The Spark

the Voice of
The Communist League of Revolutionary Workers–Internationalist

“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx

United States:
Board Room Health Care

Aug 18, 1997

It has now been three years since President Clinton gave up trying to get a major health care reform package through Congress. His efforts began during his first election campaign in 1992, when health care reform was an important part of his campaign platform.

Clinton was not the only one discussing the issue. A number of unions proposed a "single payer" government-run insurance program like that in Canada. Others spoke of mandating employer-provided health care coverage by all businesses no matter what their size. The administration proposed to establish a universal system of insurance-buying groups to which all those currently without group plans could belong. But no legislation ever made it through Congress.

It was apparent even then that the issue was not one of improving health care. It was about who was going to pay the ever-rising costs of health insurance. This is not surprising. The call for government action didn’t come from a social movement, nor even from health care workers and professionals. The debate was initiated and pushed by the most important sections of the industrial bourgeoisie, represented in the National Association of Manufacturers and the Businessmen’s Roundtable. They wanted relief from the high costs of medical insurance that disproportionately fell on them.

The fact that a health care reform package was not passed did not mean that the industrial bourgeoisie had pulled back in the face of a powerful medical care lobby; nor that the government was unresponsive or unable to meet the needs of this important section of the bourgeoisie. It just meant that both the industrial bourgeoisie and its political representatives decided to try a different approach to the problem.

The Establishment of Health Care Coverage

In the early 1990s, over 74% of the U.S. population with health insurance received coverage through their own job or that of a member of their immediate family. This insurance was not established nor was it even standardized by the state. Like wages and other benefits, health insurance was won in contracts union by union, company by company or industry by industry.

Historically, health benefits were won first in the more unionized industrial sectors of the economy. In response to the massive strike wave immediately after World War II, the American bourgeoisie assuaged the workers’ demands by passing a portion of U.S. imperialism’s victory wealth to the upper levels of the working class via the union apparatuses. The gains the working class won in this period were divided between wages and other benefits, like health care plans, which improved the overall standard of living of the working population.

Jointly established union-company health insurance programs were first set up in this time period. Originally covering only active workers, they were eventually extended to workers’ families and finally to retired workers and their families. Indirectly, the industrial bourgeoisie was also forced to pay for the cost of health care for a part of the poor and unemployed. In the absence of government-funded medical care, the poor got their care from hospitals, the cost of which was eventually passed along in higher premiums to the employers who did pay for coverage.

In effect, the strongest section of the working class was able to force the industrial bourgeoisie to insure a wide part of the total population. But medical care was not extended socially as a right for everyone.

As for the industrial bourgeoisie, it was underwriting the health care costs of other workers and thus the profits of other sectors of the bourgeoisie.

In the general economic expansion which continued through the 1960s, the industrial bourgeoisie was relatively flush with wealth. They were able to pay the costs of health care which corresponded to a rise in the real wages of the American working class, while still maintaining their profit.

Enter the Government

It was in this same period that the government began to underwrite the development of the health care system’s infrastructure. The government increasingly funded medical research, schools and training, and hospital facility development. This new spending helped expand the medical system and bring it into the modern age; at the same time it shifted a part of the general burden off the industrial bourgeoisie onto taxpayers—that is, back onto the working population.

The biggest leap in government spending in health care, however, took place from the mid-1960s into the 1970s, when the government conceded to demands from the black and labor movements to set up and then extend Medicare and Medicaid. These programs provided health care insurance coverage for tens of millions of poor and aged for the first time. By the 1980s, health care expenditures by federal, state and municipal governments made up one-half of the total expenditures on health care in this country.

This massive influx of taxpayers’ money pumped up various components of the health care system, making it the third largest industry in the country. By 1994, total spending in the U.S. on health care reached 780 billion dollars, or 15% of the Gross National Product—the highest percentage of any industrialized country in the world.

From a System to an Industry

All of these funds pouring into the health care system transformed it into a full-fledged, highly profitable industry—which it had not always been. Of course, the drug and medical equipment companies had turned profits before. But the most important sections, hospitals and the insurance mutuals, had not. This all changed, however, when new government funds poured into the health care system. The government funded Medicaid and Medicare, but it did not alter the existing structures by which medical care and insurance were delivered. Initial opposition to new government funding in the 1960s soon dissolved. Once the petty bourgeoisie which dominated the health care system realized there were opportunities for profit, they became the best supporters of the ever-increasing government funding of health care.

As the health care system mushroomed in size, it attracted new and bigger investors, including financial speculators. The "non-profit" status of hospitals and insurance companies simply provided a tax shelter for the huge surpluses these institutions now accumulated. The "non-profit" part of the industry began to set up "for-profit" subsidiaries. The directors and other officials now earned six-digit salaries equivalent to those in private industry. Many doctors opened small laboratories and clinics. They became the highest paid professionals in the country, averaging $160,000 a year in income by 1990.

