USA - The "American Model" of health care - a monstrous profit machine

Mar/Apr 2005

Many of the"reforms" which were introduced in the NHS, first by the Tories in the 1990s, and then by Labour after 1997, drew their inspiration from the so-called "American Model". Over this period, the NHS budget soared to unprecedented levels without stopping the on-going overall deterioration of health care.

This is no coincidence. The US health care system is well-known for being both the most expensive in the industrialised world and one of the worst in terms of health care provisions for the majority of the population. In the article reproduced below (from the American quarterly Class Struggle - #46 - Feb/Apr 2005), the comrades of the US Trotskyist group The Spark explain why this is.

The health care crisis is deepening. An increasing number of people in the United States have no health care coverage at all. The number of uninsured people increased by over five million between 2000 and 2003, bringing the total to almost 45 million, which happens to be twice as high as it was 20 years ago.

Moreover, nearly 82 million - one-third of all people under 65 years of age - spent at least a portion of 2002 or 2003 without coverage. Even when many of these people eventually got back their health care coverage, chances are that their new policy did not cover "pre-existing conditions" - that is, those chronic ailments they were being treated for under their old insurance policy.

Employers cut close to nine million people from health care coverage between 2000 and 2003. Between 2001 and 2003, the number of workers not offered coverage by their employer increased from 20% to 33%. In addition to eliminating coverage completely, companies are employing more part-time or temporary workers, who are not covered; subcontracting out more work, often to companies paying no benefits, or turning individual workers into "subcontractors" responsible for their own benefits. That is what is being done to the active work force.

Retirees on pensions with health care benefits are getting hit even harder. Kaiser Family Foundation and Hewitt Associates found that in just the last year, 2004, 10% of the big companies surveyed had cut off health benefits to their retirees. Between 1988 and 2004, the percentage of big companies that offered benefits to retirees plunged from 66% to 36%, a trend that is expected to continue. Workers who had put in decades on the job are discovering that all the promises regarding health care coverage after they retired have been ripped up and thrown in the garbage.

As for the 161 million workers who still have employer-sponsored health care coverage - they are paying more and getting less. Family premiums paid by workers went from $178 per month to $201 per month on average, an increase of about 14% between 2002 and 2003. Premium costs paid by workers for coverage through their employers increased at a rate that was six times faster than the inflation rate and many times faster than the rise in wages. This has forced many more employees who are offered the chance to buy health insurance on the job to turn it down because they cannot afford it. The additional costs push workers to put off going to the doctor, or going for preventive care. Instead, they go to the doctor or emergency room only when their medical situation forces them to, that is, when it is far advanced.

Government programs, like Medicaid and state health insurance programs for children, are also slashing benefits, through payment cuts both to providers and plans, greater restrictions on benefits and curtailed eligibility. These measures make it more difficult for poor people to get Medicaid and, when they are on it, to get the health care they need.

The other big government health care program, Medicare which is for the elderly, has increased its premiums for Medicare B, which covers doctors, tests and drugs in hospitals, while restricting the benefits that it pays. As a result, the amount that seniors pay for health care has increased to about 22% of their income on average, which is more than before Medicare was introduced about 40 years ago.

Ironically, given all the patriotic hype that the Bush administration and the entire establishment has lavished on the military, the Veterans Administration (VA) has also been hard hit by cutbacks. Funding has not come close to keeping pace with the enormous influx of veterans seeking treatment, due both to the wars, and to the fact that they lost outside coverage from their employers. The result is what the American Legion calls a "VA Health Care Crisis," in which hundreds of thousands are having to wait over six months for their initial visit to a VA doctor. In some parts of the country veterans are waiting nearly two years for those visits.

The "high cost" argument

Of course, the corporations and the government blame these cutbacks in health coverage on the rapid increase in health care costs, which are going up at a rate that is four or five times faster than inflation and now averages about $8,000 per year per family.

The big manufacturers that still are unionised and provide health benefits are some of the biggest voices complaining about the increases in health care costs. For example, US auto companies claim they spent $8.5 bn in 2003 on medical benefits, far exceeding any other single cost, including the steel they used in production. According to Ford, providing health care benefits adds about $1,000 to the cost of every Ford car or truck built in the US - supposedly putting them at a competitive disadvantage with manufacturers in other countries.

