With a major hurdle cleared this weekend in the Health Care Reform efforts, much attention has been focused on how it’s “historic” and how many people are now going to have healthcare and somehow topics of abortion and and other seemingly tangential issues became deciding factors in who would vote for it. There has been much praise and articles citing what’s in it for you but health care reform criticism articles have been few and far between. I’m not opposed to bringing America’s health care access and treatment in line with other western economies, but I can’t help but be dismayed and frustrated by the bill in its current state and how it was enacted. I wanted to step back and highlight the major flaws in the approach, what the indirect impact to America’s prosperity may be and why it’s just so difficult to please everyone.
What’s Wrong with the Health Care System?
Health Care Costs continue to skyrocket. In a year where annual inflation was virtually zero for most other major categories, health care premiums still rose 5% again through early 2009 (8% for year end). Why?
As you can see, not only are the costs of healthcare skyrocketing, but for a country with the largest GDP in the world, this segment continues to comprise the largest % of total GDP in the world as well.
One of the biggest flaws in the system (which cannot be easily addressed due to complexity) is that compensation is based on treatment, not outcomes. As much as we like to think that all medical professionals act SOLELY with the patients’ interest in mind, the reality is that they’re doing a job to support their family just like you are. And, since the way medical expenses get paid is rather nebulous, it’s very easy to overdo everything from MRIs to specialist recommendations to medications even with the best intentions in mind. The doctor figures “Well, maybe this is going to cost a ton, but if I hit this condition with these 6 approaches and one works, great! I’m trying to save a life here, not a dime”. Meanwhile, more doctors (specialists) are compensated, more hospital capacity is filled for expensive cost centers like MRIs, CAT Scans, etc., more drugs are prescribed and the patient may or may not improve. Perhaps they would have been better off with a different, less expensive treatment altogether or perhaps they shouldn’t be treated at all. In my article on how to value life for a terminal patient, does it make sense to spend six figures to extend someone’s life by a few months? If it’s your family member, you’d probably say yes – especially if you’re not paying for it. If you are paying for it, you may still say yes primarily from an emotional standpoint. If you’re analyzing the situation from an objective unemotional standpoint (someone sitting in Washington making this decision for you) and see just how unsustainable this model is, you’d certainly question it. In the absence of a methodical approach to treatment (rationing), this situation will continue to manifest itself and balloon further. Why? People are living longer, innovative companies continue to find new treatments and approaches to disease that didn’t exist previously (and they rightfully need to recoup their R&D costs lest we take away any incentive to innovate further and take financial risks to develop new approaches), and Americans are becoming LESS healthy primarily due to poor eating habits and an increasingly sedentary lifestyle. So, it’s a conundrum. I don’t think it’s fair to blame any one particular group – hospitals, health insurers, doctors, pharma, patients…it’s a massive problem shared by what is basically a flawed system.
The problem with trying to use say, a lean six-sigma approach to analyzing data, outcomes and recommending guidelines for treatment is this notion of “death panels” and “government bureaucrats” deciding what kind of treatment a patient will receive. There is certainly merit to this argument. Don’t you think your doctor who’s been seeing you for the past 5 years has better insight into how to treat you for your condition than a paper pusher in Washington? But conversely, that’s how we get into this situation of over-treatment. It’s come down to one of two choices – to ration or not to ration. Rationing would control costs but remove the flexibility and judgment of physicians to treat the way they see fit while no rationing allows costs to continue to run rampant.
What’s Wrong with This Health Care Bill?
The biggest problem with the bill is that it probably won’t work, will be much more costly than initially projected and is likely just a foot in the door to broader, more sweeping government oversight of the country’s medical system. No different than the initial bailout that turned into more bailouts, the unemployment benefits that got extended once, but are now up to 99 weeks!, and the housing legislation that kept evolving into more ridiculous and inneffective modification programs like first paying people to stay in their house which evolved into paying people to leave their house??. Basically, once government gets an inch, they’ll take a foot. They make hasty decisions that are based on politics rather than effectiveness and then need continued band-aids, fixes and more money to fix what they screwed up the first time. This will be no different and anyone that thinks otherwise is naive and disconnected from reality.
Special Interests, Deals and Moral Hazard
Especially egregious was the contrast between Obama’s campaign promises of “no more special interests” and transparency which directly contradicts the entire process in which this bill evolved.
- Votes were bought. Basically, savvy holdouts in the political spectrum gamed the political process to hold out and become one of the few deciding votes so they could essentially put their handout and demand a bribe for their vote. (See the Louisiana purchase which cost taxpayers $100 Million for 1 vote). Additionally, unions got a sweetheart deal that other Americans didn’t (See the Union Giveaway that the rest of America must fund through 2018). Why? Well, this just helps the agenda, right? Basically, at the expense of the rest of the country, the administration shamelessly enacted a special deal for a special interest group. There’s no way around it. As unions win favorable deals like this and people want these same benefits, marginal workers (those could care less whether or not they’re in a union or are slightly in favor or a non-unionized workplace) will continue to sway toward unionization or taking union jobs because of these “sweeteners” on the shoulders of taxpayers. The more attractive you make it, the more members you’ll get. Why provide this artificial incentive? More unions = more democrat votes each election. This seeks to ensure the cycle continues. Not good for American competitiveness. But good for Democrats.
