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Public Health Versus Private Insurance

President Bush claims he vetoed SCHIP because it might encourage families above the poverty line to switch from private insurance plans they already have to government- funded SCHIP. But Bush misrepresents the choices facing both those with and those without private insurance. And he’s ignoring the fact that families already have strong reasons to leave private insurance if a decent alternative is presented.

Families in the income range at which SCHIP is directed — those between the poverty line and 200-250 percent of that level — cannot easily afford insurance unless its costs are mostly covered by their employers. But as insurance costs increase, more and more employers are dropping health insurance, or simply replacing full-time employees with part-time employees ineligible for benefits. That means that SCHIP has increasingly become part of the social safety net, ensuring that at least the children of families facing financial insecurity will still receive health care.

What about families with supposedly “secure” jobs that offer private plans? Here the Bush/Republican argument is getting a rhetorical free ride, because it assumes the preferable choice is always private insurance. But everyone who has had to deal with health insurance companies delaying or denying their claims knows that being insured can be as much a curse as a blessing.

As we’ve noted here before, the incentive structure of the current health insurance industry works against health care consumers, because profits strongly depend on limiting payments. That creates a powerful incentive for the insurance provider to deny coverage at the outset and delay or deny payments later. All of us have experienced this abuse, even on routine claims.

The only way to overcome such powerful perverse incentives is through strictly enforced government mandates — witness Senator Clinton’s proposal that insurance companies not be allowed to deny coverage to anyone — and continuous government intervention. Any “universal insurance” plan requires a vigilant government bureaucracy to oversee the millions of decisions insurers make, reverse unfair decisions and penalize anti-consumer practices.

And that’s exactly what’s starting to happen with the Medicare Drug Benefit program. That program mandated drug benefits through a private insurance program, and it’s had some success in getting more people covered than before. But the perverse incentives inherent in this scheme are now demanding more and more government intervention, even from a reluctant Bush Administration.

From Sunday’s New York Times front page article:

Tens of thousands of Medicare recipients have been victims of deceptive sales tactics and had claims improperly denied by private insurers that run the system’s huge new drug benefit program and offer other private insurance options encouraged by the Bush administration, a review of scores of federal audits has found.

The problems, described in 91 audit reports reviewed by The New York Times, include the improper termination of coverage for people with H.I.V. and AIDS, huge backlogs of claims and complaints, and a failure to answer telephone calls from consumers, doctors and drugstores.

. . . Since March, Medicare has imposed fines of more than $770,000 on 11 companies for marketing violations and failure to provide timely notice to beneficiaries about changes in costs and benefits.

The companies include three of the largest participants in the Medicare market, UnitedHealth, Humana and WellPoint.

The audits document widespread violations of patients’ rights and consumer protection standards. Some violations could directly affect the health of patients — for example, by delaying access to urgently needed medications.

The article details numerous problems uncovered by the audits, but you have to read through to the end to find the fundamental flaws driving the abuses. You see, there’s no public alternative to the private plans that can serve to discipline the private abuses. Equally important, to induce the insurance companies to expand coverage, the government pays insurance companies a fat subsidy for getting people signed up, a necessary step in any insurance-based scheme.

Kathleen Healey, a lawyer at the Alabama Department of Senior Services, said: “Despite the prohibition of door-to-door marketing, agents arrive on residents’ doorsteps stating that the president sent them, or that they represent Medicare. Some telemarketers insist they are calling from Medicare, and they tell beneficiaries that they will lose their Medicare if they do not sign up for the telemarketer’s plan.” . . .

But David A. Lipschutz, a lawyer at California Health Advocates, a nonprofit group, said that Medicare’s generous payments to private plans still encouraged predatory sales practices.

“Every enrollee in a private Medicare plan is a potential source of substantial profits,” Mr. Lipschutz said.

As usual, Bush has it all backwards. Private insurance gives insurers perverse incentives to screw consumers unless offset by massive, persistent government intervention — the very thing Republicans fear — unless government ignores consumers’ complaints, or gives up on trying to cover everyone. Open access to a public system can force the private plans to do a better job or lose business — as they should. So if SCHIP provides modest-income familes a decent public alternative to private insurance — and apparently, Bush assumes it does — that’s a good thing and another reason to override Bush’s veto.

Video: Kids Warn Conservatives on SCHIP: No More PhotoOps, by AmericasFuture

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John has been writing for Firedoglake since 2006 or so, on whatever interests him. He has a law degree, worked as legal counsel and energy policy adviser for a state energy agency for 20 years and then as a consultant on electricity systems and markets. He's now retired, living in Massachusetts.

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