Is anyone (including Harry Reid) truly surprised (except some rank and file Democrats)?

CNN reports that there are five or six Democratic senators who will not support a public option – even in its current shabby form where it might reach 10% of us in seven years. The idea of attaining 60 votes is unachievable. They could, and always have been able to to it with 51.

Why don’t they?

This article, FACT CHECK: Health insurer profits not so fat, by AP writer Calvin Woodward, has turned up in a few places now. It is a well-researched piece that doesn’t begin to tell the truth. But it’s very convincing and well-argued. I think that is otherwise known as sophistry.

Here’s a few select quotes:

Health insurance profit margins typically run about 6 percent, give or take a point or two. That’s anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.

Profits barely exceeded 2 percent of revenues in the latest annual measure.

…Health insurers posted a 2.2 percent profit margin last year, placing them 35th on the Fortune 500 list of top industries. As is typical, other health sectors did much better – drugs and medical products and services were both in the top 10.

The railroads brought in a 12.6 percent profit margin. Leading the list: network and other communications equipment, at 20.4 percent.

HealthSpring, the best performer in the health insurance industry, posted 5.4 percent. That’s a less profitable margin than was achieved by the makers of Tupperware, Clorox bleach and Molson and Coors beers.

Disraeli, Mark Twain … someone mentioned the three kinds of lies … lies, damned lies, and statistics. That’s never so well demonstrated as in this article.

That’s because profit margin, or the cents of each dollar of sales that ends up as net income, is not a particularly meaningful figure. Investors look at it, to be sure, but usually compare it to some standard – industry average, for example. Standing alone, it has very little significance.

The reason is that different industries have to achieve different levels of sales to churn different levels of net income. Some have to do more dollar volume to achieve a dollar’s worth of net income than others. Health insurance is one of those industries. Retail groceries are another. Safeway’s profit margin in 2008 was 3.6%. That small margin, however, was enough to return over 12% on its equity.

Investors want to know a whole lot more about a company than its gross profit percentage, as Woodward must surely know. They look at a whole spectrum of measurements, including EPS, or earnings per share, and EBIDTA, earnings before interest, depreciation, taxes and amortization. Warren Buffet has a mere twelve tenets of investing, one of which is indeed gross margin (a company must make some money for each dollar sales, he says), but certainly not the most important.

Here’s Woodward’s opening line:

Quick quiz: What do these enterprises have in common? Farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo? Answer: They’re all more profitable than the health insurance industry.

It is true, Tupperware (34% ROI) and Hershey (98%) did very well last year. These are very small companies with outstanding returns. What relevance that has to the health care sector is beyond me. Why not instead look at the actual numbers for health insurance companies? Why the suspicious comparisons? (By the way, Yum Brands and Yahoo both lost money last year. So much for research.)

Does profit as a percentage of sales give us a meaningful picture for health care? I looked at three companies:

Wellpoint: It’s 2008 net income was $2.491 billion, it’s profit margin is 4.1% on sales of $61.251 billion. ROI: 11.6%.

United Health: It’s 2008 net income was $2.977 billion, it’s profit margin is 3.7% on sales of $81.186 billion. ROI: 14.3%.

CIGNA: It’s 2008 net income was $292 million, it’s profit margin is 1.5% on sales of $19.101 billion. ROI: 8.1%.

CIGNA might be considered anemic. Wellpoint and United Health are doing swimmingly well. Woodward’s point is rather hollow. He chose to look at a number, profit as a percentage of sales, that did not convey much information.

That’s how sophists do their sophistry.

Research project: Since 2005, public companies have had to report executive stock options as an expense on their income statements. Before that time, they were merely a footnote. Dollar Bill McGuire, former CEO of United Health Care, at the end of 2005 reported that he had accumulated $1.6 billion in options, making him perhaps the highest paid executive in history.

Companies were given the option of restating prior earnings to expense stock options. How many health insurance companies did so?How much of the reputed earnings decline mentioned by Woodward is due to stock options turning up as an expense?

This article, Questions and Answers: Medicare Cuts May Fund Overhaul, appeared in the Denver Post about a month ago. There is, so far as I can see, very little understanding out there about “Medicare Advantage”, or the private sector part of the Medicare program. At one time, President Obama openly talked about cutting it back.

Medicare Advantage came about in 1997 (it was then called “Medicare Choice”) when Medicare beneficiaries were given the option to receive their benefits via private insurance companies instead of through Medicare Parts A and B. (The private plan was known as “Part C”, which is why the drug benefit passed in 2003 was called “Part D”.)

When the Medicare Part C was first offered, care was offered through Health Maintenance Organizations run by the private sector, and HMO’s were reimbursed by funds given the insurers by the government. Given the choice between traditional Medicare and private HMO’s, most Medicare recipients chose the former.

