The Tipping Point for Health Care Reform

Published on

The Press-Enterprise (Riverside, CA)

The following Op-Ed commentary by Jerry Flanagan was published in the Press-Enterprise on Friday, September 30th, 2005:

The fact that the cost of providing a year’s worth of health insurance for a family is now more than the entire annual income of a minimum wage worker could signal the tipping point for health care reform.

Though the numbers should be a wake-up call for politicians who have ignored skyrocketing costs, the situation can hardly come as a surprise. Premiums have consistently increased two to three times faster than the rate of inflation, worker salaries and medical costs.

In just the last 15 years, the cost of health care for a family has increased 400 percent while the national minimum wage increased just 20 percent.

* 1991 – In 1991 the cost of providing family coverage accounted for a quarter of the $8,840 yearly income of a minimum wage worker.

* 1998 – In 1998 the average cost of family coverage was $5,532; roughly half the minimum wage income at that time, $10,712.

* 2005 – In the last seven years the cost of providing family coverage has doubled, reaching $10,880, while the national minimum wage has remained the same.

California minimum wage workers, who earn $3,000 more each year than those receiving the national minimum, will likely see their incomes eclipsed within the next five years.

As costs climb, the number of employers that offer health insurance has fallen dramatically. Those businesses that still offer coverage have pushed more costs onto employees. All but the wealthiest consumers are feeling the pinch of the cost shift. Nationally, the middle-income are joining the ranks of the uninsured faster than any other group.

Divorce, job changes, and illness all increase the likelihood that consumers will succumb to high health care costs. A 2005 Harvard study found that medical bills are responsible for half of all bankruptcies.

Of the approximately 1 million Americans who file for bankruptcy each year as a result of illness, most have college degrees, are working and own their homes, and three-quarters have insurance.

How does illness bankrupt middle-class Americans with health insurance? High out-of-pocket costs and limits on coverage.

HMOs use phony arguments that blame exponential rate increases and coverage restrictions, which leave patients unprotected when they need insurance the most, most the rising cost of medical care. But in 2002, health insurance overhead costs, including advertising, administration and profit, became the fastest growing component of health care spending. Health insurers now spend 10 times more on overhead and administration than public health care programs like Medicare.

A good example of HMOs’ increasing waistline is a series of mergers awarding nine-figure golden parachutes to executives. In the pending merger of PacifiCare of California and UnitedHealth, $834 million in excess reserves and bonuses for PacifiCare brass are at stake – enough money to provide health insurance to 278,000 Californians for an entire year. The recent WellPoint/Blue Cross merger awarded a single executive, CEO Leonard Schaeffer, $250 million.

Some 400 mergers of managed care companies over the last 10 years have also removed competition and incentives for efficiency, inevitably resulting in higher costs, fewer choices for consumers, and higher uninsured rates. Now, just five companies, including PacifiCare, control over 80 percent of California’s HMO market.

In addition to astronomical profit increases, mergers have given HMOs the freedom to further enrich their bottom line at patients’ expense by fattening their “reserves.” For-profit, publicly traded HMOs like PacifiCare and WellPoint, build up unnecessary cash reserves to elicit favorable stock reviews, resulting in higher stock prices and bigger payouts when executives cash in stock options.

Every dollar spent on executive hand-outs or diverted from patient care to languish in cash accounts means that patients must pay more for less health care or drop coverage altogether. PacifiCare’s $78,500 contribution to Gov. Schwarzenegger, whose appointee has the final word in the merger approval process, is yet another example of how HMOs squander the money of families struggling to afford their health insurance.

Reacting to a similar environment for auto insurers in 1988, voters approved Proposition 103, which requires insurers to prove that their rates are not excessive. As a result of that ballot initiative California drivers have saved $23 billion.

Health care consumers should no longer be treated like second-class citizens while the health care elite while away their days on private islands purchased with our nest eggs. Minimally, health insurers must be required to abide by the same consumer protection rules as auto insurers.

If Wall Street continues to demand more of our health care dollars, voters may opt for a more aggressive surgery: Remove health insurance from the private market altogether. A recent study found that a , proposal by Sen. Sheila Kuehl, D-Santa Monica, to do just that would create enough savings to insure everyone in the state for $8 billion less than we currently spend.

Whether or not elected officials catch on, California families desperate for affordable coverage will ultimately steamroll the health care establishment’s status quo at the ballot box.
Jerry Flanagan is Health Care Policy Director for the Foundation for Taxpayer and Consumer Rights (FTCR) which recently launched an Internet campaign targeting insurer waste at

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