Unhealthy Solutions: Private Insurance, High Costs and the Denial of Care

An Interview with Steffie Woolhandler

Steffie Woolhandler is a co-founder of Physicians for a National Health Program, a not-for-profit organization for physicians, medical students and other healthcare professionals who advocate a national health insurance program. She is an associate professor of medicine at Harvard University and co-director of the Harvard Medical School General Internal Medicine Fellowship program. Woolhandler is a co-author of Bleeding the Patient Dry: The Consequences of Corporate Healthcare (2001).

Multinational Monitor: How many people are uninsured in the United States?

Steffie Woolhandler: Forty-seven million Americans were uninsured as of 2006.

MM: What are the health impacts for those without insurance?

Woolhandler: The Institute of Medicine estimates that there are about 18,000 excess deaths in the United States every year due to lack of health insurance.

In addition, people without insurance may not die, but suffer needlessly from a stroke, an amputation or kidney failure, things that could be prevented by good care. The United States has a high infant mortality rate. Our infant mortality rate is about twice the infant mortality rate in Sweden. Children are dying and being born with disabilities because they’re not getting the healthcare they need. So the biggest cost is really in terms of human suffering and loss of human life.

MM: What are the financial costs of the U.S. health insurance system?

Woolhandler: The United States has the world’s most expensive healthcare system on a per capita basis. We spend about twice as much as other developed nations spend on healthcare. And of course those other developed nations all use some form of nationalized health insurance.

MM: What are the financial costs to individuals and families, including especially the uninsured?

Woolhandler: We have looked at bankruptcy to see what share of all U.S. bankruptcies are due to medical illness and medical bills. It turns out that at about half of all U.S. bankruptcies are due at least in part to illness. The most surprising thing in our study on bankruptcy was that the overwhelming majority of those American families pushed into bankruptcy by medical bills had insurance, at least at the onset of the illness that bankrupted them. About 76 percent of all people in the U.S. pushed into medical bankruptcy do have health insurance when they first get sick.

There are two ways that they are bankrupted. Sometimes people have insurance through their job, but they become too sick to work, or have to take off work to care for a very sick child, and they lose their health insurance. So they have health insurance and then lose it because of the illness itself.

But another very frequent scenario in our bankruptcy data involved people who held onto their insurance, usually private insurance, throughout the illness that bankrupted them. They were insured the entire time, but were bankrupted anyway by gaps in their coverage — uncovered services, co-payments and deductibles.

Private health insurance is a defective product. On one hand, you may lose it when you need it most — when you get sick. On the other hand, even if you are able to hold onto private insurance, the gaps in the coverage mean that you may be bankrupted anyway.

MM: How does the current system of private insurance affect doctors?

Woolhandler: The main thing with private insurance is there are dozens, sometimes hundreds, of different rules — payment rules and eligibility rules that doctors have to keep track of. The doctors often feel that they spend a tremendous amount of time on paperwork and the administrative side of things because of private insurance and all the conflicting rules.

Going to a Medicare-for-All system — a single-payer, national health insurance system — would mean that doctors would have only one set of payment rules. Everyone would automatically be eligible, and no one would lose their insurance half-way through an illness. It certainly simplifies the paperwork and administrative side of medicine for doctors.

MM: One of the big arguments against single payer is that it would require the rationing of care. What kind of rationing exists under managed care and the current system for those with insurance?

Woolhandler: With managed care, people are very restricted in where they can go for care. That’s often a problem. A very common insurance plan in Boston, for instance, is one that doesn’t let you go to teaching hospitals for care. You have to go to less expensive hospitals. That’s not a very good way to distribute resources. Teaching hospitals should be reserved for more complicated patients and community hospitals should be used for patients with the more routine kinds of illnesses that we know community hospitals do a good job taking care of. But with this Boston plan, if you pay more money, you can get full access to all the hospitals, including teaching hospitals. And if you can’t afford to pay the full amount, you are stuck going only to community hospitals, even if you have an illness that would be better cared for in a teaching hospital. Community hospitals do a great job with certain types of illnesses, but if you get a rare or complicated disease, it’s not a good idea to be restricted.

That’s the major form of restriction that is currently being placed on patients in the Boston area. At other times and in other places, there have been many other types of restrictions.

I think the main way the insurance industry is rationing is by trying to avoid enrolling sick people in the first place. A lot of what the insurance companies are doing is trying to avoid the high-cost cases, which means avoiding people who have been sick in the past. There have been some recent stories, for example, about people who are unable to buy insurance because the insurance company went and bought the records from a pharmacy benefits company and discovered that the applicant for insurance had once filled a prescription for high blood pressure medication or for an antidepressant.

