The Wisdom of Crowds

"Crowding out" sounds like a bad thing. The Bush administration uses that fearsome term in denying recent requests by Louisiana, Ohio, Oklahoma and no doubt other states to expand Medicaid to families not considered poor. Bush argues that opening the government program to middle class people would prompt many to drop their private coverage.

Where's the problem?

It's not about justice. For-profit insurers drop families when a member becomes sick, and Washington looks the other way.

It's not new. When Medicare was created, the government health plan replaced a lot of private insurance coverage bought by the elderly.

And it's not about preserving quality health care. You don't hear Medicare beneficiaries clamoring for a return to private coverage, do you?

No few medical providers, meanwhile, would love to see the private insurers "crowded out." The following story illustrates why:

St. Joseph Health Services is a Catholic nonprofit that cares for many poor people in Rhode Island. Last year, UnitedHealthcare of New England tried to cut the hospital group from its provider network. The reason? After years of seeing little or no increases in payments for services, St. Joseph had demanded that the insurer raise its reimbursement levels.

UnitedHealthcare played hardball. It proceeded to threaten its customers with a huge 58-percent compounded hike in premiums if it had to start writing bigger checks to St. Joseph.

During the angry standoff, St. Joe's chief revealed these interesting numbers: In 2006, the former CEO at UnitedHealth Group (the parent company in Minneapolis), William McGuire, made $124 million. That was one-and-a-half times the entire payroll of St. Joseph's 2,000 employees. That's right, one poo-bah at one insurance company pulled in 150 percent of what everyone at St. Joe's three health-care facilities made put together -- not only the nurses, orderlies, administrators and floor-swabbers, but also the executives and surgeons. Everyone!

William McGuire may be a familiar name. Last month, he was forced to give back $418 million worth of UnitedHealth stock options on top of nearly $200 million in options he already surrendered. That was punishment for joining in an unseemly scheme to backdate the options.

Waste no tears on "Dollar Bill." McGuire holds another $875 million in options (though a judge has frozen them, pending further review). And as top boss at UnitedHealth from 1991 to 2006, he raked in half a billion, which he definitely keeps.

You see, health care has become just another racket by which clever operators can scoop up fortunes. There's a ton of money to be made nickel-and-diming doctors and hospitals while making sure you don't sell insurance to sick people -- and that's the legal part. Once government offers coverage, it's game over for the manipulators -- and more of our health-care dollars go for health care.

And so here's another way to look at the "crowding out" issue. Rather than create unfair competition for insurance executives, government can be seen as freeing the public and medical caregivers from their claws.

(That's not to say that private interests shouldn't play a role. A Canadian-style single-payer system -- where government is the only insurer -- has problems that allowing private coverage options would ease. The best government-run systems, such as France's, are multi-payer. They allow participation by private insurers, but keep them on a leash.)

The Bush administration's fight to keep moderate-income families out of Medicaid resembles its successful battle last year to stop the expansion of the State Children's Health Insurance Program. It used the crowding out argument back then.

But when you see the insurers in action, "crowding out" doesn't seem so evil or even the right term for what's happening. "Throwing out" may be more like it.

COPYRIGHT 2008 THE PROVIDENCE JOURNAL CO.

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