Health Insurance Companies Are Pissing on You and Saying It's Raining

By David Sirota, Jacobin

19 May 20

Even during a pandemic, health insurance companies are both raking in huge profits and cooking up new ways to justify denying their customers’ claims. Do we really want to keep using public resources to prop up a barbaric system like this instead of establishing Medicare for All?

or most products, you can assume you’ll get what you pay for. If you grab a six-pack out of the fridge, bring it to the cashier, and hand over the money, you get your beer. You don’t pretend that the liquor store did you some favor. You got poorer, the store got richer — and in return, you got something. This is commerce, not charity.

And yet there is one industry that is not held to this universal concept of transactions: private health insurance.

In America, a system of denied claims, wait times, paperwork, and bureaucratic red tape has worn us down and made us now presume that we won’t necessarily get the health care coverage that we buy. Indeed, just look at data from the Affordable Care Act (ACA) marketplaces: customers pay big money to purchase health insurance policies, but when they go to actually use the insurance product they bought, almost one in five in-network claims are denied — and we accept this as just a normal part of life in the world’s richest nation.

This is quite a feat — the insurance industry has created for itself a unique carve-out from capitalism’s most elemental economic laws about services being delivered in exchange for payment. And now as insurers rake in huge profits during a lethal pandemic, the industry’s propagandists are going a step further, insinuating that while insurance companies may begrudgingly pay some policyholders’ claims out of a sense of altruism, they don’t necessarily have a legal obligation to do so.

This was the sentiment expressed by an insurance industry front group, defending a new initiative that eschews an expansion of Medicare and instead purports to address the COVID-19 crisis by funneling money to insurance corporations through the COBRA program. That program allows laid-off workers to keep their existing health care coverage, but only if they somehow find the cash to pay both the employee and employer side of health care premiums.

The COBRA provision was written by Democratic lawmakers at the request of industry trade associations — and just after insurers’ lobbyists raised hundreds of thousands of dollars for House Democrats’ campaign committee. In response to COBRA critics like Medicare for All proponent Bernie Sanders, here’s what Heather Meade, a spokesperson for the insurance industry–backed Alliance to Fight for Health Care, told Politico:

It would be helpful for them to remember that it’s actually a selfless act of employers to do this .?.?. This bill pays just for the premiums, and either the insurance companies or the employers would pay the claims for people who are no longer employees. So it’s a lack of understanding of how COBRA actually works. There’s no bailout here.

There’s that scene in The Outlaw Josey Wales when Captain Fletcher tells a senator: ”Don’t piss down my back and tell me it’s raining.” Well, that’s exactly what’s happening here: the insurance industry is urinating on us and telling us to thank them for the precipitation.

Think about it: a health insurance company’s product — the very widget that it exists to sell — is security. The entire reason you pay a health insurance premium through your job is so that you receive a health insurance policy — one that presumably grants you the security of knowing that your medical claims will be paid out if you get sick. That assurance is literally the thing you are purchasing.

And yet we are now being told to believe that “it’s actually a selfless act” when insurance corporations and employers decide to “pay the claims” that are supposed to be covered by the policy you bought.

What makes this particularly grotesque is that the premiums we’re paying aren’t small expenditures. Americans are paying out the nose for the privilege of having claims denied.

Last year, health insurance premiums ate up more than 10 percent of the income of thirteen million Americans. The average family of four making $50,000 a year in a job with health insurance is now paying an annual $4,000 premium — on top of the premiums the employer pays. We are now spending twice as much on health care as we did in the 1980s, and “the biggest reason for the increase is insurance costs, which have grown by 740 percent since 1984,” reports CNBC. We are collectively spending about $1 trillion on premiums every year.

All of this money is buying insurance products that don’t actually guarantee us medical care — and so the question is: Is this really the system that we want to strengthen for yet another generation?

At this moment of crisis, when there is existing emergency legislation to expand Medicare, do we really want to instead use public resources to prop up a corporate-run health insurance system that is projected to cut forty-three million Americans off coverage during a pandemic?

Do we really want to eschew a Medicare for All program in favor of a byzantine COBRA program and ACA marketplaces that use our money to subsidize a health care system that denies care to millions while paying a handful of CEOs $2.6 billion in a single year?

