The Frosts Demonstrate Why We Need Single Payer Health Care

For economic commentary and market analysis, go to the Bonddad Blog:

It turns out, however, that not everything about the Frosts' life pops up on a Google search. While Graeme does attend a private school, he does so on scholarship. Halsey Frost is a self-employed woodworker; he and his wife say they earn between $45,000 and $50,000 a year to provide for their family of six. Their 1936 rowhouse was purchased in 1990 for $55,000. It was vacant and in a run-down neighborhood that has improved since then, in part because of people like themselves who took a chance. It is now assessed at $263,140, though under state law the value of that asset is not taken into account in determining their eligibility for SCHIP. And while they are still uninsured, they claim it is most certainly not by choice. Bonnie Frost says the last time she priced health coverage, she learned it would cost them $1,200 a month.

The above snippet from Time perfectly illustrate why single-payer health care is really the answer to the health care problem in the US.

1.) Notice the Frost's already priced insurance. At $1200/month, the Frosts would be looking at $14,000/year in payments. That's 32% of their income. That assumes those are all the medical costs the Frosts would pay which simply isn't true. My guess is the $1200/month policy would have some type of deductible, co-pay structure etc.... Considering the Frosts overall situation of two children needing expensive medical care, medical costs could easily become 40%-50% of their annual expenses.

2.) Malkin has argued that assets should be included in the eligibility computation for SCHIP. This is a really stupid idea. According to the article, the Frost's home is $263,000. According to Malkini's argument, the Frosts should either take out a home loan (home equity loan) or sell their home. If the Frost's sell their home, they will take out their equity (assuming they have some). But they'll eventually spend that. In addition, this assumes the Frosts can sell their home right now -- in the worst housing market in the last 20 years. In other words, this argument makes a lot of assumptions that probably won't play out in reality. When they're done spending the loan proceeds, they'll be poorer. In taking out a home equity loan, the Frost's are simply delaying he inevitable -- bankruptcy. The Frosts would then have a note which would provide a drain on their finances until the loan proceeds ran out. At that time, the Frosts would have an additional payment in their monthly nut in addition to medical costs. I'm not sure if Malkin realizes the debt issue in America, but it is pretty severe. For example, foreclosures doubled this month.

Here's the basic problem. The Frosts aren't rich and they have children. That means medical expenses are their biggest problem. Under the Malkin theory, either poor people shouldn't have children because insurance is too expensive, or the poor should go into debt to pay for insurance which under the new bankruptcy laws is tantamount to indentured servitude.

Anyway -- now that I've weighed in on the Frost debate, I want to bring back the central arguments I have always made (and will continue to make) about single-payer health care.

While I will almost always advocate for a market based economic approach to allocating resources, health care is not an area where the profit motive should dominate decision making. Simply put, the end product is a patient's health. Private health insurance has a conflict of interest between the insurance company and the insured which will be resolved in favor of the insurance company a majority of the time.

Let me paint a hypothetical picture to illustrate this point. Insured makes a claim with the insurance company, which is a publicly traded company. Because the insurance company is publicly traded they must turn a profit and increase their profits to maintain their share price. In order to make a profit they have every incentive to either

1. Deny the insured's claim, or 2. Delay payment to increase the possibility the insured will drop his claim

There are numerous stories about an insured making a routine claim only to be inundated with paperwork, or being told the policy doesn't cover that procedure, or being told the insurance company has to look into the claim to see if the insurance company can make a payment. In any of these situations the central idea of insurance -- to provide some safety for the insured at a specific cost -- is compromised.

In addition, insurance companies will seek to minimize the amount of money they would have to pay to the insured. Again, remember the product here is the patient's health. Supposed the insured has a disease where the cure is expensive but a cheaper alternative exists. However, the cheaper alternative would moderately or seriously compromise the insured's quality of life. Because the insurance company is profit-driven, it will probably opt for the cheaper treatment that compromises the insured's quality of life.

Here is what the Frost's ran into in the private health care market:

In a telephone interview, the Frosts said they had recently been rejected by three private insurance companies because of pre-existing medical conditions. "We stood up in the first place because S-chip really helped our family and we wanted to help other families," Mrs. Frost said.

The profit motive worked to the Frost's extreme disadvantage. Because covering the Frost's was expensive, the insurance companies simply denied them coverage.

Secondly, private health care is more expensive the public health care. Here are three charts compiled from the Organization for Economic Cooperation and Development. The figures are from 2004.

First, the US spends the least amount of public money on health care.

However, the US spends the most on health care as a percentage of GDP

and on a per capita basis.

Notice the partially inverse relationship between public expenditures and total amount spent on health care. In short, publicly available health care is cheaper.

Finally there is the issue of competitiveness. I'll let General Motors of Canada make the argument for me.

"The Canadian plan has been a significant advantage for investing in Canada," says GM Canada spokesman David Patterson, noting that in the United States, GM spends $1,400 per car on health benefits. Indeed, with the provinces sharing 75 percent of the cost of Canadian healthcare, it's no surprise that GM, Ford and Chrysler have all been shifting car production across the border at such a rate that the name "Motor City" should belong to Windsor, not Detroit.

Just two years ago, GM Canada's CEO Michael Grimaldi sent a letter co-signed by Canadian Autoworkers Union president Buzz Hargrave to a Crown Commission considering reforms of Canada's 35-year-old national health program that said, "The public healthcare system significantly reduces total labour costs for automobile manufacturing firms, compared to their cost of equivalent private insurance services purchased by U.S.-based automakers." That letter also said it was "vitally important that the publicly funded healthcare system be preserved and renewed, on the existing principles of universality, accessibility, portability, comprehensiveness and public administration," and went on to call not just for preservation but for an "updated range of services." CEOs of the Canadian units of Ford and DaimlerChrysler wrote similar encomiums endorsing the national health system.

Health care costs are killing American business. Our international competitors don't have to deal with these costs. As a result, private health care is making US business less competitive.

So, public health eliminates a conflict of interest that compromises individual health, is cheaper and makes the US more competitive. And we don't have a public health system because?

Digby makes the point far more eloquently than I:

Setting aside the total dishonesty of that --- surely Steyn has been informed by now that the Frost kids go to private school on scholarship and the house was bought for 55,000 in 1990 --- what has become crystal clear in this debate is one that I think needs to be discussed. The Republicans believe that people should be completely destitute, living in a one room shack and working two jobs before they "deserve" subsidized health insurance. The middle class who are one car accident or one cancer diagnosis away from losing their jobs, being unable to afford either the cadillac COBRA plans from their employers (my last one here in California was $1700.00 a month and I'm healthy) must not be allowed to keep ANY assets.They must be, as Steyn's pal wrote, "dying on the streets with sores on their bodies" before they qualify for aid.


If the free-wheeling capitalists of the right wing believe that you can keep an economy dynamic, growing and flexible in a twisted system like this, they are even more blindly ideological than I thought. This is not just a moral crisis, it's an economic crisis and if these people are determined to continue down this path then I suggest the rest of us start buying land in Costa Rica because this country is going to fail. Hugely. The numbers do not add up.