The companies do not bother to mention that their health care costs are not quite as high as they say, because the government subsidises what they pay for health care benefits through big tax breaks. Last year, the value of these tax breaks came close to $210bn in federal and state taxes, which is almost comparable to the state's total health spending for the elderly!

The companies also do not bother to mention that somehow - despite what they say is the incredible rise in the cost of providing medical benefits to their employees - they have been able to reap record profits year after year, while keeping down the overall cost of employee compensation, including medical benefits. According to the Economic Policy Institute, profits have risen at a 62% rate during the present economic recovery, faster than during any recovery in the last 75 years. Labour compensation, which includes the sum of all wages and benefits, on the other hand, rose at a pathetic 2.2% rate per year, the slowest rate of growth during any recovery over the same period. Obviously, the big companies are slashing health care coverage as another way to boost their own profits.

As for the government, it too, is slashing its health care programs in order to free up more tax dollars to hand over to the corporations, while financing wars and an ever greater military build-up.

What the health care industry does not deliver

This is not to deny that health care spending in this country has continued to skyrocket, gobbling up more of the Gross Domestic Product (GDP). According to the latest government figures, health care spending hit $1,700bn in 2003, which is about twice as high as it was in 1992, and more than six times what it was in 1980. Last year, health care spending cracked the 15% level of GDP for the first time, which is three times more than in 1960. And, although the share of health care spending remained relatively flat when "managed care" programs first kicked in during the 1990s, severely restricting access to health care, the rate of increase since 2000 has accelerated with no end in sight.

These increases are usually justified as necessitated by "progress," big advances in medical care, made possible by new technologies and new miracle drugs - all of which, it is assumed, are supposed to be very expensive. But why should new technology and drugs always spell higher costs? Certainly, some technologies may be more expensive. But new technology also brings down the cost of treatment. New tests can catch diseases at a much earlier stage, when they are much easier - and cheaper - to treat. Many operations that used to entail huge incisions and wounds, can be performed with very small incisions, using small video cameras and micro tools to do the work, thus reducing the time in the operating and recovery rooms, and the stay in the hospital, not to mention the rehabilitation time afterwards.

Neither does the supposedly much more expensive miracle technology and drug argument give an adequate answer as to why the US health care system is so much more expensive than systems in other countries, with almost twice as much being spent per capita in the US as in most other industrialised countries - and with health outcomes in the US that are worse. For example, US life expectancy is actually lower than that in at least several dozen countries, including those which are considered to be much poorer, such as Spain, Ireland, Italy and Greece. As for infant mortality, 41 countries have better rates than the US. The rates in Singapore, Sweden, Japan and Iceland are less than half the US rate. Moreover, during the last two years, infant mortality rates in this country have been rising, which health care professionals warn is a very ominous indicator.

The real explanation for why health care costs are so much higher, while delivering such inferior care, lies in how the health care system is structured. Even more than in most other countries, health care in the US at every level - insurance, hospitals, suppliers and drug companies - is organised essentially around the drive by some very large companies to increase profits. This impacts not only the amount and quality of medical care, but also the way health care is provided.

Insurance - the enrichment of the middle men

Health care in the US rests on the health insurance industry, which is dominated by private companies, most of which are legally for-profit. These companies not only set the insurance rates; increasingly they set the parameters of care, by deciding what is covered and what is not, and how much will be paid for care.

Over the last two decades, this industry has been transformed tremendously. In the past, the health insurance industry had been dominated by the private, not-for-profit, tax-exempt plans. These plans were originally an arm of the medical providers, that is, the hospitals and doctors, and they paid the providers' bills on a fee for service, or cost-plus basis, which the providers made sure was increasingly generous... and costly. In return for their "not-for-profit" status, these companies also were considered to be the "insurers of last resort," that is, they were supposed to insure people whom no other companies would touch. In any case, their "not-for-profit" status did not stop them from accumulating a surplus - and investing it in stocks or using it to set up smaller subsidiaries.

Starting in the late 1970s, the government took the first steps to deregulate the health insurance industry, just as it did with other industries, like banking, finance, airlines, telephones and trucking. Federal and state regulations and tax laws were dropped or totally revamped so as to open up the field, guaranteeing the insurance companies big profits when they went into health care. At the same time, the big government insurance programs, Medicare and Medicaid, changed their reimbursement from a cost-plus basis, to set fees paid to health care providers. The big insurance companies followed suit.