This undermines the whole idea of insurance. Insurance is supposed to be there when you’re sick. When the insurance companies decide that they’re going to focus on avoiding sick people, then they no longer play any socially useful role.

MM: One idea from within the current system about how to deal with rapidly rising costs is disease management. What is disease management and how effective is it as a cost-containment strategy?

Woolhandler: Disease management is one of these concepts that at some times and in some contexts is a great idea. But it has been transformed and reworked into something that is probably not a very good idea.

We have a lot of evidence that in a nonprofit setting, where the goal of the organization is to provide better care, if you use a team approach with social workers and nurses actively planning and scheduling and managing the care, particularly with chronic illnesses, patients will get better care. For instance, if a nurse is assigned to a diabetic patient, to assist in the teaching, to call them every couple of weeks to find out how their blood sugar is doing, to answer their questions — we know in a nonprofit setting that results in better quality of care. Similarly, there is very good evidence that, again in a nonprofit setting, having a nurse call patients with severe heart failure on a frequent basis and asking them if they are retaining fluids, or having breathing problems — so that they are intervening early — can help people avoid having to come into the hospital so often. That’s the nonprofit, patient-centered idea of disease management.

What happened is for-profit companies took that information and said, “Why don’t we change this into a for-profit business? We’ll hire some nurse managers to call up the patients, call up the doctors and see if we can make money.” It turns out that the for-profit businesses didn’t save any money. It isn’t clear that they improved the quality of care, either.

We know they didn’t save any money because Medicare got the idea that they were going to try disease management. Medicare recruited some for-profit companies to enroll Medicare patients. After many months of trying, it became clear that these for-profit disease management companies could not deliver financial savings.

I’m all for using teams — nurses, doctors, social workers, community people — to try and improve care of patients. I’m all for scheduling and planning care of people with complex diseases. But that is very different from what these for-profit companies are talking about — which is something that probably doesn’t do any good for the patients and clearly doesn’t save any money.

MM: John McCain’s health plan has three parts: one is individual options so individuals have more ways to buy health insurance; second, consideration would be given to a state plan of pool coverage for people who otherwise couldn’t get insurance; third, he would do various things to control costs. How well would that set of policies address current problems?

Woolhandler: The policy of allowing individuals to shop around is really worthless. Individuals try to shop around now. The problem is, if you have an illness like diabetes, you can’t get private insurance at an affordable price. And being able to choose between three private plans, or six private plans, is not going to reduce the price of your insurance. That idea has nothing to do with actually improving access to care.

The second issue deals with high-risk pools, where a person with diabetes who couldn’t get private insurance might be able to go to a high-risk pool. There is substantial experience at the state level with high-risk pools and they haven’t worked very well. They are very expensive and require either huge taxpayer subsidies or very high premiums. Most of the high-risk pools have had to put caps on the number of people enrolled because the costs are so high. The states’ experience with high-risk pools suggests that they don’t solve this problem.

We recently released a study where we found that nearly a third of all uninsured people have a chronic illness. So we’re talking about a situation where a really large share of all uninsured people in the United States might be too high a risk to qualify for routine purchase of insurance and might need to use some sort of high-risk pool if we went in that direction.

I don’t think McCain has proposed anything that is a meaningful cost control. There’s just no evidence that there is any cost control in disease management.

The emphasis on information technology is similar in some ways to disease management. That is, in the right setting, with the right leadership, information technology can improve care. But no one has ever proven that information technology reduces the cost of care, with one small exception. In Indiana, where there was a really good nonprofit system, with really good leadership, they did see a small decrease in the use of lab tests. In all the studies that have been done, that was the only place where there was any evidence of cost savings. There are other studies that have looked and found no evidence of cost savings with information technology. That doesn’t mean we shouldn’t do it. In the right setting, it might help us improve care, but there are no cost savings available.

Everyone likes to talk about disease management and information technology because they look like easy ways to save money. They don’t save money, and we need to get rid of the idea that we can save money through information technology and disease management.

MM: Obama says similar things on cost control, but the much more prominent piece of his proposal is for expanding coverage. How would he go about doing that and why have you been critical of it?

Woolhandler: Obama has said that he will mandate that children get coverage, that he will mandate that parents go out and buy coverage for the children. Obama has also talked about expanding Medicaid and similar programs which have been cut back under the Bush administration. And certainly Medicaid for poor people is better than nothing. But we’ve seen over the last decade numerous attempts to reduce the number of uninsured people by expanding Medicaid and that effort has really been unsuccessful.

