McHugh Watch

This week we will look at where our healthcare dollar is being spent and where our money goes. Be forewarned: this is tough stuff and can’t be presented in a sound bite. You are going to have to wade through the numbers and follow the money. Doing so, you will begin to understand how wasteful our healthcare financing is and will begin to formulate a broad outline of how the system can be redesigned to be effective and equitable. The bottom line: we can save between $350 - $450 billion by redesigning the system. That’s a lot of money – as much as the yearly military budget.

We’ve already established that we spend more, in both absolute and proportional dollars to our Gross Domestic Product (GDP), than any other country in the world. For that expenditure, we have some of the worst healthcare measures in all the industrialized world¹.

So where does our money go? It is instructive to look at the Security and Exchange Commission (SEC) filling of UnitedHealth Group² (open in a separate page so you can follow along). Through the purchase of Oxford Health Plans and Mid-Atlantic Medical Services, United HealthGroup is now the dominant health care insurance provider in New York. Note that the filings are expressed in millions of dollars, so that any of the four or greater digit numbers represent Billions.

United HealthGroup’s revenues come from direct premiums ($65,666 billion) and administrative health care services ($4,268 billion) that it sells in the open marketplace. These services are mostly to large corporations or government entities – including New York State. From these revenues it expends $53,308 Billion in health care coverage. Do the math and United HealthGroup retains nearly 25% of the health care dollar that it collects directly as a premium or an administrative service that it sells because the coverage plans are so complicated.

There are literally hundreds of plans that can be selected. All this proliferation of choice is of course a smokescreen for reducing coverage all the while appealing to our fantasy that we are being given the “freedom” to choose and determine our own destiny. United HealthGroup is so good at charging more and providing less that its corporate profits (net earnings) have increased a billion dollars each year, from $2.4 billion in 2004 to $3.1 billion in 2005 to $4.1 billion in 2006.

Net Earnings (profits) are reported after all expenses are paid, including the salaries and benefits to the corporate officers, most notably, the $1.6 Billion in stock options to the company’s CEO, William McGuire. To put this into perspective, the US spends $1.5 trillion on healthcare and therefore United HealthGroup’s CEO got more than 1/1000 of the entire US expenditure on health care (10¹² – 10⁹ = 10³ = 1000) – but he thinks it’s enough! I’m ashamed to say that he’s a doctor.

Realizing the enormous profit involved, is it any wonder Empire Blue Cross/Blue Shield wanted to convert from a non-profit to for-profit organization. In 2002, New York under Gov. Pataki took the mantra of market efficiency and allowed the conversion. The price was a one time payment to the state. The deal is most succinctly related by Health Affairs³

“On 7 November 2002 Empire Blue Cross Blue Shield (BCBS) culminated a seven-year effort to convert from nonprofit to for-profit ownership, selling 20 percent of its stock and obtaining $417 million in one of the most successful initial public offerings (IPOs) in the history of the health insurance industry. The IPO proceeds and other corporate assets were not used to endow a charitable health care foundation, as is done in most other states, but were transferred to the New York State budget largely to finance wage increases for unionized hospital and nursing home workers. The quid pro quo was the endorsement of a conservative governor by a liberal labor union, contributing to a Republican electoral landslide in a Democratic state and to the governor’s commitment to sustain health care programs in what otherwise was a disastrous budgetary context. The big losers were the community organizations that would have received the largess of a charitable foundation and who instead were left to gnash their teeth, denounce the predatory state, and invoke constitutional objections to one of the most brilliant and sordid chapters in the annals of health policy.”

– some real insight into the sordid side of New York politics.

The same analysis can be applied to Empire Blue Cross/Blue Shield. The parent company is WellChoice, incorporated in Delaware. The SEC fillings of WellChoice shows that is not much better than United Healthcare and retains 23% of our healthcare premium.

Do this for any of the insurance companies in the healthcare arena (should I now call it a racket) and the long and the short of it is that 1/4 of our healthcare dollar does not go for healthcare but rather to insurance companies coffers.

A word about the concept of market efficiency. There is no doubt that successful companies in the private sector are very efficient. That means that they will turn the greatest profit for the least expense. Of course they will – they are there to make a profit. The question is: do we have the financial luxury to allow the insurance companies to make a profit off our healthcare?