The entry of the big insurance companies into the health care business triggered a vast consolidation and concentration, as bigger companies either drove smaller companies out of business, or bought them up.

Not-for-profit plans were hit very hard. Membership nationwide plunged from 87.8 million in 1980 to 65.2 million in 1994, and many plans had financial difficulties. That year, their national association voted to allow for-profit ownership, under the guise that this opened up sources of fresh capital to revive their business. Almost immediately, Blue Cross of California converted to for-profit status, selling its shares on the New York Stock Exchange. Over the next decade, not-for-profit plans in 15 states, constituting one-third of all such plans, converted to for-profit status. These new for-profit conversions did not stay independent for long. All but two (New York's Empire plan and Puerto Rico) were immediately gobbled up by two big players, which were themselves new for-profit plans - Anthem and WellPoint Health Networks. The process of consolidation and concentration of these plans then culminated with the merger of these two companies in December 2004.

The new company, called Wellpoint Inc., is now by far the largest private health insurance company in the country with 28m members and more than $28bn in assets. It covers one-third more people than its largest competitor, UnitedHealth Group Inc..

As for the two-thirds of the not-for-profit plans that did not completely convert to for-profit status, they too were partially deregulated. In return for some of their tax exempt status being curtailed, they were relieved of their social responsibility to be the insurers of last resort. Several plans were also allowed to merge across state lines. Not-for-profit plans were also allowed to open up for-profit HMO (health maintenance organisations) subsidiaries. In other words, they increasingly began to resemble their for-profit competitors. And this paid off - for them too - in much higher profits. For example, Blue Cross Blue Shield of Michigan, which administers the Big Three auto contracts, reported profits of $375m in 2003. Not bad for a "not-for-profit" company.

As for the for-profit health insurance companies, including the biggest of them all, Wellpoint, the last few years have been quite spectacular. Their profits more than doubled between 2000 and 2003. Their profit margins also doubled to 5% - the highest level in at least a decade for the industry's top 10 insurers, as revenue climbed 21% to $9.3bn on average. In comparison, the profits of the 500 largest US companies only increased by a meagre 5% over four years, and average margins fell in the same time period.

The health insurance industry made its huge profits the old-fashioned way - by soaking the public. First of all they raised their rates by 60% over the last four years. At the same time, they did everything possible to withhold medical care, under the guise of "cutting" costs. Thus, they shed those members who needed costly medical care, by raising their premiums sky-high and excluding the treatment of chronic illnesses and conditions. And they signed up companies that tended to have mostly younger and healthier workers, a practice known in the industry as "cherry-picking."

Some insurers even drastically cut the number of people that they insured - and boosted their profits at the same time. Aetna is a prime example. From the end of 1999 to today, the company slashed its rolls from 21 million to 13.3 million, that is, by a third. As a result, its profits rose from 127 million dollars per year to 934 million dollars. Its profit margin leaped 10-fold.

The fact is that for every dollar spent on health care, the insurance companies take close to 20 cents for their services, that is, for their profits, high executive salaries and what they call administrative costs. The insurance companies are only the middlemen. The money they pocket buys the public no medical care - only grief!

Hospitals - sick money machines

The main deliverers of health care are the hospitals and clinics. The hospitals, by themselves, take the biggest share of medical spending, about 40%.

Along with the insurance industry, the hospital sector went through its own transformation, as it too was opened up to investment by big Wall Street financial interests. This transformation was led by the stupendous growth of a few for-profit hospital chains in the 1990s, especially HCA, which now owns 181 hospitals and 80 outpatient surgery centers in the United States, England and Switzerland, and Tenet, which owns 114 acute care hospitals in 16 states.

The for-profit chains target local markets. For the most part, they do not build hospitals themselves, but buy up existing ones, close the least profitable hospitals, and push patients into the remaining ones. They generally set a goal of gaining at least a 40% market share, that is, market domination. Local market domination puts these companies in the position to dictate terms for both reimbursement and care. The result is that Medicare pays more to these companies, not just for hospital care, but for care in other facilities and at home as well.

