In the U.S. and Europe, private health insurance has weakened public sector insurance, excluded millions from insurance cover, raised premiums, and led to rising out-of-pocket health expenditures.
Insurance is the DNA of capitalism. Without insurance, nothing is built, nobody works, nothing floats, nothing runs on tracks, and nothing ships. So said Joseph Plumeri, the chief executive officer (CEO) of Wills Group Holdings, when asked recently how he viewed the growth of the insurance sector in todays world.
Plumeri was not quite off the mark. Apart from being a factual comment on the value of insurance, the statement also reflected the growing prowess of global insurance firms and the ways in which they have become entrenched in todays global capitalist economy. Measured in terms of the real value of premiums, the global insurance industry is worth more than $4,000 billion. The insurance industry is one of the largest institutional investors in the world alongside pension funds and mutual funds. According to one estimate, insurance assets accounted for over 12 per cent of the total global financial assets in 2010.
Given such economic prowess, insurance has been an extremely contentious policy terrain in the United States and Europe, where the sector stands substantially privatised and liberalised. In spheres such as health insurance, privatisation and liberalisation have made insurance policy even more contentious. In these countries, big private health insurance has weakened public sector insurance, excluded millions of needy citizens from insurance cover, substantially raised premiums and led to rapidly rising out-of-pocket health expenditures.
The U.S. is the bastion of private health insurance in the world. Yet, it is the only developed country that does not provide universal health coverage to its citizens. Roughly 50 million Americans are uninsured and about 110 million are underinsured. According to a 2009 paper published in American Journal of Public Health, lack of health insurance was associated with as many as 44,789 deaths a year in the U.S.
Why does the bastion of private health insurance have such a pathetic record in coverage? Through the second half of the 20th century, every attempt at introducing universal health coverage in the U.S. was bitterly fought and defeated by entrenched big business in insurance and doctors groups. In 1965, the U.S. established its first public health programme, Medicare. However, the operations of Medicare (and its poorer cousin, Medicaid) have been held hostage by the business interests of the powerful insurance firms. A study (forthcoming in International Journal of Health Services, 2012) has found that Medicare, under its Medicare Advantage Programme, made an excess payment of $283 billion to private insurance companies between 1985 and 2012.
The U.S. private insurance industry has, over the years, been transformed into what Paul Krugman called a seemingly invincible lobby. In the 1990s, this lobby successfully sabotaged plans to introduce a single payer insurance system, where the government would provide universal health insurance. In 1992, Bill Clintons presidential campaign was based on a call for universal health insurance. The private insurance industry reacted with an advertisement blitzkrieg against Clintons call; their one-year-long Harry and Louise campaign cost them about $20 million. It was no surprise then that once in power, Clinton backtracked. Scared of alienating the powerful insurance companies, he settled for a weak substitute, where insurance companies continued to wield extraordinary market power. As health care expert Vicente Navarro put it, President Clintons loyalty to Wall Street prevailed.
In 2008, Barack Obama tried to push his version of health care reform. Obamas plan was not to establish a single-payer system. Instead, the plan was to encourage people to buy private insurance by providing them with increased state subsidies. During his presidential debate, too, big insurance players set the agenda of the debate; after all, they had liberally funded the election campaigns of both the Democrats and the Republicans in addition to funding a $100 million advertisement campaign opposing all plans to institute a single-payer system. Lancet, the medical journal, ran the cover of its December 2009 issue with the following sentence: The Health Care Reform Process Exposes How Corporate Influences Render the U.S. Government Incapable of Making Policy on the Basis of Evidence and the Public Interest.
What are the major features, then, of the private health insurance system in the U.S.? First, it is marked by an extreme concentration of corporate firms. According to a report of the American Medical Association (AMA) in February 2010, competition in the health insurance industry is disappearing with more markets across the country dominated by one or two insurers. In 24 out of 43 States, the two largest insurers held a combined market share of 70 per cent or more. Further, 99 per cent of the metropolitan markets were highly concentrated, or above a level of insurer consolidation, leading to harmful effects on patients, physicians, employers and the economy.
Secondly, an increasing number of U.S. citizens are being pushed out of insurance coverage (Figure 1). According to data released by the Kaiser Family Foundation, the number of non-elderly uninsured Americans increased from 41.3 million in 2004 to 49.1 million in 2010. Most of the uninsured belonged to low- or moderate-income households.
