Death By Insurance

By Paul Krugman

New York Times

Published May 1, 2006

For lower-income working Americans, lack of health insurance is quickly becoming the new normal. That's the implication of survey results just released by the Commonwealth Fund, a nonpartisan organization that studies health care. The survey found that 41 percent of nonelderly American adults with incomes between $20,000 and $40,000 a year were without health insurance for all or part of 2005. That's up from 28 percent as recently as 2001.

Many of the uninsured reported spending their entire savings on health care and/or that they were having difficulty paying for basic necessities. And most uninsured adults reported cutting corners on medical care to save money -- failing to fill prescriptions, skipping medications, going without preventive care.

Here's the other side of the same coin: health insurers' business is lagging, reports The Wall Street Journal, as ''rising premiums and medical costs push more of their traditional-employer customers to shun or curtail company health benefits.'' And some investors are feeling the pain. Aetna's stock price fell sharply last week, on news that its ''medical cost ratio'' -- a term I'll explain in a minute -- rose from 77.9 to 79.4.

Taken together, these stories tell the tale of a health care system that's driving a growing number of Americans into financial ruin, and in many cases kills them through lack of basic care. (The Institute of Medicine, part of the National Academy of Sciences, estimates that lack of health insurance leads to 18,000 unnecessary American deaths -- the equivalent of six 9/11's -- each year.) Yet this system actually costs more to run than we would spend if we guaranteed health insurance to everyone.

How do we know this? The medical cost ratio is the percentage of insurance premiums paid out to doctors, hospitals and other health care providers. Investors are upset about Aetna's rising ratio, because it leaves less room for profit. But even after the rise in the cost ratio, Aetna spends less than 80 cents of each dollar in health insurance premiums on actually providing medical care. The other 20 cents go into profits, marketing and administrative expenses.

Other private insurers have similar ratios. And here's the thing: most of those 20 cents spent on things other than medical care are unnecessary. Older Americans are covered by Medicare, which doesn't spend large sums on marketing and doesn't devote a lot of resources to screening out people likely to have high medical bills. As a result, Medicare manages to spend about 98 percent of its funds on actual medical care.

What would happen if Medicare was expanded to cover everyone? You might think that the nation would spend more on health care, since this would mean covering 46 million Americans who are currently uninsured. But the uninsured already receive some medical care at public expense -- for example, treatment in emergency rooms that would have been both cheaper and more effective if provided in doctors' offices.

And Medicare manages to spend much more of its funds on medicine, as opposed to other things, than private insurers. If you do the math, it becomes clear that covering everyone under Medicare would actually be significantly cheaper than our current system.

And this calculation doesn't even take into account the costs our fragmented system imposes on doctors and hospitals. Benjamin Brewer, a doctor who writes an online column for The Wall Street Journal, recently commented on the excess expenses he incurs trying to deal with 301 different private insurance plans. According to Dr. Brewer, he currently employs two full-time staff members for billing, and his two secretaries spend half their time collecting insurance information. ''I suspect,'' he wrote, ''I could go from four people in the paper chase to one with a single-payer system.''

Many pundits see red at the words ''single-payer system.'' They think it means low-quality socialized medicine; they start telling horror stories -- almost all of them false -- about the problems of other countries' health care. Yet there's nothing foreign or exotic about the concept: Medicare is a single-payer system. It's not perfect, it could certainly be improved, but it works.

So here we are. Our current health care system is unraveling. Older Americans are already covered by a national health insurance system; extending that system to cover everyone would save money, reduce financial anxiety and save thousands of American lives every year. Why don't we just do it?