Do we really want to further fortify an insurance industry that suggests that it is merely a voluntary “selfless” act — rather than an ironclad obligation — to provide medical care to its own paying customers in exchange for giant premium payments?

Do we really want to keep getting pissed on and told that it is rain?

Another Bank Bailout Under Cover of a Virus

By Ellen Brown, EllenBrown.com

19 May 20

Insolvent Wall Street banks have been quietly bailed out again. Banks made risk-free by the government should be public utilities.

hen the Dodd Frank Act was passed in 2010, President Obama triumphantly declared, “No more bailouts!” But what the Act actually said was that the next time the banks failed, they would be subject to “bail ins” – the funds of their creditors, including their large depositors, would be tapped to cover their bad loans.

Then bail-ins were tried in Europe. The results were disastrous.  

Many economists in the US and Europe argued that the next time the banks failed, they should be nationalized – taken over by the government as public utilities. But that opportunity was lost when, in September 2019 and again in March 2020, Wall Street banks were quietly bailed out from a liquidity crisis in the repo market that could otherwise have bankrupted them. There was no bail-in of private funds, no heated congressional debate, and no public vote. It was all done unilaterally by unelected bureaucrats at the Federal Reserve.

“The justification of private profit,” said President Franklin Roosevelt in a 1938 address, “is private risk.” Banking has now been made virtually risk-free, backed by the full faith and credit of the United States and its people. The American people are therefore entitled to share in the benefits and the profits. Banking needs to be made a public utility.

The Risky Business of Borrowing Short to Lend Long

Individual banks can go bankrupt from too many bad loans, but the crises that can trigger system-wide collapse are “liquidity crises.” Banks “borrow short to lend long.” They borrow from their depositors to make long-term loans or investments while promising the depositors that they can come for their money “on demand.” To pull off this sleight of hand, when the depositors and the borrowers want the money at the same time, the banks have to borrow from somewhere else. If they can’t find lenders on short notice, or if the price of borrowing suddenly becomes prohibitive, the result is a “liquidity crisis.”

Before 1933, when the government stepped in with FDIC deposit insurance, bank panics and bank runs were common. When people suspected a bank was in trouble, they would all rush to withdraw their funds at once, exposing the fact that the banks did not have the money they purported to have. During the Great Depression, more than one-third of all private US banks were closed due to bank runs.

But President Franklin D. Roosevelt, who took office in 1933, was skeptical about insuring bank deposits. He warned, “We do not wish to make the United States Government liable for the mistakes and errors of individual banks, and put a premium on unsound banking in the future.” The government had a viable public alternative, a US postal banking system established in 1911. Postal banks became especially popular during the Depression, because they were backed by the US government. But Roosevelt was pressured into signing the 1933 Banking Act, creating the Federal Deposit Insurance Corporation that insured private banks with public funds.

Congress, however, was unwilling to insure more than $5,000 per depositor (about $100,000 today), a sum raised temporarily in 2008 and permanently in 2010 to $250,000. That meant large institutional investors (pension funds, mutual funds, hedge funds, sovereign wealth funds) had nowhere to park the millions of dollars they held between investments. They wanted a place to put their funds that was secure, provided them with some interest, and was liquid like a traditional deposit account, allowing quick withdrawal. They wanted the same “ironclad moneyback guarantee” provided by FDIC deposit insurance, with the ability to get their money back on demand.

It was largely in response to that need that the private repo market evolved. Repo trades, although technically “sales and repurchases” of collateral, are in effect secured short-term loans, usually repayable the next day or in two weeks. Repo replaces the security of deposit insurance with the security of highly liquid collateral, typically Treasury debt or mortgage-backed securities. Although the repo market evolved chiefly to satisfy the needs of the large institutional investors that were its chief lenders, it also served the interests of the banks, since it allowed them to get around the capital requirements imposed by regulators on the conventional banking system. Borrowing from the repo market became so popular that by 2008, it provided half the credit in the country. By 2020, this massive market had a turnover of $1 trillion a day.