While the rest of the economy was mired in the economic crisis of the 1970s and 1980s, profits still continued to boom in health care. By the 1990s, health care had become one of the most profitable industries in the country. Profit rates in health care were running 150% of the average profit throughout the economy. Some branches, like the pharmaceutical companies, averaged double the norm.

The Government Trough

Government funds guaranteed the health care of a part of the population. But they acted also as a guarantee for profits.

It was an open trough. Few controls were set on the amounts health care providers charged the government for Medicaid or Medicare reimbursement.

Insurance companies also benefitted tremendously since the government hired them to administer Medicare and Medicaid. Of course, they made a profit on their middleman role. In the U.S., administrative costs represent an average of 20% of the cost of providing care. In Canada, where the nationalized insurance system is run by the government, administrative costs represent only 9% of the total cost of health care. The difference represents over 80 billion a year. Part of this difference is undoubtedly accounted for by the duplication and confusion built into the U.S. system. But the rest takes the form of a direct subsidy given to U.S. insurance companies.

Hospitals, few of which had ever turned a profit, were among the biggest beneficiaries. The majority of many hospitals’ revenue, especially in urban centers, came from Medicaid and Medicare. Reimbursement rates include assessments for capital development and depreciation, which has encouraged big new purchases of technology, even if a local area had no need of such duplicated equipment. And it has encouraged new building projects as well. The total number of hospital beds increased throughout the 1970s and 1980s.

Government expenditures for health care have certainly improved medical care overall in this country. But within the context of a capitalist system, these expenditures meant irrationality from the viewpoint of providing health care and higher prices for doing so.

The Health Care Crisis—Rising Costs

The price of health care has skyrocketed. In the late 1980s and early 1990s, prices increased yearly at an average rate of 17%—many times faster than the general rate of inflation.

With higher prices, the charges for insurance premiums paid by corporations increased as well. What was once an inconvenience to the industrial bourgeoisie became a heavy burden.

According to the U.S. Chamber of Commerce, the cost of an average insurance premium for the major industrial corporations reached a high in 1993 of $2,851 a year per employee. With the expanded internationalization of the markets, there were now limits as to how much of these costs simply could be passed along in higher prices or ignored in making production decisions. The Big Three automobile companies, for example, pay only half as much on average for employee health coverage in Canada as they do in the U.S.

Eventually, the ever increasing costs of health care provoked a reaction. As private corporations began to "restructure" and to "downsize" in response to the overall economic crisis of the 1970s and 1980s, the cost of health insurance came under focus. The industrial bourgeoisie began to pressure its insurance carriers to reduce costs overall. Health maintenance programs such as HAP (Health Alliance Program) were expanded by the UAW and the Big 3 as a less costly alternative.

At the same time, the industrial bourgeoisie began to demand that the government address the cost crisis in the health care system—a crisis which was widespread and embedded in the overall structures of this system.

The economic crisis which weighed on the industrial bourgeoisie also had a direct effect on the state apparatus itself. Budget deficits mounted as the state stepped up its subsidies, direct and indirect, to the whole bourgeoisie. To pay for this, the politicians began to cut social programs like health care. All levels of government voted to restrict the growth in funding for Medicaid. Many new regulations were added to limit coverage. The length of stay allowed in hospitals was cut. Reimbursement levels to hospitals and doctors were restricted. Funding for the physical expansion of facilities was limited. Eventually Medicare coverage for the elderly came under attack as well, through higher co-payments and premiums.

The government launched a campaign against fraud in health care. It now estimates that health care providers overcharge 14 billion dollars each year. Obviously such "overcharges" are not new or unknown. They were just considered another form of subsidy to the health care industry. But the fact that an important health care provider like Columbia/HCA finds its top executives indicted today signals an end to the period of unlimited government funding to the health care industry.

The politicians may have pulled back in 1994 when a drastic reorganization of the health care system threatened too much disruption—especially since it may not have cut costs—but that does not mean the aim of Clinton’s health care reform isn’t being addressed. The demand of the industrial bourgeoisie was for a reduction of their costs. And those are being reduced.

The Board Rooms Got Busy

The message sent by both private industry and the government was loud and clear. Health care was no longer going to be a protected industry, insulated from the processes that have taken place in other industries. Let the market intervene, let market forces sweep through health care as they did in other industries.