The for-profit hospitals have no legal obligation to treat the uninsured or under-insured as charity cases. They either transfer the uninsured to the public sector or charge them the full rate for their services. The full, undiscounted rate can be five or even 10 times higher than the discounted rates charged to insurance companies or Medicare. The hospital bill for an uninsured person can very quickly run into the hundreds of thousands of dollars. And when patients are not able to make their payments, the hospitals send the cases to a collection agency to make an attachment on their wages. When uninsured patients happen to miss a court appearance, the hospitals get the police to throw them in jail! (Nothing personal, just business). One study shows that HCA made over $2bn from uninsured people in 2002 alone.

Several studies have also shown that the for-profit hospitals are more dangerous, with a higher rate of death than other hospitals. They are also consistently more expensive. And they have been the subject of numerous scandals, with both Tenet and HCA charged for milking Medicare of billions, performing unnecessary surgery (like heart surgery) just for the high fees. The government has fined them billions of dollars, which they have paid. But this has failed to slow them down.

Most hospitals, accounting for 70% of the beds, remain - at least technically - "not-for-profit." This status allows private companies to be exempt from federal, state, local and property taxes. It also allows them to issue tax-free bonds, with big savings in interest payments. But even if these hospitals are considered to be "not-for-profit" and do not pay out dividends to stockholders, they are fully integrated into the profit-making system. They pay their top executives the same princely multi-million dollar salaries and bonuses as in the corporate sector. Most university-run hospitals hold equity in start-up biotechnology companies that sponsor some of their research. They also form alliances and partnerships with profit-making companies.

In tandem with the "for-profit" hospital chains, the "not-for-profit" private hospitals have gone through their own waves of mergers and consolidations in order to dominate market share in cities and regions, while adopting similar "corporate" cost cutting measures. They too cut staff to the bone. And while they may take a few more charity cases, for all intents and purposes, they employ the same outrageous tactics against the uninsured.

The final leg of this transformation of the hospital sector has been the sharp decline of the state- and locally-owned public hospitals. This is the sector that serves the patients of last resort, those without insurance, those who are often the most seriously injured and ill. Of course, the surviving public hospitals have been hit by cuts in staff and resources that are even much sharper than in private hospitals, for-profit or not-for-profit.

Taken together, this transformation of the entire hospital sector has been a gathering catastrophe. Nationwide, there are about one-third fewer beds than 30 years ago, with big stretches of urban areas as well as rural regions without any hospitals at all. Emergency rooms and trauma centers have been shuttered at an even faster rate, since they are the most costly to maintain. So waits in emergency rooms for treatment often last for days, and grievously sick or injured people are stacked up in the halls on gurneys waiting for an available bed.

Meanwhile, hospitals are much more overcrowded and dirty, and overall patient care is worse. As for the hospital staff, working conditions are increasingly stressful and demoralising. Stories of nurses flooding out of the field are legion.

It is estimated that between 44,000 and 98,000 Americans die each year from preventable medical errors in hospitals. Add to that the 88,000 deaths that, according to the Centers for Disease Control, occur because of infections during hospitalisation and these preventable deaths, which are largely due to cost-cutting and profiteering, turn out to be the 4th most deadly killers in hospitals, between strokes and chronic respiratory diseases.

Drug companies - still selling snake oil

In the chain of delivery of health care, the next big corporate link is to the suppliers, and the number one supplier is the pharmaceutical industry. Pharmaceuticals are the fastest-growing part of the health care bill. The increase in drug spending reflects the fact that people are taking a lot more drugs than they used to and that those drugs are more likely to be expensive new ones instead of older, cheaper ones. Moreover the prices of the most heavily prescribed drugs are routinely jacked up, sometimes several times a year.

The pharmaceutical companies justify their high prices by citing the need to carry out expensive research and development (R&D). In fact, R&D is a relatively small part of the budgets of the big drug companies, an estimated 14% (about $19bn in 2000) - dwarfed by their vast expenditures on marketing and administration ($63bn), not to speak of their profits.

That $19bn for R&D does not pay for much. The pharmaceutical industry is not especially innovative. Instead, the pharmaceuticals spend most of the money on developing variations of older drugs that are already on the market. These are called "me-too" drugs. The idea is to grab a share of an established, lucrative market by producing something very similar to a top-selling drug. For instance, there are now six statins (Mevacor, Lipitor, Zocor, Pravachol, Lescol and the newest, Crestor) on the market to lower cholesterol, all variants of the first.

As the former editor of the New England Journal of Medicine writes in a new book,"these companies are primarily a marketing machine to sell drugs of dubious benefit."

