care are firmly rooted in the private sector. That is why the average high-income country - where government is vastly more involved in health care - spends half as much per person on health care as we do, and has better health outcomes.

That is why even Medicare - which has to pay for health care services and drugs at costs inflated by our dysfunctional private health care sector - has still proven to be much more efficient than private insurance. As Nobel laureate economist Paul Krugman recently pointed out, from 1969-2009, Medicare spending per person rose 400%, adjusted for inflation; private insurance premiums, also adjusted for inflation, rose 700%.

The most effective way to insure everyone and make our health care system affordable would have been to expand Medicare to everyone, while beginning the process of reducing costs through negotiation with, and restructuring incentives for, the private sector. The private insurance companies use up hundreds of billions annually on administrative costs, marketing, and other waste - which is what you would expect from companies who maximise profit by insuring the healthy and trying to avoid paying for the sick.

We also spend nearly $300 billion on pharmaceuticals each year, most of which is waste due to the patent monopolies of pharmaceutical companies. We could eliminate most of this waste through further public financing of pharmaceutical research, with new drugs sold as low-cost generics. Vermont Senator Bernie Sanders has introduced legislation in the Senate to realise these savings.

A distant second best reform, as compared with Medicare for all, would have been to include in Obama's health care reform a public option for employers and individuals to buy into. This would at least have provided some competition from a more efficient public sector to help control costs. But unfortunately, the insurance and pharmaceutical companies' lobbies proved to have a more powerful influence on our government than the voice of the people. This is another sad result of our dysfunctional health care system: The winners - waste for us is income for them - have a veto over health care reform.

It remains to be seen whether the PPACA will be a step toward more comprehensive, effective reform that gives us Medicare for all. In the meantime, the right will try to blame the government and the legislation itself for rising health care costs and other failures of our health care system. But in fact these result from the legislation not having gone far enough to rein in the private sector.      

Mark Weisbrot is co-director of the Center for Economic and Policy Research (CEPR) in Washington, DC. He is also president of Just Foreign Policy. This article is reproduced from the CEPR website, www.cepr.net.