Soon the scramble began, with the insurance companies jumping out front to try to direct the process in order to best benefit by it. They established cost limits for various procedures, much like the Medicare limits. And they set up a kind of vertical market integration, by setting up their own HMOs. HMOs reduce costs by combining medical services, administration and insurance; and by promoting less-costly preventive care and not just after-crisis acute care. Originally, some HMOs like HAP in Michigan or HIP in New York, were established jointly by unions and companies. Others, like Kaiser in California, were run by the company in order to reduce the costs of providing coverage for its employees.

The big insurance companies began to establish their own networks of providers linking different hospitals and clinics together. They also set up new reimbursement policies, establishing a fixed amount either on a per illness or per treatment basis, no matter how long or how much treatment a patient actually receives. In their HMOs, the insurance companies have gone a step further to set up a flat-fee structure, where the HMO receives one fixed amount per patient per year, no matter what care the patient is given or not given. That is, the insurance companies now reward the HMOs every time they substitute ambulatory care in a clinic for care in a hospital; every time they use fewer and less expensive tests and treatments; and every time they limit and even deny care to their subscribers.

It is the patients who pay the price of these changes, while the insurance companies gain the benefit. At Blue Cross of Michigan, for example, the average profit rate as a percentage of sales volume for its traditional care coverage since 1992 has been between 1.2 and 2.3, while that for the Blue Cross HMO coverage during the same years averaged between 8.2 and 11.5%. Certainly, the figures aren’t comparable, given the different book- keeping systems of regulated and non-regulated insurers. But they give some idea.

Competition has driven the insurance companies to pass along a part of their savings to customers in the form of lower premiums. As a result, the costs of health care insurance for corporations has actually declined. In the dollar figures used by the U.S. Chamber of Commerce, the cost of the average medical coverage plan per employee went from a high of $2,851 in 1993 down to $2,486 in 1996—a decline of 12.8%.

It is no wonder that the number of people insured in the range of managed-care systems has jumped from 48% in 1992, up to 77% by 1996. Every insurance company now offers an HMO plan. Many corporations now require their employees to convert from traditional care plans to HMOs or PPOs. The latest Big Three-UAW contract, for example, requires all new hired employees to automatically be enrolled in an HMO without choice for the first two years. In June of this year, proposals were introduced in the U.S. Congress to require all recipients of government health coverage under Medicare and Medicaid to be placed in HMO plans.

Market Merger Mania

Hospitals, the traditional center of acute care in the United States, have also gone through a dramatic change. With the limits established by Medicare and the insurance companies, hospital stays have been reduced in both number and length. As a result, hospitals in just a few years time have gone from having bed shortages to now having huge bed surpluses. In the country as a whole, 40% of all hospital beds are empty each night.

Of course, it would make sense to reduce hospital facilities if there were other alternatives. It is the most expensive form of care. If insurance coverage and alternative facilities were made available for the poor who today are forced to use hospital emergency rooms, this very expensive sector could be shrunk without consequence to the general health of the population. Of course, market mechanisms guarantee nothing of this sort...

What the market does guarantee is a wave of mergers, acquisitions and hospital closings. In Detroit, for example, a number of hospitals have now combined and/or relocated in the central Detroit Medical Center. Harper Hospital, Hutzel Hospital, Detroit Receiving Hospital, Children’s Hospital, Grace Hospital, Huron Valley Hospital and the Rehabilitation Institute of Michigan have all centralized their operations to reduce costs. Each of the hospitals specializes in different aspects of health care, while combining the administration. The overall number of hospital beds has been reduced in the Detroit area by closing outer-lying hospitals. Unfortunately, this increases transportation time, which can be potentially deadly for people living in most of the neighborhoods.

In New York, some hospitals have been adapting to the new market situation through a process of vertical integration. St. Luke’s hospital has reduced a number of departments and the total number of beds inside the hospital, while opening up neighborhood clinics. This reduces the cost of care previously provided inside the hospital where overhead is more expensive. St. Luke’s is also rehiring laid-off hospital personnel in the clinics—at lower wages.

Then there are the investor driven takeovers, typified today by Columbia/HCA. This private corporation began just 8 years ago owning 2 hospitals. Now it owns 343 hospitals spread out over 40 states, with revenues of 20 billion dollars a year. The hospitals are now run by a corporate board. Richard Rainwater, co-founder of Columbia/HCA has been quoted in the national press saying, "The day has come when somebody has to do in the hospital business what McDonald’s has done in the fast-food business..."

This huge conglomerate of privately-owned, for profit hospitals puts pressure on all the other hospitals to adjust their functioning, to sell out or to close down. This includes the remaining public hospitals, many of which are now on the chopping block as local governments push either to close them down or to "privatize" them.

Similar mergers and acquisitions are now also taking place in other areas from retirement homes, to home care delivery and to insurance companies. Columbia/HCA, for example, also owns 560 home care centers around the country. In the country as a whole, there were 970 mergers and acquisitions in the health care industry last year, the highest number ever. This represents an increase of 55% over the number in 1995, which already was a high figure.

