Health Care Reform and the Public Insurance Plan: “Framing the Debate,” and Fording the Corporate Dam of Shareholder Wealth Maximization
Filed under: Medicaid, Medicare, Private Insurance
Photo by WyrdLight via Wikimedia Commons
Kaiser.org has recently noted that “Liberal and conservative interest groups ‘have begun a fierce ideological battle, with each side trying to shape the public’s perception of a public insurance plan,’ the Christian Science Monitor reports.”
Kaiser states:
The Health Policy Consensus Group, a coalition of conservative interest groups spearheaded by the Heritage Foundation, listed the creation of a public insurance option as the No. 1 “deal killer” for health care reform. The group argues that the government would use its “regulatory, pricing, and taxing authority” to make it nearly impossible for private insurers to compete, leaving U.S. residents without a private alternative.”
Let’s attempt to understand the argument against a public insurance plan. To do so, I would suggest that it will be of some help to understand the nature of a “public plan,” and, perhaps just as importantly, where the interests lie.
When we speak of “a public insurance plan,” we speak essentially of expansion, not creation: Medicare, Medicaid and SCHIP are “public plans,” as are those administered by the Veterans Administration and the Indian Health Service. At present, however, these plans are tailored to bring medical care to people who meet certain criteria. At present, this country is estimated to have close to 50 million people who are uninsured: primarily people who either lack the money or employment requisite to obtain private health insurance or who fail to meet the criteria requisite for enrollment in any of the public plans as they are presently configured.
The “public plan” proposal would expand the criteria for enrollment in extant “public plans” and perhaps constitute other service providers to administer to the need. So…the argument against a public plan is essentially an argument against making these plans (or very similar plans) available to a greater number of people. Why? Simply put, those who would be serviced by an expanded “public plan” would thereby be rendered unavailable to Private Insurers as customers and generally speaking, less customers = less profit.
Understandably, those who oppose a “public plan,” such as America’s Health Insurance Plans (AHIP), have proposed that as a means of achieving universal coverage, all Americans should be forced (”mandated”) to purchase health insurance from, well, Private Insurers. The plan calls for the Government to subsidize this purchase of private insurance. Given that there are close to 50 million uninsured, this would result in an increase of tens of millions of paying customers for Private Insurers. This proposal has been rather aptly compared by Jeff Emanuel of The American Spectator to an automaker bailout which would require each American to buy a car.
The Heritage Foundation’s Health Policy Consensus Group, opposed to a public plan, is said to argue that with the advent of an expanded public plan
“the government would use its “regulatory, pricing, and taxing authority” to make it nearly impossible for private insurers to compete….”
In short, I believe what that means is that the expansion of the public plan would result in health insurance so cheap and affordable to consumers that private insurance companies would be less able to take a profit. I repeat: I believe what that means is that the expansion of the public plan would result in health insurance so cheap and affordable to consumers that private insurance companies would be less able to take a profit.
Being less able to take a profit, private health insurance companies would therefore be unable to serve their primary purpose–making a profit–and they would no longer function as going concerns. The argument, presumably, (why we’re supposed to care) is that this failure of the Private Insurers to adopt an effective business model in the shadow of an expanded public plan will ultimately deprive the American people of the copious benefit they now receive from private health insurance.
The World Health Organization has ranked the United States health system as being the 37th best in the world (we are just ahead of Slovenia, Cuba and Brunei). This despite the fact that we’ve somehow managed to spend more money than anyone else. We have nearly 50 million people uninsured. I might be willing to take that risk.
I also have some degree of faith that the risk is somewhat overstated and that the insurers will find their way. As we’ve blogged recently, the New York Times reported that in response to the “bleak economy” and Washington’s most recent attempts to make health insurance affordable and available to greater numbers, large private insurers, such as Aetna, have developed “2,000- page strategic plan[s]” and are meeting “almost every other working day” in response.
In 2007 Aetna’s CEO, Ronald A. Williams, received total compensation of $23,045,834. Despite that lofty number, Aetna managed to record a profit in 2007 of $1.831 Billion. In 2008, Aetna earned $1.4 billion.
The Times also reported that United Health’s CEO, Stephen Hemsley, said that in response to present conditions and future prospects
“UnitedHealth has established roots in as many businesses as it can, including some well outside its core health insurance operations, like consulting services to hospitals and doctors. The strategy also involves serving a range of people, whether through Medicaid, Medicare or employers.” UnitedHealth “is built to be an adaptable business model,” Mr. Hemsley said. As health care evolves, he said, “the most effective business model is one that evolves with it.”
In 2007 U.Health Grp’s Stephen J. Hemsley received total compensation of $13,164,529; it is not the $23 million which Aetna’s Mr. Williams received, but he was still paid roughly $253,000 per week. Presumably, Mr. Hemsley has some idea of what he’s talking about.
