The President’s words made me angry last night. His (and others) insinuation that those of us who think his ideas about healthcare reform are, to put it kindly, not so hot are interested only in putting up walls, seeing him fail and have no ideas of our own is infuriating.
The president's plan does nothing to bring down healthcare costs because it doesn't address the causes of cost increases. Nor does it do anything to create a free and fair insurance market.
Current insurance regulations prohibit interstate commerce for insurance, so there really is no true national healthcare. The big insurance companies are actually a whole bunch of smaller companies like United Healthcare of Texas or United Healthcare of Massachusetts. These must all be "arms length" to comply with the law. This means that they are required by law to have redundant staff, systems, etc. That is totally inefficient and prevents any real competition.
The public option would be a national player, but if it is anything like the Medicare I see my grandmother get or the VA benefits I saw my grandfather die on, it will totally suck. But, because it doesn't have to be 50 separate companies, it will totally win. That isn't competition. That's a stacked deck.
Then you have the fact that people’s choices are limited by the coverage options their employers provide. This is compounded by the fact that it’s cheaper for individuals to get benefits through employers because it reduces their tax burden.
Now, I can tell you from personal knowledge that healthcare costs incurred by companies are way more than the payroll tax penalty currently proposed. I can also say with absolute confidence that, if given the choice, almost every company will take the penalty and remove all choices because it will increase their profits. Top executives might get a little something extra, but the vast majority will be left with only one choice. Maybe I’m crazy, but that doesn’t sound all that competitive to me.
Also, how does what the President proposed address costs? If you work for a decent sized company (like say above a few hundred million in revenue) United or whoever you have doesn't actually pay your claims. The company does. The insurance company is merely an outsourced program administrator.
Smaller companies don't self insure like big companies, but end up with essentially the same care people from big companies, albeit for a slightly higher cost (smaller pool / bigger risk). Individuals are screwed if they have to get it on their own. This is because they can’t be part of a larger pool, because cooperative buying is prohibited by law in almost every state.
Costs are going up because the costs of claims are going up. We see this at my company and I saw it at my last one too. I can speak directly to this issue because I was (and am) responsible for managing the people that did the accounting for health care coverage.
The costs of claims are going up for a whole bunch of reasons. Some are reasonable and good, like the invention of new techniques, treatments, technologies, etc. These improve care and outcomes and it is reasonable to expect that you will pay a higher price for better quality…that’s why a BMW costs more than a Kia.
Other reasons for cost increases are harder to accept and should be dealt with. Tort reform would go a long way to reducing the cost of malpractice insurance, which can run in the hundreds of thousands a year for an OB/GYN. You also have laws that limit the supply of certain medical devices to only a few per market. So, you can only have a few linear accelerators in a big city, which dramatically increases the cost of treating cancer. Eliminating those laws would increase competition and lower costs. Better management of information, fees per healthcare episode instead of per individual service, etc. all would lower costs.
Expanding coverage will increase utilization, which absent reforms designed to curb costs will actually increase the cost of care. This is because you will have greater demand with the same supply. That’s not an opinion. That’s econ 101.
By the way, supply won’t be able to increase fast enough to meet demand because medical degrees take a long time and, last I checked, are really hard to get.
Now, let’s talk about whether or not care will improve when everyone is forced onto the public option. I’m betting no and I will tell you why.
Top hospitals earn about a 10% operating profit, which is a pretty standard operating profit margin for a service business. They use those profits to reinvest in the hospital…sweet new L&D wings, that totally awesome new cardiac care center, the big new cancer wing, etc. Non-profit hospitals take what is left after reinvestment and plow it into charitable causes, like care for the indigent or immunizations for children from rough neighborhoods. For profit systems give it to the shareholders.
Medicare and other public programs account for about 70% of all healthcare claims. It’s pricing is about 30% lower than what private insurers are able to negotiate (for themselves or the self insured pools they administer). The math on this is simple: people with private insurance end up accounting for 100% of hospital profits while those on Medicare get service at cost.
It’s reasonable to assume that the government will demand Medicare pricing for the public option. This means that people in the public option will get services at cost. And, since we’ve already established that it will be cheaper and profit enhancing for companies to push employees onto the public option, this means that hospital profits will dry up. This means no reinvestment in new technologies, innovation, infrastructure, etc. Again, I may be crazy, but that sounds an awful lot like quality of care will no longer improve at the same rate. By the way, this same math applies to drug companies too.
Now that we’ve established no competition, the vast majority of people ending up in the public system, limited innovation and rising costs due to the fixed nature of supply let’s talk about the impact on the deficit. One word: HUGE.
Let’s also talk about the government response to the HUGE deficit problem. They can either raise taxes exponentially or get after costs in a big way. Since they won’t be able to affect supply, they’ll have to go after demand. Say goodbye to epidurals in birth. We’ll give women a stick to bite down on, though. Unfortunately, that's not the worst of it.
60% of all healthcare expenses occur in the last year of life. Finance 101 is that when you’re cutting costs, you go after the biggest pools first. We might not get official death panels, but you can surely bet that rationing will occur. No dialysis after 70. No care for anyone with stage 3 or greater cancer, etc.
All in all, I don’t like what I am seeing in the current proposals. Our history is littered with unintended, negative consequences every time the government interferes in free markets (and healthcare is currently anything but a free market). The current (or most recent if you believe we are already out of it) recession is a great example.
Finally, I don’t trust the government to run something like this. It’s hard enough to get a driver’s license or register a car. I can’t imagine what it would be like if they ran something like healthcare. What a nightmare that would be.
What are my ideas?
Create a truly competitive healthcare insurance market by breaking down the barriers to having national carriers. We don’t need a public option to create competition. The invisible hand, unencumbered by stupid laws will drive marketplace efficiencies in a way that no government entity ever could.
Put some limits on malpractice litigation that would help bring down the costs of malpractice insurance that doctors and hospitals must pass along.
Tear down the walls that limit supply and let there be as many specialized medical devices in a market that it can bear. Only the best and most efficient service providers will last in that type of environment.
Invest in and encourage the creation of more medical school spots to increase the supply of medical care over time.
Encourage people to take advantage of affordable options, like minute clinics for routine health issues.
Get rid of preexisting condition clauses.
Create a safety net for those who truly need help getting insurance. Of the 47 million uninsured, about 20 million have incomes sufficient to afford coverage but choose not to have it. This could be for numerous reasons, but they don’t need government help, especially if there are no preexisting clause issues. Another seven million people already qualify for existing government programs, but haven’t signed up. Let’s get them signed up. Another 10 million are illegal immigrants. Sorry, they don’t qualify. So, we’re down to about seven million people who need help. Let’s get it to them.
Net worth and risk aversion
3 days ago