This movement toward monopolization can be expected to continue. The government has started a well-publicized legal process against Columbia/HCA. But this is to stop it from raiding government funds through overcharges, not to halt the process of market concentration.

The capitalist markets now are doing in health care what they do in every industry. Competition sweeps through enforcing a kind of rationalization of the system, breaking down previous barriers and streamlining costs. New efficiencies are gained, in the capitalist sense of the word. What this means for the quality of health care, or even the longer term costs, is a different story.

The Shifting Class Forces

The mergers and acquisitions in the market place have strengthened the role of big capital in health care, and shifted the balance of forces within the industry against health care workers and even against doctors. Doctors have lost a significant amount of control as the administration of the for-profit hospitals has passed out of their hands into those of a traditional business-style board of directors. Doctors now find themselves having to negotiate for their own positions and salaries as these boards seek to cut their costs by limiting the income of their highest paid employees, the doctors.

The biggest part of the cost control, however, has been done at the expense of patient care and through an increased exploitation of the workers within the industry. The list of patient complaints voiced in the press and in government hearings are endless—from "drive-by-delivery" practices where newborns and their mothers are put out of the hospital within 48 hours of delivery to simple refusal of care previously covered.

As for the work force, hospitals have increasingly been subcontracting out maintenance and services to firms using lower paid workers. Laundries and food services are favorite targets for off-site operations by non-union workers. Some hospitals in New York City have gone so far as to contract with McDonalds to replace the employee cafeteria. Generally, for the staff of the hospitals, the changes are dramatic. In an industry which knew nothing but staff shortages, there are now widespread layoffs. Inside the hospitals, speedup is rampant. The more qualified nurses are being transformed into supervisors, and the procedures they previously performed are being handed over to lower paid technical staff.

Insurance companies are reducing their labor costs, too. Some are shifting work between locations, thanks to computers and modern transmission technology. It is now possible, for example, to shift a lot of data entry from higher-paid workers in Michigan to non-union low-paid offices in the corn fields of Illinois. Data entry is now even being done in Mexico at third-world wage rates. Needless to say, the threat of new competition will be used as a sword hanging over the heads of higher paid work forces in the more established companies.

The working class, as "consumers" who use the health care industry, also is paying part of the cost of reorganizing health care. Under the pressures of rising prices, a number of corporations have instituted co- payments or higher co-payments on insurance premiums or on medical care. Details of coverage in the insurance plans have been changed, cutting covered services. In some places, given the general lack of militancy in the working class, the corporations dared to eliminate employee insurance plans altogether. The general trend of downsizing the work force in the older industries has pushed many of those workers into service or other industries which often do not provide health care coverage. The same is true of part-time workers, even where full-time workers do have coverage. UPS may be making headlines, but it’s not the only example.

The actual percentage of full-time workers having any kind of insurance coverage has decreased in the last years, going down from 77.7% of the active work force in 1990, to 73.9% in 1995. This figure is expected to drop to 70.4% within the next two years if trends continue. For part-timers, the figure is only 18%.

In this sense, too, what is taking place in the health care field is what has already happened with the "restructuring" and downsizing in other industries. A greater part of the burdens in society are being shifted to the working class as the bourgeoisie protects its own interests.

The Fight for the Future of Health Care

In its March 17, 1997 issue, Business Week magazine ran an article entitled, "Health-care: Inflation is baaaack!" predicting a new surge in health care costs. In an August issue the editors were more precise: "Companies squeezed costs by pushing workers into health-maintenance organizations or bargaining with hospitals for discounts. But those cost-cutting methods are about played out, as suggested by the second-quarter speedup in the medical-care component of the consumer price index. So unless they drop health insurance altogether, businesses are likely to face rising premiums in the future."

This is undoubtedly over-stating the issue. But one thing is true. As the comment shows, the big industrial bourgeoisie still holds out the possibility of removing health coverage altogether.

In the absence of a working class movement, that is not surprising.

There is already a deepening health care problem in this country as more and more people begin to suffer from the cutbacks. The number of people without any form of insurance has now surpassed 43 million, and is increasing by a million each year. Today, the U.S. ranks number 17 on the list of countries in infant mortality rates, the worst of all the industrial countries.

Workers and the poor obviously are concerned over the quality of health, and the fact that increasing costs limit the access to health care. But the working class has yet to raise its voice about the problems. What is taking place over this issue is not different than what has been happening in the society overall. So far, the bourgeoisie has been left to regulate its own affairs, as it sees fit, without a fight over who controls health care and for what goal - - no matter what form of insurance or delivery this health care takes.