The companies do this with remarkable success. The pharmaceuticals are among the most profitable companies in this country and most likely on this planet. In 2001, the ten American drug companies in the Fortune 500 list ranked far above all other American companies in average net return, whether as a percentage of sales (18.5%), of assets (16.3%), or of shareholders' equity (33.2%). These are astonishing margins. For comparison, the median net return for all other industries in the Fortune 500 was only 3.3% of sales. Commercial banking, itself an extremely aggressive industry, was a distant second, at 13.5% of sales. In 2002, as the economic downturn continued, the big pharmaceuticals showed only a slight drop in profits - from 18.5% to 17% of sales. Nonetheless, in 2002 the combined profits for the ten drug companies in the Fortune 500 ($35.9bn) were more than the profits for the other 490 businesses all put together ($33.7bn).

They shower it on themselves. A former chairman and CEO of Bristol-Myers Squibb made $75m in 2001, not counting his $76m worth of unexercised stock options. The chairman of Wyeth made $41m, exclusive of his $41m in stock options. And so on.

As for the other suppliers to the hospitals and the medical profession, they are no better. A recent Justice Department investigation into the two biggest companies that buy equipment and supplies for not-for-profit hospitals showed that they were nothing but appendages of the supplier companies themselves, operating through a series of kickbacks and bribes.

Health care - a right to be won

The primary aim of the health care system in this country is not the health care needs of the population - at least most of the population - but to produce ever more profits for a few enormously profitable companies.

Instead of a health care system that provides simple, uniformly high-standard services for the entire population, this country has a system of health care that is incredibly fractured and Byzantine, divided between different sectors, which are then divided by companies, that are then divided into thousands and thousands of different plans, with different rules - which are changing all the time. This structure necessitates bureaucracy and more bureaucracy. Not to mention the fact that US hospitals tie down not only a small army of clericals and accountants to do the paper work, but tie down doctors and nurses as well: everything has to be documented for the billings and collections from a wide variety of sources.

The corporations always complain that a government administered program would mean a big bureaucracy. But the bureaucracy that has been created to run the privately run health care system makes state bureaucracy look like child's play: state-run Medicare, for instance, costs about 5% of turnover to manage as opposed to 25 to 30% for private insurances.

The waste does not stop there. Each level of the health care industry - insurance, hospitals, drugs - carries out expensive marketing and promotions. Drug companies employ vast armies of salespersons to push their medications on doctors, and to take doctors for expensive seminars in vacation spots to convince them to prescribe their medication. While the insurance companies are looking for ways to short change doctors by delaying reimbursements and downgrading the classifications of their work, the pharmaceuticals are looking for ways to bribe doctors to prescribe their latest super expensive magic snake oil.

This is a system that encourages hospitals and doctors to perform unnecessary medical procedures on people who do not need them, while denying procedures to those who do. The poor are charged far more for medical services than the rich. Senior citizens are traveling to Canada or Mexico to buy drugs that were manufactured in the US, but sell for half the price across the border. People with insurance are clogging emergency rooms because they cannot get an appointment to see their regular doctor. Much more money is spent treating diseases than preventing them, because there are much greater profits in using expensive technology and drugs, than in regular check-ups, tests, and educating people on a healthy lifestyle.

This is the "American model" for the delivery of health care: a monstrosity structured and "modeled" to serve the interests and needs of the most powerful bourgeoisie in the world. It does not provide even second or third-rate health care to the population.

Corporate and government officials' claims that there is not enough money to pay for decent affordable health care for everyone is an outright lie. Most of the money that is supposed to pay for health care goes either to directly enrich corporate profits and executive salaries, or to assure and protect the flow of those profits through bureaucracies stacked on top of bureaucracies, enormous sales forces and promotions, useless or even harmful and expensive drugs and other products. The waste of resources and human life in this system is monumental - and expanding, choking off ever more resources that should be going into actually providing health care.

The only way to stop this would be to wrench control of the health care system from the hands of the corporations and the private investors for whom it is just another industry to enrich themselves, and to reorganise health care as a strictly not-for-profit public service that aims at providing decent an affordable health care for the entire population, with free access to treatment, drugs, operations.

Decent health care should be a right. We could go a very long way in guaranteeing that right, making sure that everyone immediately be covered for all their medical care - decent care - simply by putting to work all the resources that the capitalists now drain out of the system.