Nationalization—a term alien to most Americans taught to believe in the ideology of a free market—is now at the center of a public discussion on how to address the ongoing crisis of the country’s major financial institutions. For most observers, nationalization is viewed as an unfortunate and temporary step that would be taken to restore troubled banks to health and then turn them loose on the market again.
Yet perhaps we shouldn’t be thinking in such narrow terms. If the taboo against government ownership is disappearing, now might be the time to consider applying that solution to another industry that causes Americans a great deal of grief: for-profit health insurance.
Long before the banking system became a national embarrassment, health insurance companies—especially health maintenance organizations—were a leading symbol of market forces running amok. A wave of consolidation put the industry under the control of a handful of huge for-profit corporations whose business plans are based on the denial of as much care as possible. Despite being hit with a variety of class action lawsuits filed on behalf of patients and healthcare providers, their practices remain largely unchanged.
Calls for healthcare reform have grown, yet mainstream analysts insist that private insurers have to remain a central part of any new system. Although it is the norm in most other developed countries, the conventional wisdom is that government-managed coverage—the single-payer approach long advocated by groups such as Physicians for a National Health Program—is unthinkable here.
That’s not because single-payer isn’t feasible. On the contrary, it’s the for-profit system that leaves a lot to be desired in the efficiency department. Consider this: According to their latest financial statements, the five largest private U.S. health insurers—UnitedHealth, WellPoint, Aetna, Humana and Cigna—together spent more than $36 billion on marketing, administration and other non-medical costs last year. This represented 19 percent of their total costs, which doesn’t include the administrative costs they impose on doctors, hospitals and other healthcare providers. By contrast, in Canada’s government-run single-payer insurance system, administration accounts for only 3.4 percent of total costs.
If the five big U.S. private insurers were that efficient, they would be spending only about $7 billion a year on non-medical costs. In other words, they are wasting nearly $30 billion a year on functions that do little to promote the physical well being of their subscribers. In fact, a large portion of the waste represents their efforts to reduce care and thereby raise profits, which for the five totaled more than $8 billion last year despite a difficult economic environment.
A great deal of the waste among private insurers reflects the huge workforce—totaling more than 200,000 at the top five firms—they employ to operate their immense bureaucratic machine. Imagine how much better our system would be if most of those 200,000 people were retrained to be healthcare providers rather than deniers, and the billions in wasteful spending went toward lowering premiums and improving care. Some researchers have estimated that the replacement of the multiplicity of private and public payers into a single national system would eliminate $350 billion a year in wasteful expenditures.
In his speech to Congress this week, President Obama was emphatic about moving on healthcare reform soon, but he was vague about details. Vast sums are being spent to at least partially nationalize banks. Why not use some of those funds to take over the health insurers that create their own form of financial distress?
It is an auspicious time to take the plunge. Thanks to the slumping stock market, the stock prices of the big insurers are cheap. The total market capitalization of the big five is currently only about $74 billion. For far less than what has been spent giving dubious capital infusions to banks, the federal government could buy out all the shareholders of the large insurers and move their subscribers into a federally operated system—perhaps an extension of Medicare—that could use cost savings to remove restrictions on coverage and enroll the uninsured.
I know there are a lot of complications, but this may be a rare opportunity to cast away old assumptions about what is possible and seek radical rather than patchwork reform. Nationalization of shaky banks may prove to be a futile effort; the federal takeover of private medical insurance would pave the way to a more humane and effective healthcare system.