Expanding Health Coverage: Step Two

Medicare may not be perfect, but it is the best we have. Big Government, often derided as being inefficient, often is. But when it comes to processing medical claims for Americans over 65, it outperforms the private sector. Just take a look at what the industry calls the "medical care ratio." To compute that ratio for any insurer, divide the total benefits paid for medical services by the total premiums collected during a given time period (MCR= benefits/premiums).

A private insurer will go bankrupt if its MCR exceeds or even approaches one. Insurance executives like to see their MCR down around 0.80, and they swap high-fives if the MCR decreases quarter-over-quarter or year-over-year. For them, lower is better. The difference between the MCR and 1.0 goes toward overhead and profits. Operating costs typically range between 10 and 15%.

For Medicare, operating costs are down around 1%, and there is no profit. So when a guy like Ohio Congressman Dennis Kucinich talks about single-payer government-sponsored health insurance, he is talking about recovering the nearly 20% of non-medical costs that support a private industry. He also tacks on another 10% to account for unnecessary paperwork in the billing offices of medical providers chasing after the private insurers, who make their money by not paying. I can tell you from firsthand experience (I am married to a self-employed speech pathologist and have done her billing for twenty years) that insurers can be quite creative and persistent in finding ways not to pay.

There are many reasons why Americans, who pay twice as much per capita for health care than any other industrialized nation, get less in return--lower life expectancies, lower rates of childhood immunization, higher rates of infant mortality. One reason is the skimming by private insurers. During their presidential campaigns, Republican candidates have offered tax credits to help offset the payment of insurance premiums. Cost-benefit analysis indicates that those credits would be better applied toward direct payments to providers.

Ultimately, as suggested by Marcia Angell, M.D. and Editor-in-Chief of the New England Journal of Medicine, we may want to extend Medicare coverage, dropping the upper-age limit to 55, say, and including all children five and under. Over time we could gradually shrink the uninsured middle, implementing cost-control measures as we go to make sure that we can afford the extension of coverage. The migration would be cost-neutral if any increase in taxes does not exceed the insurance industry's current 20% take.