An email interaction I had with an old friend last week:
Old Friend:
Seeing as your much closer to the healthcare industry than I am, I was interested in your take on the bill that passed. All good, all bad, good in theory but terrible in execution, etc? Read any particularly interesting takes on it?
Me:
I’ve been inundated with calls with consultants from DC and our own in-house experts, we’ve been focusing on how the legislation impacts our XXXXX, but I do have a lot of opinions.
I break up the reform and my opinions into 2 categories: Reform & Social Redistribution, I’ll tackle each for you:
Reform
They’re changing the way insurance is administered. Insurance is no longer going to be a product priced and underwritten at an individual basis, it will now be pooled and priced in groups. Large employers already do this for the most part, but now individuals and small employers can join together in pools and use an exchange to buy insurance. This already exists in the private sector, we already have GPO’s (group purchasing organizations) which give buying power to the pools as opposed to somebody individually trying to negotiate for insurance. The key change is that these pools must accept unhealthy folks and folks with pre-existing conditions, which is expensive and drives up the cost of the pooled insurance. If you jam a bunch of people with cardiac conditions who consume $500K of healthcare per year into a pool, that will drive up the cost for everybody since these cardiac folks pay the same rate. Anyway, this is an interesting philosophical change. I think I’m actually OK with this concept since there’s so many grey areas. Does Joe Schmo have a heart condition because he eats crap and he doesn’t take care of himself or does Joe just have cholesterol in his genes and he really can’t help it? It’s hard to blame people for many pre-existing conditions. The key for all of this is for healthy people to buy into the pool since they won’t consume a lot of healthcare dollars and they can help price the pool down. The elimination of insurance discrimination against unhealthy people and people with pre-existing conditions is probably the biggest headline for reform that liberals have been selling. So now insurance companies have to insure people who they know will be very expensive to insure, but charge everybody the same premium. So if everybody pays the same premium, healthy people are subsidizing unhealthy people. They need to force healthy people to buy insurance and hense subsidize the unhealthy folks. Otherwise, the rest of the new insurance regulations don’t work. So purchasing insurance won’t make sense for healthy people since an actuary can calculate that the value of insurance may only be $5,000/year but they have to pay $20,000 to offset the expense to the insurance company to insure unhealthy people. Therefore, this whole program needs a strong incentive to make healthy people buy insurance, hence the penalty. I work round the clock with all sorts of healthcare insiders – word is that the $690 penalty is not enough, it needs to be higher to keep healthy people in the insurance pool otherwise insurance gets too expensive and everyone will just go uninsured. The smart thing for a healthy person to do is to pay the penalty and then go without insurance, but have the application ready in case you get hit by a bus, have a relative submit the application the day the bus hits you, then you won’t have to pay the expense since they can’t reject you because the bus injury is pre-existing. Anyway, this is a sensitive political issue for Barry, Barry campaigned promising to not tax people making less than 250k/year, he has to keep this lack of insurance penalty low to avoid political backlash. That penalty is getting a lot of press right now with all the law suits, that only will get worse when they have to increase it.
Again, I’m actually ok with the insurance regulation concepts and many of the other clauses in the bill – particularly the “concept” of an independent health board, the reform bill only introduces this but the board has no real charter/power, I think the long term goal is to set something up where Medicare is controlled by a board appointed by congress, similar to the federal reserve. This is the first step in taking control away from congress, congress is way too in the weeds in determing the physician fee schedule and the DRG’s – the rates at which hospitals get paid. The politics of every decision has been paralyzing. This independent health board was actually Tom Daschle’s idea, read his book on healthcare if you ever have time, it’s excellent. Nobody has any idea what the health board actually means right now, since it’s vague, but I’m hoping it’s opening the door for the Daschle idea. Daschle is actually a democrat and he was in line to take the Director of HHS position but Barry had to switch since Tom has worked with lobbyist, Daschle’s ideas are great because he’s actually shrinking the power of Congress, but the rest of his democrat brothers don’t understand the concept, they’ll probably can this idea when they find this out since they really don’t understand the downside of big government. This board concept is just one other little nugget buried in thousands of pages of legislation.
