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health / Stones & Bones / volume 9 number 11, November 2007 DOSE OF REALITY Its ever-increasing cost in the United States has made health care the central domestic issue in the upcoming 2008 elections. One problem with understanding the arguments being made by both Democratic and Republican candidates is a general failure to distinguish between what is meant by the terms ‘health insurance’ and ‘health care.’ Too often, people seem to view these two terms as synonymous. That is unfortunate because health care and health insurance are two quite different concepts. By health care we mean the actual delivery of health services to patients by doctors, hospitals and other providers. Health insurance is only a mechanism for paying for those services. The distinction is important because many health insurance policies do not pay the full cost of health care. The total cost of health care to an individual or family includes the cost of insurance premiums, deductibles, co-payments—and out-of-pocket expenses for the health care not paid for by insurance policies. When it comes to the need for health care, equality does not exist. The need for health care approximately follows the 80/20 rule stating that 20 percent of a population will require 80 percent of the health care. This means that, even if everyone were to pay the same amount for health insurance premiums, a small part of the population will pay a disproportionate amount for health care. The fraction needing the most health care will pay more in co-pays and deductibles, and often must pay substantial or huge amounts in out-of-pocket expenses. It is common these days for a politician to refer to the fact that 47 million Americans are without health insurance and are not getting proper health care. To alleviate that situation, they usually say that in this country we must develop mechanisms for providing everyone with ‘affordable health care.’ Then it is usual to propose mechanisms for providing everyone with affordable health insurance—ignoring the fact that health care and health insurance are two different things. In virtually every modern western nation, the provision of health insurance is primarily a government function, covering 90 to 100 percent of the population. However, in the United States only 45 percent of the population has government-provided health insurance, and the other 55 percent is insured by private industry, or has no insurance at all. This low percentage of government-provided insurance is a major reason why health care is so expensive in this country, simply because government-provided insurance is more efficient than commercial insurance. That perhaps shocking assertion comes from examination of the ‘medical loss ratios’ of both government and commercial insurers. The medical loss ratio is the portion of money paid into an insurance pool that actually goes to paying for health care. The medical loss ratio of a government insurance program like Medicare or Medicaid is approximately 96 to 97 percent, meaning that 96 to 97 percent of the money put into the programs goes to direct payment for health care. By contrast, the typical medical loss ratio of commercial insurance programs is about 73 percent, and some insurance policies run as low as 45 percent. In short, private insurance siphons off one-quarter to one-half of the health care dollar to pay for administration, advertising, and shareholder profit. Most everyone touts the need to extend health insurance to cover all Americans, but views are strongly divided over whether this extension should be accomplished by increasing government insurance or by increasing private insurance programs. The current administration strongly backs extending private insurance and the privatization of existing government programs. The highly profitable insurance industry is of course in favor of that approach, as are proponents of minimal government involvement in all social affairs. Vocal and influential spokesmen for privatization of government health programs are the Heritage Foundation, the Cato Institute, and a number of other right-wing think tanks and insurance industry advocacy organizations with appealing names such as the Council for Affordable Health Insurance and the Citizens for Better Medicine. The former fronts for the health insurance industry, and the latter for the pharmaceutical industry. Unfortunately, privatization of health insurance has no hope of reducing the country’s health care costs. Privatization merely transfers insurance programs having high medical loss ratios to programs with lower medical loss ratios, thereby putting more of the nation’s health care dollars into administrative costs and shareholder profits. That lost money obviously increases the total amount we must spend for health care. Proponents of privatization like to gloss over the distinction between ‘affordable health care’ and ‘affordable health insurance’ because they are well aware that health insurance pays only a part of the cost of health care. One way to make insurance more affordable is to have it pay for a smaller fraction of the total cost of health care, thereby leaving the consumer to pay a greater fraction. Unfortunately, that is a trend now underway in the United States. Employers and insurance companies are moving to place more of the risk of paying for health care onto employees and other consumers. Because of the 80/20 rule, this trend places an increasing liability on the heaviest users of health care, the people who usually can least afford to carry the burden. It is common knowledge that roughly half of all bankruptcies in the country now are caused by unbearable health care costs.
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