A Seat at the Reform Table

Posted May 13, 2009, at 6:35 p.m.

The $2 trillion offer of health care savings that the industry made to President Obama this week likely sounds better than it will turn out to be. That the health care industry wants to be part of the solution as momentum builds for reform comes as no surprise, but it should be viewed with caution.

To be sure, the health-industrial complex (its inevitable moniker) knows that major reform is probably coming this year, if only because business, large and small, is demanding relief from the health care burden. And the industry, including those who put “Harry and Louise” on television in the early 1990s to sink the Clinton plan, knows better than to start fighting the Obama plan head-on.

President Obama, for his part, has welcomed the broad agreement that the present system needs fixing, a fact that was reiterated Tuesday when Medicare trustees warned that system faced serious financial problems sooner than expected. So the president has gone along with the show of cooperation by the industry.

But although $2 trillion by the end of 10 years sounds generous, it is not really a saving but a modest, but necessary, cutback in the headlong increase of national health care costs. Sponsors and federal officials figure it will snip l.5 percent a year off the current 6.2 percent growth rate, for what they calculate as a $2,500-a-year saving for a family of four.

How they reached that per-family figure is a mystery. The mounting health care costs include not only out-of-pocket family expenses but also federal and state government costs, hospitals’ and doctors’ expenses, and the enormous amounts spent by drug companies to promote and advertise their products, send sales reps around to doctors’ offices and make political contributions.

The industry doesn’t say much about its main reason for this burst of generosity. That’s its adamant opposition to a key feature of the Obama health plan. To cover the millions who have no health insurance or are dissatisfied with what they have, he wants a government insurance organization to offer a choice, something like the electric-price yardstick offered by the Tennessee Valley Authority to compete with private power companies.

The industry fears that this “public option” would offer lower premiums and take business away from the private insurance companies. Of course it would, and rightly so. The Lewin Group, which has studied the matter, says administrative costs, including profit and commissions for privately insured small groups, amount to about 31.7 percent of covered benefits. It says administrative costs for a public plan, if run through Medicare, would equal about 13.2 percent of covered services.

One reason for this disparity is the huge salaries and bonuses for insurance company officers over the years. Another argument against continuing private insurance is that it was only this year that the industry finally agreed to equalize the premiums of women and men and agreed to stop the practice of charging higher premiums for the sick than for the well.

Insurance is supposed to be a fair method of risk sharing, and that’s what health reform is all about.

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