He is not planning to do a mandate on anyone other than children. That was part of Hillary Clinton’s proposal, but Obama is not pushing the individual mandate, I think correctly. I think individual mandates are actually a terrible idea.

He also talks about making available a Medicare-like program that people could buy their way into. I guess for poor people it would resemble Medicaid. More affluent people would be able to buy their way in.

There’s no reason to think that would work. I think the private health insurance industry is not going to allow the government to run a program that really competes with them. That’s not just my opinion. If we look historically, when state governments have tried to run public programs side-by-side with private programs, the private health insurance industry has intervened to make sure that the public program is very low quality, with very limited coverage, because the private insurance industry doesn’t want the competition.

I think Obama would like to have a very good public program that would be better than the private programs and out-compete them. But experience has shown that the private health insurance industry won’t let you do that.

MM: By contrast, many supporters of the Obama plan say that this is the best that can be achieved given the political power of the private health insurance industry.

Woolhandler: What they are really saying is that it’s politically feasible, which may or may not be true. The problem is it’s not economically feasible. If you try to get to universal coverage, but leave the private health insurance industry in the middle, it’s incredibly expensive. You have to pour lots of money into the system and it becomes prohibitively expensive to cover everyone.

A key reason is that the private health insurance industry imposes massive administrative costs on the healthcare system. Administrative costs in U.S. healthcare are about 31 percent of total health spending. In nations with single payer national health insurance, the overhead costs are about 16.5 percent of spending. The possible administrative savings in going from a multipayer system to a single payer system are about $350 billion annually. That means that by going from the current multipayer, private insurance-dominated system to a nonprofit single-payer system, you have a built-in cost savings of about $350 billion.

We don’t believe you should take this out of the health system. We think you should take this $350 billion in money saved from paperwork costs and use that to cover the uninsured and improve coverage for people who only have partial coverage. The single payer system lets you expand coverage without expanding spending.

The type of plan that Obama is proposing is very similar to plans that have passed and been partially implemented at the state level, only to fail because they are too expensive to continue. The Obama plan is going to have exactly that problem. That is, when you go to implement this program, you’re left with the wasteful private health insurance industry in place. You try to add new coverage and you’re going to end up adding billions and billions in costs and it’s no longer economically feasible.

What people are really saying is, we’re going for political feasibility with the Obama plan, but we’re completely abandoning economic feasibility. I just don’t think that that can happen in the long run. The United States should not be spending any more than we’re already spending on healthcare. We spend plenty, we just need to be spending that money more wisely.

MM: Do you think that weakness would prevent that plan from being enacted in the first place or would you expect it instead to collapse some time after implementation?

Woolhandler: Historically at the state level, plans have passed, usually during an economic boom time. The states come up with a complicated plan that involves a lot of new government spending, put a whole lot more money into the healthcare system, adapt some sort of temporary expansions of Medicaid coverage, but over a year or two things collapse because the price is too high and it’s not sustainable economically. As soon as the next recession hits, the states say, “This is so expensive, we can’t possibly keep subsidizing these public plans; we can’t enforce employer mandates or individual mandates because employers or individuals can’t afford this.” When the recession hits, the plans have been rescinded.

That has happened over and over.

That happened in Massachusetts in 1998. We had both an employer and individual mandate along with Medicaid expansion. It happened in Oregon, Tennessee and Minnesota in 1992. It happened in Washington State in 1993. And I think we’re seeing the beginning of the same dynamic with the 2006 Massachusetts law.

At a federal level, would it pass and then collapse, or would it collapse before passing? I don’t know. But I do know that the plan that Obama is proposing is simply not economically feasible. The only mechanism he has for getting more coverage is pouring more money in, and the cost containment things he’s suggesting are really laughable.

MM: If single payer faces the serious political obstacles that come from calling for wiping out the private health insurance system, are there incremental things that can be done to take us in that direction?

Woolhandler: The only incremental thing that one can do that makes any sense at all would be placing all hospital care into a single payer system as a first step, and then later placing other types of care into a single payer system. That’s what happened in Saskatchewan. They initially enacted a single payer system that covered all the hospitals and then a few years later enacted a single payer system that covered everything.

That will work, because if you do the whole sector at a time, you can get the administrative savings. The thing that won’t work is a patch here, a patch there, because you don’t get any of the administrative savings.

MM: What about expanding Medicare to cover other age groups — down to age 55, say, or all children?

Woolhandler: Medicare by age group would be a much better idea than most of the rest of what’s on the table right now. It would be an expansion of a public program that’s not perfect, but it’s administratively efficient and fair in the way that it covers people. But it’s not really on the table right now.