Social Redistribution:
Why couldn’t we just make the reform bill a reform on how insurance is controlled/delivered? It would sail through with an 80% vote. My issues are with the damn liberals inserting all this non-sensical social redistribution. The beneficiaries are not the dirt poor, the dirt poor are already covered by Medicaid. Old people are already covered by Medicare. So, this whole reform only hurts people making below the poverty line (poverty line income is the threshold for Medicaid eligibility). Most of these reform dollars are going to insure families making >50k. “Insuring the poor” is a myth in the context of this reform. The concept of insuring the lower middle class and requiring companies to insure people with pre-existing conditions is a double whammy in terms of cost. Half of the funding of this bill is coming from cuts to Medicare. So, we’re taking money away from old people and doctors providing care to old people and giving it to the lower middle class. Taking $500B out of Medicare is going to be so painful, we don’t have enough doctors as is. The way they cut Medicare is they just tell doctors/nurses/hospitals that they’ll pay them less for any given treatment or care, but they don’t make very good money off Medicare to begin with (commercial insurance is usually priced at at least a 10% premium to Medicare for any given procedure. So a typical hospital/doctor/nurse makes their real profits off commercially insured patients. So what will naturally happen is that some doctors will stop accepting Medicare patients, which limits access to our aging population. This will piss off old people and they’re the wrong people to f with since they all vote, and vote in mid-terms not just for presidents. Anyway, the reform will also get funded via taxes to Cadillac plans, so they’ll make Cadillac plans extinct as employers won’t pay the tax, so people with nice health insurance will get down-graded and employers won’t increase wages to off-set, they never do. This will piss off 50% of America with nice health benefits and it’s pretty un-necessary, companies should be able to compensate people any way they want, regulations on this ONLY HURTS EMPLOYEES AND ACTUALLY HELPS EMPLOYERS!!! It defeats all the other concepts of this bill. It’s just a BS way to raise some more money.
The concept that this bill is budget neutral and actually saves money is complete bullshxt. It would be like me buying a $100,000 porches, but taking a second job that pays $100,000. Does that mean that I’m buying the Porsche for free or that the purchase of the porche is budget neutral? Go ask the old folks when they can’t find a doctor or the doctor that’s receiving less for that hip replacement they perform. I doubt they’d agree that this legislation is budget neutral. The Porsche analogy is dead-on, I’m not trying to spin this.
Anyway, we already have way too much social redistribution, 50% of Americans don’t pay taxes, if you make 50k and have a family of 4, where’s the motivation to make more $? Healthcare subsidies go away, tax brackets kick in. We have to stop making social contracts to the lower middle class, you can’t break those contracts once they go into effect. We’re just going to become like the lazy European countries with high regulation, social redistribution, and higher long term unemployment due slower GDP growth. Look at the GDP growth of the mature European countries - they have chronic low GDP growth and higher unemployment. Worse, since they have slower growth, you’d think they wouldn’t have deep recessions. WRONG! Their recessions are more acute, look at unemployment data over last few years. I’m not saying socialism sucks for everyone, but it sucks for America, other cultures don’t value $ the same way and capitalism doesn’t work in those countries, but capitalism is built into the DNA in America, we get very lazy when we don’t have to work.
I didn’t even mention the increase in Medicare tax as part of this bill or the expiration of the bush tax cuts, but you can guess where my opinion is on that.
In summary, I’m OK with some of the reforms since we have a system that needs tweaks, but the god damn social redistribution is so ridiculous. I actually think social redistribution is racist, but that’s a discussion for another day.
Old Friend:
That’s a solid breakdown. I have to admit, I’ve only really been able to absorb some of the top line details of the debate from the news, which, depending on the source, completely contradict one another. I appreciate the more comprehensive view.
The one thing that I have noticed is what seems to be a general acknowledgement that healthcare is fundamentally expensive and will continue to get more expensive. From what I’ve read and what you said, the bill doesn’t try to specifically address the cost of care so much as limit what the gov’t is willing to spend on the likes of Medicare, which will likely reduce the amount of care provided and in turn reduce the amount spent.
Do you view legislative reform as an avenue to address the cost of services, drugs and technology? Having little understanding of the mechanics, my sense is finding ways to increase competition would drive down costs and make things more affordable across the board. Then, even if there was still a need to provide assistance to the lower middle class, there’d be fewer people in need of assistance for lower priced care and funding would be greatly reduced.
Me:
We’re nowhere near reducing the upward spiral of healthcare cost.