Before 2008, banks also borrowed from each other in the fed funds market, allowing the Fed to manipulate interest rates by controlling the fed funds rate. But after 2008, banks were afraid to lend to each other for fear the borrowing banks might be insolvent and might not pay the loans back. Instead the lenders turned to the repo market, where loans were supposedly secured with collateral. The problem was that the collateral could be “rehypothecated,” or used for several loans at once; and by September 2019, the borrower side of the repo market had been taken over by hedge funds, which were notorious for risky rehypothecation. Many large institutional lenders therefore pulled out, driving the cost of borrowing at one point from 2% to 10%.

Rather than letting the banks fail and forcing a bail-in of private creditors’ funds, the Fed quietly stepped in and saved the banks by becoming the “repo lender of last resort.” But the liquidity crunch did not abate, and by March the Fed was making $1 trillion per day available in overnight loans. The central bank was backstopping the whole repo market, including the hedge funds, an untenable situation.

In March 2020, under cover of a national crisis, the Fed therefore flung the doors open to its discount window, where only banks could borrow. Previously, banks were reluctant to apply there because the interest was at a penalty rate and carried a stigma, signaling that the bank must be in distress. But that concern was eliminated when the Fed announced in a March 15 press release that the interest rate had been dropped to 0.25% (virtually zero). The reserve requirement was also eliminated, the capital requirement was relaxed, and all banks in good standing were offered loans of up to 90 days, “renewable on a daily basis.” The loans could be continually rolled over. And while the alleged intent was “to help meet demands for credit from households and businesses at this time,” no strings were attached to this interest-free money. There was no obligation to lend to small businesses, reduce credit card rates, or write down underwater mortgages.

The Fed’s scheme worked, and demand for repo loans plummeted. Even J.P. Morgan Chase, the largest bank in the country, has acknowledged borrowing at the Fed’s discount window for super cheap loans. But the windfall to Wall Street has not been shared with the public. In Canada, some of the biggest banks slashed their credit card interest rates in half, from 21 percent to 11 percent, to help relieve borrowers during the COVID-19 crisis. But US banks have felt no such compunction. US credit card rates dropped in April only by half a percentage point, to 20.15%. The giant Wall Street banks continue to favor their largest clients, doling out CARES Act benefits to them first, emptying the trough before many smaller businesses could drink there.

In 1969, Prime Minister Indira Gandhi nationalized 14 of India’s largest banks, not because they were bankrupt (the usual justification today) but to ensure that credit would be allocated according to planned priorities, including getting banks into rural areas and making cheap financing available to Indian farmers.  Congress could do the same today, but the odds are it won’t. As Sen. Dick Durbin said in 2009, “the banks … are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

Time for the States to Step In

State and local governments could make cheap credit available to their communities, but today they too are second class citizens when it comes to borrowing. Unlike the banks, which can borrow virtually interest-free with no strings attached, states can sell their bonds to the Fed only at market rates of 3% or 4% or more plus a penalty. Why are elected local governments, which are required to serve the public, penalized for shortfalls in their budgets caused by a mandatory shutdown, when private banks that serve private stockholders are not?

States can borrow from the federal unemployment trust fund, as California just did for $348 million, but these loans too must be paid back with interest, and they must be used to cover soaring claims for state unemployment benefits. States remain desperately short of funds to repair holes in their budgets from lost revenues and increased costs due to the shutdown.

States are excellent credit risks – far better than banks would be without the life-support of the federal government. States have a tax base, they aren’t going anywhere, they are legally required to pay their bills, and they are forbidden to file for bankruptcy. Banks are considered better credit risks than states only because their deposits are insured by the federal government and they are gifted with routine bailouts from the Fed, without which they would have collapsed decades ago.  

State and local governments with a mandate to serve the public interest deserve to be treated as well as private Wall Street banks that have repeatedly been found guilty of frauds on the public. How can states get parity with the banks? If Congress won’t address that need, states can borrow interest-free at the Fed’s discount window by forming their own publicly-owned banks. For more on that possibility, see my earlier article here.

As Buckminster Fuller said, “You never change things by fighting the existing reality. To change something, create a new model that makes the old model obsolete.” Post-COVID-19, the world will need to explore new models; and publicly-owned banks should be high on the list.  

Ellen Brown is an attorney, chair of the Public Banking Institute, and author of thirteen books including Web of Debt, The Public Bank Solution, and Banking on the People: Democratizing Money in the Digital Age. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

Reader Supported News is the Publication of Origin for this work. Permission to republish is freely granted with credit and a link back to Reader Supported News.