Does that future look kind of Canadian?

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Sanders Has a Point: What Good Are Private Insurers?

Christopher Flavelle writes editorials on health care, energy and environment for Bloomberg View. He was a senior policy analyst for Bloomberg Government and chief speechwriter for the leader of the Liberal Party of Canada.
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When I was a university student in Canada, I heard an economics professor explain the difference between U.S. and Canadian health care in a way that went something like this: Most U.S. hospitals have rooms full of staff whose only job is to trade paperwork with private insurance companies. The cost of that staff gets added to everyone's bill.

A Canadian hospital, by contrast, might have a handful of people with that job -- but mostly for when an American tourist breaks a leg skiing or gets too close to a moose. The government pays for Canadian patients' care; there are no claim forms necessary, no contracts to negotiate. Leave aside lower spending and greater access, the whole thing is just easier.

The popularity of Democratic presidential candidate Bernie Sanders's government-run "Medicare for All" plan highlights how different health care is in the U.S. compared with the rest of the developed world, and not always in a flattering way. That difference often gets reduced to tax levels and size of government. But it's also worth considering a fundamental question: What good are private health insurers anyway?

No other developed country gives private insurers so much control over health-care financing, cost, delivery and coverage decisions. In Canada, the U.K., France, Australia and other rich countries, the government pays for physician and hospital services; private insurance may cover out-of-pocket costs or side benefits (such as dental care or a private hospital room), according to Cathy Schoen, an expert on health-care systems at the Commonwealth Fund, a private health-care research foundation. Private insurers provide basic benefits in the Netherlands and Switzerland, but with benefit levels tightly prescribed by the government.

In the U.S., meanwhile, more than 80 percent of working-age adults with health coverage got it through private insurance in 2014. The result is an industry with half a million employees, about two-thirds as many people as there are active U.S. medical doctors. The five largest private insurers -- UnitedHealth Group Inc., Anthem Inc., Aetna Inc., Humana Inc. and Cigna Corp. -- posted more than $385 billion in revenue in 2015, according to Bloomberg data.

What do Americans get in exchange? A lot of the money goes to paying doctors, hospitals and other health-care providers -- but not as much as you might think. Take UnitedHealth, which covered 45 million people in 2014, making it by far the country's largest private health insurer. The company reported collecting $115 billion in premiums that year, but spending just $93 billion on medical costs; that means 19 cents of every dollar went to overhead or profit.

In return for that kind of money, Americans covered by private insurers get a number of things unavailable to people in a single-payer system. At the top of the list, according to America's Health Insurance Plans, an industry trade group, is having an organization with the incentive and ability to ensure a high standard of care while controlling costs.

"When you go to the doctor here in the U.S., you are going to a physician that your health plan has vetted," said Clare Krusing, a spokeswoman for AHIP. Your insurer "has made sure those individuals are delivering the best quality care, and doing it at an affordable price."

There's something to that. When other countries want to make their health-care delivery systems more efficient, they visit the best U.S. health plans, Schoen said. But she added that genuinely groundbreaking plans are rare, and most insurers follow industry trends. "Do private plans bring more innovation than the public sector? I don't think you could say definitively yes or no."

The argument that private plans lower costs and improve outcomes gets even less persuasive when you look at population-wide statistics. The U.S. spends two and a half times as much on health care (public and private) per capita as the average for industrialized countries, yet performs poorly on infant mortality, life expectancy, levels of obesity and child vaccination rates. So either insurers' efforts don't actually produce better results, or they can't overcome other obstacles specific to the U.S. -- for example, political pressure to keep provider prices high, or social and economic barriers to good health.

Then there's the obvious advantage that the existence of multiple private insurers confers: the ability -- albeit often exercised by one's employer -- to choose which company to use, and what level and type of benefits to pay for. Research by Leemore Dafny, a professor at Northwestern's Kellogg School of Management, suggests the typical American with employer-sponsored (and employer-selected) insurance would be willing to give up 16 percent of her employer’s subsidy for coverage in return for the chance to use the subsidy toward a plan of her choosing.

By comparison, the benefits and tradeoffs of a single-payer, government-defined plan reflect the aggregated choices of voters, guaranteeing that almost nobody will get their ideal mix of benefits and costs. "Government is constrained by politics and budgets," said Austin Frakt, a health economist at the Department of Veterans Affairs and creator of the health-policy blog The Incidental Economist. In the U.S., "If one insurer isn't doing things people like, at least it's not affecting everybody."

In a country so defined by individualism, the ability to go one's own way certainly counts for something -- even if it means some people get a worse deal than others. Yet choice isn't enough to make the average person happy. In a 2013 international survey of peoples' views about their health-care systems, just 25 percent of Americans said their system works well, the lowest score among countries measured. (The people happiest with their system were the British -- who have almost no choice in who provides their benefits.)

Would Americans be happier in a Sanders world? In the unlikely event that he gets his way, the balance between choice and cost would look closer to the Canadian approach. So I asked Erin Strumpf, a health economics professor at McGill University who lived in the U.S. until eight years ago, which system she liked better. It took some prodding, but she eventually conceded that as a consumer, she preferred the American model.

"If you live in the U.S. and you have a good job, and you're middle-class or above, you have good insurance, and you have access to the care you need," Strumpf said. In Canada, by contrast, it can be hard to find a doctor who's taking new patients. "Just having a health insurance card doesn't mean it's easy."

But there's more to health care than health care. "I think Canadians get some value, some good feeling, just from the fact that everybody's in," Strumpf said. "People are treated equally, regardless of their station in life."

With remarkable Canadian tact, she added: "But that might not be valued in all cultures in the same way."

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Christopher Flavelle at cflavelle@bloomberg.net

To contact the editor responsible for this story:
Zara Kessler at zkessler@bloomberg.net