The major driver of cost is just the relationships in the healthcare delivery. The guy who has to pay for procedures (govt, insurance companies, etc) is not in the room when doctors and patients decide on what care needs to be done. In most cases, both the doctor and the patient are highly motivated to spend more and consume more healthcare. More healthcare consumption (operations, prescriptions, doctor visits) helps the doctor since he gets paid for that and helps the patient because it gives them the piece of mind of being cautious with their health. When a doctor says, “Come back next week, you might have a serious problem.” What are you going to do? You’ll come back. The doc will get paid for another visit and maybe he’ll make some $ on another blood test. You have no idea what could be wrong with you since you’re not a trained doctor so you’ll come back because you have no idea if he’s bullshxtting you or not and you’re not paying anyway – even if you have to pay, you’ll pay and come back cuz you don’t know if something could be wrong. The govt tries to control this by just paying doctors less for given procedures or care they provide (so they may pay a little less for blood tests or visits). But this has proven to not help, it’s been compared to squeezing a loose balloon, the air just shifts to another spot – so docs will just make you come back twice next time to make up for the lower amount of $ they’re making if they only bring you back once. I keep using the govt/Medicare as an example, you may ask how this effects you and me since we’re not 65 years old and eligible for Medicare. It does effect us too since our insurance plan is built off Medicare rates. So for a knee replacement, our insurance pays doctors the Medicare rate plus a premium so maybe 110% of the Medicare rate, so when $500B gets taken out for Medicare, that effects how our doctors get paid for us too.
Anyway, there are ways to fix this, one being the staff HMO insurance model of the early 1990′s. In this model, the doctors are employees of the insurance company. So they’re motivated to keep the cost down since their employer checks up on them and motivates them to keep costs down. Well, you may say that that would be bad on patients since the insurance companies will want to save money so the doctors will be really chincy with your healthcare, they’ll just let you be sick and not deal with you. But, that’s incorrect, studies prove time and time again that if a doctor lets a REAL condition go ignored, that condition will get worse and only get more expensive, so the insurance companies will want to do everything to keep you healthy so you’re not consuming healthcare and spending much more of their money later. In this model, all the incentives are perfect and we solve healthcare. But, there’s always a catch. In this case, a few catches: 1) doctors don’t like working for insurance companies and they don’t like insurance companies looking over their shoulder and making sure they don’t over utilize and prescribe extra healthcare recklessly, 2) this model requires that the docs work for the insurance company and enrollees are restricted to using only these doctors, but patients don’t like restrictions, they like to have a lot doctors to choose from, 3) These HMO insurance companies are not that disciplined and they lose focus on the long term benefits of keeping patients healthy, they may go chincy and be guilty of not trying to keep patients healthy. It comes back to bite them, and in the process, it’s a PR mess when they ruthlessly cut care. This model has worked and does work in the right formats. Currently, the Kaiser HMO in California has had outstanding results, so have HMO’s in Minnesota. For whatever reason, Minnesota people like HMO’s. Costs are down and health is up, but these staff HMO’s are hard to implement.
The other big way to keep costs down would be tort reform. Medical malpractice is a trillion dollar industry. If you made doctors take an ethics test and you made it illegal to sue them, you’d save hundreds of billions. Medicare has a separate line item for malpractice premiums. So if I have my leg amputated, insurance companies pay the doctor a set fee as part of the procedure for the malpractice premiums he has to pay. So tort reform would save hundreds of billions in direct malpractice costs and litigation, but that’s only a fraction of the actual savings. If doctors didn’t have to worry about you suing them, they’d provide different healthcare. Right now, they don’t care if you get healthy or not. They just don’t want you to sue them so their malpractice premiums don’t go up. You’d get better care if they only worried about getting you better, but they don’t. They over-prescribe procedures and pharmaceuticals just to avoid law suits. They ask you 100 questions even if they only need to ask you 4, the other 96 not only take up time but they distract physicians away from focusing on the key 4 questions. There’s obviously drawbacks to not letting people sue doctors, but we don’t have a choice. Doctors/nurses don’t get paid enough and we already have shortages, with more people getting insured and the aging baby boomers, there’s no way to treat everybody with the inefficiencies of malpractice liability looming. Healthcare reform without tort reform is such a joke, but it’s near impossible to get tort reform passed when 90% of congressman are lawyers and the president, first lady, and vice president are also lawyers.
In summary, nothing in the reform bill will stop the cost issue, there are some minor ancillary details that help here and there, but nothing material. The physician/patient/insurance relationship problem is hard to fix. Staff HMO’s fix that but that’s sort of utopian. Tort reform would save significant costs but that won’t come until Medicare is on the verge of bankruptcy/collapse, no way lawyers will stop other lawyers from suing people until they absolutely have to.
One last nugget, the discounted value of the Medicare debt is $40 trillion or 3x GDP, it’s 5x worse than the social security deficit and 4x as bad as the national debt. Barry’s plan only modestly trims that, but he’s skinning Medicare rates to the bone by cutting them $500B, and he’s taxing people and companies more, then pissing away the savings by spending $1B on social redistribution of wealth via insuring the middle class instead of making real swings at the $40 trillion problem.
Have a nice weekend.
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