To remedy the problem, private insurers in 2003 sought and got from Congress a huge subsidy, and “Medicare Advantage” was born. Private insurers are typically paid around $800 a month for their Medicare patients, far more than the federal government pays to cover the average Medicare patient.The premium can go as high as $2000 depending on the risk status of the patient. The additional premium is used by insurers to lure clients out of Medicare and into Medicare Advantage. In essence, we subsidize their marketing.

Medicare Advantage generally offers better benefits than traditional Medicare. Even so, the private insurers do not want Medicare’s expensive patients, and are so doing the usual cherry-picking and claim denial. And again, as usual, there are a dizzying array of plans, and patients are being funneled into fewer choices of facilities, treatments and doctors than traditional Medicare offers.

Drs. David Himmelstein and Sidney Wolfe talked about insurance company marketing practices for Medicare Advantage on the Bill Moyers Journal back in May:

Himmelstein:…the private insurers have all kinds of tricks to avoid sick patients, who are the expensive patients. So, you put your signup office on the second floor of a walkup building. And people who can’t navigate stairs are the expensive people.

Wolfe:Get rid of the heart failure patients.

Himmelstein: Or you have your signup dinners in a rural area at night, where only relatively healthy people are able to drive and stay up that late. So, there’s a whole science to how you sign up selectively healthier patients. And the insurance industry spends millions and millions of dollars on that. And would continue to as they’ve done under Medicare. Selectively recruiting healthier patients, who are the profitable ones, leaving the losses to the public plan.

And there’s really, despite regulations in Medicare that says you can’t do that, that’s continued to happen. And it means that every time a patient signs up with a private plan under Medicare, we pay 15 percent more than we would pay if that same patient were in the Medicare program.

Essentially, Medicare Advantage was a plan to undermine Medicare by stripping it of the healthy patients that are the bulwark of any viable health insurance plan. Medicare would be left with the expensive patients, and would eventually sink.

At one point President Obama talked about undoing Medicare Advantage, saving the larger Medicare program $27 billion per year that currently subsidizes M.A. (I am citing that from memory from one of his speeches, and could be wrong on specifics.) I haven’t heard him talk about it lately, although the right wing and private insurers have menaced seniors with the idea that Democrats want to cut Medicare.

From the Denver Post story first linked above:

Benefits under traditional Medicare won’t be cut. But seniors who’ve signed up for private insurance plans through Medicare Advantage could lose valuable extra benefits, according to the Congressional Budget Office.

For years, the government has been paying the private plans more than it costs traditional Medicare to deliver similar services. The plans used the money to provide extra benefits — mainly lower copayments and deductibles. Seniors on tight budgets responded by signing up, and now nearly one-fourth of Medicare recipients are in private plans.

…After accounting for proposed Medicare improvements, the House plan would reduce net spending on the program by $218 billion over 10 years, according to an analysis by the Kaiser Family Foundation. The Senate Finance Committee proposal would decrease net spending by $377 billion over the same period.

Kaiser found that the House cuts amount to 3 percent of projected Medicare spending from 2010-2019, while the Senate reductions are about 5 percent.

On the other hand, there would ideally be improved coverage under traditional Medicare:

Coverage for preventive care would also get better. The House and Senate bills eliminate copayments and deductibles for prevention. The House would also increase subsidies to help low-income seniors with copayments and deductibles.

“When you look at the improvements in traditional Medicare — filling the doughnut hole, free prevention, help for low-income seniors — I think all of those things narrow the gap between what Medicare Advantage has been providing and what traditional Medicare provides,” said John Rother, top strategist for AARP. “In effect, they are improving the benefit for everyone.”

Medicare Advantage was carved out of Medicare to create a profit center for private insurers, and has managed to take 25% of the Medicare base – the healthiest 25%. Reforms as proposed would take back some of that advantage and apply it to the regular base. But industry does not easily give back subsidy.

In general, private health insurance is a leach on the health care system. Insurers in the 1960’s struck a deal with reformers to allow Medicare to cover only 80% of costs, with private insurance picking up the other 20%. It created a profit center for private health insurance companies – United Health Care, for the third quarter of 2009 reported that 36% of its $21.7 billion in revenues came from Medicare Advantage and Medicare supplements.

So while we like to think of Medicare as the efficient part of our health care system, private insurers have made significant inroads and have carved out significant profits for themselves out of the public purse.

Proposed “Cuts” to Medicare are really cuts to private industry, which is why insurance companies (and AARP – which works with the private companies and takes a cut of the subsidy) are using that feature of reform to scare seniors into opposing it.

I have been saying for a long time that the only way we will get single payer is to bypass Obama, Baucus and the Democrats, and just do it. I thought California the logical place, post-Arnold. But apparently it’s going to be Pennsylvania.

If the Democrats in Washington won’t pass single payer.

Then maybe the people of Pennsylvania will.

I just returned from McConnellsburg and Harrisburg.