No one wants to turn our healthcare mess into a government service mess – see the last post for the ills of making hospitals and healthcare providers into civil servants as is done in Great Britain⁴. Is there, however, another alternative to a private system of health insurance and the true socialized medicine of Great Britain?

The answer can be found in Medicare.

Medicare is essentially public insurance coverage for those over 65 and for the disabled. Its overhead – the cost of running the program – is 3.4%. Of the revenues that Medicare collects, as opposed to the 25% that the private insurance companies keep, Medicare only retains 3.4%. So when “efficiency” is applied to the peoples’ healthcare coverage and the amount of money available to pay for it, Medicare wins hands down.

Realizing the tremendous profits that are involved, is there any wonder why the insurance companies viciously oppose a national health insurance system and why they spend millions (which is really a drop in the bucket compared to their profits) in campaign contributions and on advertising campaigns – remember Harry and Louise of the 1990’s. (Let’s be very clear. Hillary Clinton’s healthcare plan utilizing “managed care” in the 1990’s was a disaster, and we are now left with its private form. So now instead of the government limiting your choice of medical treatment, it’s the insurance companies – they aren’t stupid and are very efficient at extracting profits for minimal performance).

Combine this with the added administrative costs of hospitals and providers, nearly one third, 31% of our healthcare dollar is eaten up – wasted – on administrative costs⁵.

That brings us to our congressman. Why would he oppose an efficient public national health insurance program calling it “socialized medicine”. Follow the money. Over the years he, along with most of our lawmakers, including Hillary, have been generously funded by the HMOs and insurance companies. This funding ensures that the insurance companies get their way. Some of Mr. McHugh’s contributors are:

HealthNet, Inc. $14,000

Humana $7,000

America’s Health Insurance Plans the trade organization for the insurance companies. $2,000
The contributors to this PAC are all the insurance companies, including guess who: United HealthGroup.

What is also notable is the interlocking relationships between PACs. For instance, the Texas Freedom Fund is funded by insurance companies and pharmaceuticals among others, that gives to the CME Fund the gives our congressman $2,000. Follow the money.

I think you can see how corrupting it is, and why our representative, and for the matter, most of our politicians will not do what is best, least expensive and most effective for all of us. The only way to solve this problem is public campaign financing.

Next post: The pharmaceutical industry’s cut of our healthcare dollar.

1. Theophilus, Post 12/06/2007
2. Filing 10-K United HealthGroup, Annual Report 2006
3. Health Affairs 22(4):100-118, 2003
4. Theophilus, loc. cit.
5. Woodhandler, S., Campbell, T., Himmelstein, D., “Costs of Health Care Administration in the United States and Canada,” New England Journal of Medicine, 349:768-75, 2003.

When I first entered politics in 2004 one of the biggest hurdles in explaining my roadmap to healthcare reform was to convince people that the system was broken. I tried to accomplish that by telling them of the 47,000,000 Americans – one sixth of our population – were uninsured. Being uninsured meant that those 47 million would therefore seek the most expensive health care in emergency rooms far into the course of their underlying disease. Early treatment before the ravages of the disease progressed, would not only have been better for those people, but would have been far less expensive. Far less expensive does not mean a few dollars, but rather one or two orders of magnitude less expensive, from the tens or hundreds of thousands of dollars to just thousands of dollars. Disappointingly, most voters didn’t really care about those 47 million, not to mention their 108,000 neighbors who reside in our own congressional district without health insurance.

In that short time, even those who were content with the status quo are coming to realize intuitively that our healthcare system is broken. Their employers are no longer providing unlimited access to healthcare and many are not even providing it at all. Under the euphemism of “choice” each year they are having to pay more for less. It turns out that only the very few can avail themselves to all the treatments that the best medicine in the world has to offer. Of course, that doesn’t include the members of congress – they have the best coverage.

Back then, I tried to use statistical measures of health in comparison to other counties to show we did not have a healthcare system, but rather a “sickcare” system. I would present data as if I were presenting a paper to my colleagues. It turns out the voters just weren’t interested. They were not impressed that of the 30 most industrialized countries in the world, we were number 24 in life expectancy1. Neither were they impressed that our premature deaths were the second and fourth worse for females and males² . They weren’t impressed we were number five in our deaths from heart disease³. They didn’t seem to care that we were number twenty seven in infant mortality with only Mexico, Turkey and the Slovak Republic worse than us⁴.

