Why You May Be Stuck Holding the Bill for the Largest Taxpayer Rip Off

By Dean Baker, AlterNet. Posted June 23, 2009.

This is the time when the excrement starts hitting the fan. The lobbyists are in overdrive, rounding up members of Congress just like the cowboys of the Old West would bring in the herd.

The industry groups will also have their friends in the news media working overtime hyping any possible obstacle to health care reform. And they are filling the airwaves with scary ads, warning that people will never be able to see a doctor again if meaningful health care reform passes.

Since there are trillions of dollars at stake, the effort is understandable. The basic story is simple. The insurance, pharmaceutical and medical supply industries, along with the hospitals and the American Medical Association, have rigged the deck so that they get rich at the public's expense. They have structured our health care system so that we pay more than twice as much per person as people in other wealthy countries, even though we get worse care by many measures.

The bloat in the health care sector is projected to grow rapidly over the next decade as health care consumes an ever larger share of the economy. The Centers for Medicare and Medicaid Services (CMS) reports that just the increase in health care spending share of the economy over the next decade will cost us $4.3 trillion. That is equal to a health care tax of $57,000 for an average family of four.

Who benefits from the taxpayers generosity? CMS projects that $1.4 trillion, or $18,500 per family will go to the hospitals. Doctors and the pharmaceutical companies are each expected to score about $550 billion, costing families $7,300. And the insurance industry's share of GDP is projected to rise by $360 billion, or $4,800 for an average family.

These massive transfers are not the result of the wonders of the free market. These folks are getting money out of our pockets because their friends in Congress have rigged the deck so the money flows from us to them. For example, the government grants the pharmaceutical industry patent monopolies that prevent normal competition in the prescription drug market.

Unlike every other country in the world, the United States lets the drug companies use their government-granted monopolies to charge whatever they want. As a result, we pay nearly twice as much for our prescription drugs as people in countries like Canada and Germany.

Similarly, doctors are able to tightly control the supply of both US trained physicians and the number of doctors that can enter the country from abroad. If custodians had the same control over the labor market for janitors, they would all be making $80,000 a year. We pay close to twice as much for our doctors as people in other wealthy countries. The gap is especially wide for highly paid specialists like neurosurgeons and cardiologists.

Of course, the insurance industry is a total mess. They pocket more than 15 cents for every dollar they pay out to providers. By comparison, the administrative costs of Medicare are less than 2 percent of its revenue. If the insurers ever had to compete with a publicly run insurance plan on a level playing field, they would be blown out of the water.

We know that private insurers can't compete because we already had this experiment with the Medicare program. When private insurers had to compete on a level playing field with the traditional government-run plan they were almost driven from the market. That is why they got their friends in Congress to pass Medicare Advantage. This program spreads the wealth around by giving the private insurers a subsidy of more than 11 percent per patient.

As Congress debates health care reform, we should be very clear what is going on. It is easy to devise reforms that will reduce costs without jeopardizing the quality of care.

That is not the fight. The fight is over whether Congress will leave in place structures that will siphon an ever-larger amount of money out of taxpayers' pockets and put this money in the hands of the insurance industry, the hospitals, the drug companies and the doctors.

Getting a robust public plan, that both individuals and employers can buy into, will be the key indicator of whether Congress is still determined to redistribute income into the hands of the insurers, the drug companies and the rest. A robust Medicare-type plan will not only reduce the insurance industry's tax on our health care, it will also be able to bargain for lower prices from the drug companies, the medical supply companies, and other health care providers.

For this reason, most of the industry is united against any sort of serious public plan. Their latest compromise is a system of small cooperative insurers that will have no bargaining power. That's a cute joke, but it has nothing to do with health care reform.

So, keep hold of your scorecard. Unless Congress creates a serious public plan, you can expect to be hit with the largest tax increase in the history of the world -- all of it going into the pockets of the health care industry.

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Dean Baker is co-director of the Center for Economic and Policy Research.

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