I understand why private insurers oppose a public, government administered, option: it is simply their duty to do so. The primary duty of a health insurance company is to its shareholders. It is also in Private Insurers best interest to convince us that their continued profitability is in our best interests– even if we don’t own shares.
In law, a natural first question to understanding the rights, responsibilities and liabilities in a given matter is “Where do the duties lie?” For lawyers, who chose to accept a certain case, the primary duty is to the client, who has a right to “zealous representation” within the bounds of the law (lawyers are also “officers of the court” with a duty to the Law itself). In this matter the primary duty of the Private Insurers is to the Insurance Co. shareholders.
Corporate responsibility to its shareholders is a simple point, but one worth keeping in mind as we find ourselves being served a “framed debate.” This is the Corporate Frame. There is an old and memorable case which illustrates the principle fairly well. Henry Ford attempted to go outside the frame– and he was sued.
Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668 (1919)
By 1916, the Ford Motor Company had accumulated a capital surplus of $60 million. The price of the Model T, Ford’s mainstay product, had been successively cut over the years while the cost of the workers had dramatically, and quite publicly, increased. The company’s president and majority stockholder, Henry Ford, sought to end special dividends for shareholders in favor of massive investments in new plants that would enable Ford to dramatically grow the output of production, and numbers of people employed at his plants, while continuing to cut the costs and prices of his cars. In public defense of this strategy, Ford declared:
“My ambition is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business.“
In short, despite the ability to sell every car he could make, Ford cut the price of the cars, raised the salary of his employees, and refused to distribute surplus cash to stockholders. Instead of enriching shareholders, Ford vowed to “build up the lives and homes” of workers everywhere. The Brothers Dodge, owning 10% of Ford stock at the time, objected. The Court ruled against Ford, and required him to make a cash distribution to shareholders. The Court stated:
As we have pointed out, and the proposition does not require argument to sustain it, it is not within the lawful powers of a board of directors to shape and conduct the affairs of a corporation for the merely incidental benefit of shareholders and for the primary purpose of benefiting others, and no one will contend that, if the avowed purpose of defendant directors was to sacrifice the interests of shareholders, it would not be the duty of courts to interfere.
Since then, twenty-eight states have passed “stakeholder” or “other constituency” statutes which allow a board of directors to “consider” factors other than shareholder wealth maximization when making a decision, but only one of those states requires a board to do so, and only a few states “state that non-shareholder interests may be given equal weight with those of shareholders.” (Hazen, Corporations and Other Business Enterprises).
Having said that, I believe it fair to say that we will not see Private Insurers or their advocates attempting to “build up the lives and homes” of American workers any time soon (with an exception perhaps for the lives and homes of Messrs Williams & Hemsley, et al.) The duty for “the building of lives and homes” seemingly lies within the public domain, not the Corporate. Insurers, vested with a duty to their shareholders, will presumably heed their duty and do everything they can to mitigate the “damages” of health reform–and will “frame the debate” zealously to safeguard shareholder wealth maximization. It is, it seems, the duty of government to “Ford” that corporate dam through appropriate regulation and legislation in order to “build up those lives and homes.” And the Corporate analogy is, actually, apt. In a sense, we are the Government’s “shareholders,” and we too have a “charter.” The first words of which make both the duties and the intent rather clear:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
“I believe what that means is that the expansion of the public plan would result in health insurance so cheap and affordable to consumers that private insurance companies would be less able to take a profit.”
Pure numbers. Lets say it will cost $150 bn a year to cover all 50 mn uninsured, I read the number put out. You realize that comes to $250 a month per person. How exactly is that “cheap and affordable to consumers”. Because you know they will just borrow the money, print it or raise various consumption taxes to pay for it.
The reason prices are so high is because of Medicare, Medicaid and govt over regulation on the healthcare industry. If the health industry will have another 50 million on the govt roles they will charge even more because our govt will just pay it.
It is to easy to just advocate the govt paying for everything by using others money or destroying our kids future.
Within the larger context of the post itself, the statement was intended to point to the ultimate cost to consumers as being relatively cheap and affordable when compared to the costs of private insurance. The argument of the Heritage Foundation & Co., essentially admitting as much. Perhaps the sentence might have benefited from the inclusion of the word “relatively,” though I thought the context had conveyed such.
I think no one disputes that it will cost money to offer medical care/insurance on a universal basis. What I had hoped to show was that in one system, private health insurance, the benefit to the well being of the public is, from a duty perspective, actually incidental; whereas in a public plan, the benefit to the public well being is primary. I take the time to illustrate this point because I believe it to be important in determining perspective– and in this case, relative expense.
Having said that, you speak of the cost of universal coverage, but I wonder if it might be beneficial to consider the cost in human capital and productivity we face in the absence of medical care. http://www.healthreformwatch.com/2009/01/21/health-care-and-productivity-a-national-cost/