Thirdly, there has been a rapid rise in the levels of premium charged by the private insurance firms (Figure 2). Between 1990 and 2010, health insurance premiums in the U.S. rose by a whopping 159 per cent. Workers contribution to premiums also rose by 138 per cent. Strikingly, during the same period, workers earnings rose only by 42 per cent and the overall inflation rate by 31 per cent. This represents nothing but a phenomenal squeeze on workers incomes by private insurance capital. According to James Rohack, the AMA president, health insurers have not shown greater efficiency and lower health care costs. Instead, patient premiums, deductibles and co-payments have soared without an increase in benefits in these increasingly consolidated markets.
Finally, the crisis of health insurance has led to an enormous growth of out-of-pocket health expenditure for U.S. citizens. Between 1996 and 2009, the average out-of-pocket health expenditures rose by 73 per cent. The percentage increase of out-of-pocket health expenditure was higher than the average for non-elderly uninsured, non-elderly with private insurance and those just above the federal poverty line.
U.S. modelIn sum, the U.S. model of private health insurance is hardly a model that is helpful in instituting universal health care. It represents nothing but an instrument to aid finance capital to squeeze the incomes of poorer and worker households. It is no wonder then that hundreds of Americans travel to Cuba every year for cheap and quality medical treatment.
The European model of health insurance has been vastly different from the U.S. model. Historically, parts of continental Europe had rudiments of public health care systems, including social insurance systems. In the post-War period, most of these countries institutionalised social insurance into their public health systems. In these social insurance systems, typically, the employee, the employer and the state paid into a social insurance fund, which was used to settle employee claims in the future. Other parts of Europe, such as the United Kingdom and the Nordic countries, had a tax-financed public health system, where insurance played only a marginal role.
Beginning from the Margaret Thatcher-era in the U.K. in the 1980s, Europe witnessed a gradual expansion of an agenda of economic austerity. The formation of the European Union (E.U.) and the signing of the Growth and Stability Pact further cemented the austerity agenda of the European states. An increase in the health care budgets, necessitated by a number of emerging factors such as ageing and increase in medical equipment costs, was halted by governments. Further, under E.U. directives on insurance deregulation, all member-states were required to abolish existing product and price controls, liberalise the entry of external capital in insurance, and end discrimination of insurers on the basis of their country of origin. Thus, the marketisation of health care began to unfold in Europe from the early-1980s (see Christoph Hermann, The Marketisation of Health Care in Europe, Socialist Register, 2010).
Two major features of the marketisation of health care went hand in hand: (a) a decline in the proportion of public health care expenditure in total health expenditure; and (b) a growth of private insurance. Hermann tells us that in the Netherlands, France and Germany, private insurance currently accounts for 23 per cent, 13 per cent and 10 per cent respectively of the total health-care financing. Some European countries have moved away from compulsory health insurance systems to voluntary health insurance systems (VHIS), where citizens can choose between public or private insurance schemes. In other countries, public insurance has withdrawn from covering certain types of treatments, where private insurance has quickly filled the gap.
Evidently, there has been a decisive growth of private insurance in a large number of European countries. Evidence shows that just as in the U.S., the growth of private insurance in Europe, too, has had acute adverse effects on health care.
First, as in the U.S., there has been rising concentration in the private health insurance market in Europe (Figure 3). In 2006, in most E.U. member-states, the market share of the three largest insurers was above 50 per cent. Only France, Germany, Hungary, Italy and Spain were the exceptions.
Secondly, with the exit of compulsory coverage, premiums charged under the VHIS have risen sharply. Even within short four-year periods in the late-1990s, the annual rate of increase of premiums was 6 to 10 per cent, a process that has continued into the 2000s.
Finally, increase of premiums has led to a major rise in out-of-pocket health care costs and cut deep into household health budgets. For most European households today, health budgets appear just next to paying for homes.
In sum, big private insurance has increasingly weakened the gains of the European welfare state system, built over more than a century. Private finance capital has entrenched itself within the European health system as well and rekindled debates on how to regulate private insurance markets and strengthen the role of the state.
Insurance is primarily a mechanism to smooth out cycles of risk in peoples livelihoods. However, the unbridled growth of private health insurance in the West has made citizens livelihoods riskier and more vulnerable to shocks. Living without insurance in the U.S. or Europe was always a scary prospect. In the world of big private insurance, living with insurance, too, is hardly a pleasant prospect. When will India learn?
R. Ramakumar is Associate Professor at the Tata Institute of Social Sciences, Mumbai.
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