For all that, we spend over twice for each person than almost all the other countries⁵. In fact, you could even say that the Slovak Republic was getting a good deal. They spend six times less than we do and have an infant mortality just slightly higher than ours. Yes, we spent $1.5 TRILLION dollars last year for the best medicine but nearly the worst health care in the world.

So long as someone else paid, i.e. their employers, most voters didn’t care. These were just statistics and if their neighbors ran into trouble, it was just an aberration of the “best medicine in the world,” and it wasn’t going to happen to them. I’ve often wondered what these voters think of the fund raisers to raise money for those non or under insured who need a transplant or treatment for cancer. You see these fund raisers all the time. Is there something not repugnant that the sick have prostrate themselves and go begging for help?

The voters, however, were very impressed with the draconian phrase “socialized medicine.” John McHugh couldn’t say it enough times. A phrase that was used over and over by the American Medical Association to fight prenatal care in the 1920’s and 1930’s, Harry Truman’s healthcare insurance in the 1940’s and Medicare in the 1960’s^6,7.

In parroting that, McHugh was selling a fantasy, just at Giuliani, Romney, Thompson, McCain and Ron Paul – yes, Dr. Ron Paul – and every other Republican presidential candidate is selling now. The fantasy is that you have unlimited, unfettered access to American medicine. Those fund raisers that we just talked about – they must be scams – because we all know that everyone has access to all the wonders of modern medicine. What these public “servants” are really saying is that they can avail themselves to all of American medicine – the best medicine in the world – and they want to keep it just that way. So long as you are convinced that you have the choice, freedom and ability to tap all the resources of the best medicine in the world, that is just fine with them. Just keep paying your taxes, provide them with cushy benefits, while they sell you a scam – along with Iraq’s weapons of mass destruction, Iran’s nuclear weapon program, Karl Rove and Scooter Libby having nothing to do with outing a CIA agent, water boarding isn’t torture and …” Walt Disney couldn’t do it any better.

I unsuccessfully tried to persuade the voters to change the way we finance health care, not the way we provide it. John McHugh knew that then, as do the Republican Presidential candidates know that now when they stoop into the linguistic gutter and dredge up “socialize medicine.” If there is any country in the world where “socialized medicine” is an accurate description of a health care system, it is Great Britain. That truly is socialized medicine, where the hospitals are owned by the state, all the health care providers are paid by the state and where you have to register at the local GP’s office for your health care. You don’t have a choice of doctors and there is no incentive for hospitals or doctors to provide care. They are paid a straight salary, regardless of how many patients the see. Hence the long waiting lists. Except for Dennis Kucinich (HR 1200)8, that is not what the other Democratic Presidential candidates are proposing.

The financing of health care to provide everyone with coverage is a far cry from the government owning hospitals, doctors, and telling you where you can go for your health care.

I don’t think the American public needs anymore explanations of how broken our health care system is. They now viscerally know it. They’ve been hit in the gut; their wallets feel it and their loved ones can only look in the window and marvel at the wonders of American medicine.

Next post: Now the we’ve got the hysteria of “socialized medicine” out of the way, we’ll find out where our money goes.

1. Tabulation: Organization for Economic Co-Operation and Development, Life Expectancy at Birth, 2007.
Graph: Organization for Economic Co-Operation and Development, Life Expectancy and Per Capita Spending 2007.
2. Organization For Economic Co-Operation And Development, Premature Mortality, 2007.
3. Organization For Economic Co-Operation and Development, Ischemic Heart Diseae Mortality, 2007.
4. Organization For Economic Co-Operation and Development, Infant Mortality, 2007.
5. Organization For Economic Co-Operation and Development, Health Expenditure Per Capita 2007.
6. David Greenberg, “Who’s Afraid of Socialized Medicine”, Slate Magazine, Oct 8, 2007.
7. NPR Morning Edition 12/06/07 read NPR listen:
8. HR 1200 text HR 1200 Summary