Where a grassroots movement is growing.

And fast.

Demanding nothing less than a strong, enlightened, universal state single payer.

A bill has been drafted.

Hearings have been held.

The Governor has vowed to sign it — if it passes the legislature.

Legislators are being lined up.

On Tuesday, I was with more than 1,200 people in the state Capitol building in Harrisburg.

Rallying for single payer.

It was such a joy to be with people who were saying loudly, clearly — and without hesitation:

Single Payer.

Now.

No Democratic Party waffling.

No wavering.

No watered down public option.

Just plain old single payer.

Everybody in.

Nobody out.

As I told the single payer activists from all around Pennsylvania:

Obamacare is a fraud on the American people.

If it becomes law, the American people are not going to be happy.

Obamacare will force them to buy health insurance from corporations with a track record of ripping them off.

Jim Ferlo — the state Senator from Pittsburgh who is sponsoring the single payer bill — put it this way:

“My single payer bill is 26 pages long.”

“In large print.”

“In Congress, you have a 1,000-page plus piece of legislation.”

“It is downright gobbledygook.”

“It is gobbledygook because they want to keep the American people in the dark.”

“We want an expanded and improved Medicare system for all.”

“It’s not rocket science.”

“And if you are a member of Congress and you can’t understand that —
then get the hell out of Congress.”

Today, we are calling on those 89 members of the House who have signed on to HR 676 — the single payer bill in the House — to take a stand.

Just say no to Obamacare.

And vow to pass single payer for the nation.

This will stop Obamacare in its tracks.

Put single payer on the front burner.

And trigger a national debate on what Dr. Marcia Angell – former editor of the New England Journal of Medicine — called “not only the best health care reform – but the only health care reform that will both control costs and cover everyone.”

Single payer national health insurance.

Everybody in.

Nobody out.

No matter what the Democrats and Obama do —

Single Payer Action is in it for the long haul.

Until we secure single payer for all of the American people.

Earlier this year, you helped us launch Single Payer Action.

Since our launch, we’ve been arrested, jostled, screamed at — most obscenely by viewers of Fox TV who didn’t like our call on the Greta Van Sustern show for “everybody in, nobody out.”

But we will not back down.

Until single payer is a reality.

With your help, Single Payer Action will continue to agitate, mobilize and organize nationwide.

In all the ways we can.

At the state, national and federal level.

And report back to you on breaking developments.

So, please — donate now — whatever you can — $10, $20, $50, $100 – whatever you can afford — to Single Payer Action.

Ralph Nader.

Congressman Alan Grayson is mixing things up pretty good. It’s kind of a man-bites-dog story – Republicans are all over the page with insults and smears, death panels and granny dying off in a waiting queue. Some pundits, like Ann Coulter and Glenn Beck, earn their paychecks by being outrageous. They are mediocre at best, hardly worth a mention. They surely know that their stock goes up with each insult.

Grayson got up on the floor of the House and merely said something true – that Republicans have no health care plan. Therefore, their plan must be “don’t get sick”. Or, if you do get sick, “die quickly”.

Screams of indignation followed. Republicans demanded an apology. Instead, Grayson countered by apologizing to the 44,000 plus who (according to a Harvard study) die each year due to lack of health care.

Rachel Maddow noted the other night that Grayson’s opponents are not to be found, and that the Florida Republican Party is barrel-bottom-scraping to come up with an opponent for Grayson. I don’t know what poll results show, but I’d be very surprised if Grayson’s numbers did not shoot up for saying something true. That sometimes happens – politicians sometimes say something that is true, that is. Polls alwasy shoot up in the aftermath.

Which highlights the frustration of being a Democrat. They are such wimps and weasels, many coached to be that way, others merely filling the role of the ratchet. The health care debate was theirs to win- they started out ahead by two touchdowns and a field goal. They had the numbers, they had public support. But because they have Emmanuel’s and Baucus’s and Reid’s instead of Grayson’s for leadership, they have blown it. The very best we can hope for a this point is co-ops, or as Steve W. calls them, “co-opts”.

Anyway, Grayson has made a high profile for himself. Let’s hope the Democrats don’t try to cut him off at the knees in 2010.

P.S. Grayson has an impressive biography (courtesy Wiki, no doubt supplied by Grayson’s people):

Grayson was born in the Bronx, New York and grew up in the tenements. He graduated from Bronx High School of Science and worked his way through Harvard University, graduating in three years, summa cum laude and Phi Beta Kappa. He worked as an economist for two years, but then returned to Harvard for graduate studies. Within four years, he earned a law degree with honors from Harvard Law School, a masters in public policy from the John F. Kennedy School of Government and completed the course work and passed the general exams for a Ph.D. in government.[3][4]

After writing his master’s thesis on gerontology, Grayson founded the Alliance for Aging Research, and served as an officer of the organization for more than 20 years.