- Fuzzy Math. Politicians love to cite CBO statistic as gospel and tout that the CBO is a non-partisan group that can be trusted, etc. The problem is, when you talk to someone currently or previously at the CBO, they say that the numbers politicians drop are often total BS. The CBO makes statistical predictions and analyzes various scenarios (i.e. if assumptions x,y,z come to fruition, there is a 75% probability that it will cost ABC…). A politician latches on to an attractive sounding scenario and cost and starts touting that number. Meanwhile, that might have been the most optimistic scenario with the lowest cost which clearly will not be the actual scenario that plays out. Seriously, who can predict how many people are actually going to pay for health care vs. pay the “penalty” if you can call it that? Who can predict how this legislation will change coverage, prescribing habits, consumption of services and the other thousands of variables? The true cost will be nothing near what was projected. So, the question is whether it will be more or less expensive. Given our country’s history with large programs, I highly doubt it will be cheaper. We don’t exactly have a track record of coming in on time and under budget, do we? No, that’s only private industry that’s expected to do that since accountability exists there. Not here.
- More Fuzzy Math. Additionally, the higher taxes and fees are front-loaded but the benefits don’t come for years until 2014. While people keep praising the cost per year as modest, what they keep forgetting to mention is that there are 4 full years of taxes up front and then 6 years (with 6 more years of taxes) of benefit, so the when looking at the rosy 10 year projection, the cost per year is really almost twice as much as is being touted.
- Who Pays? Pretty much, the middle class and up. Most of the heaviest taxes fall on those darn “rich people”, which also happen to be many small business owners, who are primarily the ones that create real jobs. Not temporary census workers or more government jobs that don’t actually create anything, but real small business jobs. Is it fair that the top 5% percent earners in the country foot the fill for the bottom 50% of the country? I guess if you’re in that 50% you’d say sure. If you’re in the minority, it’s not fair. It just doesn’t seem right to me. The rest of the funding? Ah, just more debt. More tax increases.
- Forget Something? Umm, Tort Reform? Why not confront the frivolous litigation and the costs that can’t even be estimated by over-treating for fear of litigation? Well, a decent portion of Congressional lawmakers is comprised of…none other than lawyers! Why would lawyers take an action to reign in their own kind? The trial lawyer association is a huge political donor and when tons of these pols are voted out of office next term, what do you think they’ll go back to? Practicing law. Having no tort reform is good for all types of attorneys. It keeps the gravy train going. The reason cited for not including tort reform was that it would “only” have saved a few billion dollars per year, as cited by the CBO of course. Well, again, it’s impossible to accurately estimate all the intangible costs of doctors thinking non-stop about lawsuits all day and why they take every measure possible no matter how ineffective it is from a cost standpoint. It was WRONG to exclude tort reform. Special interests again ruled the day.
- Gaming the System – Fraud. First off, government does a terrible job of combating fraud. Why? Because it’s just taxpayer dollars being wasted, which are endless. Notice the large insurers aren’t defrauded at nearly the same rate? Why? They are beholden to shareholders and have an incentive to turn a profit – and reduce fraud. When you’re ineffective in private industry, you’re replaced with someone who will get the job done. When you work in the government, it’s virtually impossible to be fired. Ineptitude rules the day. Government workers don’t have much incentive to care. With Medicare being defrauded at a rate of $60 Billion per year, how many taxpayer dollars do you think are going to fund scammers by 2015?
- Gaming the System – Americans. Americans will surely game the system in shameless fashion as well. We’ve seen it in virtually every aspect the government allows itself to be exploited like cash for clunkers and the mortgage modification programs. This one leaves the door wide open.
Get this: If you don’t buy health insurance, you’ll be assessed a “penalty”. What was started off as a reasonable couple thousand dollars per year, which would incentivise people to just go buy some insurance, has devolved into peanuts. In 2014, it’s $95. In 2015, it’s $325 and maxes out at $695 or 2% of income.
$95? Are you kidding me?
Here’s How the Government Will Take Over Health Care Completely:
- Young people think they’re invincible. In general, if not already insured by a large company or their parents, they will just forgo coverage. Paying a few hundred bucks a year is a pittance and is much cheaper than paying a few thousand per year.
- Here’s where it gets ridiculous: Since insurers will now be prohibited from denying anyone with a pre-existing condition (75 year old life long smoker shows up and says “I want insurance”, they have to cover his 6-figure treatment for lung cancer), said young person will now wait until they have some massive costly condition and say, “Well, I guess it’s time to get health insurance today”. Example: Cancer, infection, pregnancy, whatever.
- It’s a free ride (close enough at these menial penalty rates) up until you get sick. Then you pay the going rate when you want to exploit the system. On that, who’s even going to pay? What are the penalties for not paying? Who enforces this? Are we really going to prosecute people for not paying the penalty while many challenge the constitutionality of forcing the issue to begin with? Mark my words. People will not pay. They will seek emergency treatment when they need it and they will be treated. It’s a joke.
- This will destroy the insurers because the way the insurance business works is that the healthy people help fund the rare large bills incurred by the small number of unhealthy people. What you get here is the health insurers being forced to insure an increased number of unhealthy people and a smaller proportion of healthy people.
- Premiums will need to rise or profits will tank, but alas – the government will impose restrictions on how much they can raise premiums. It is likely profits will tank, as the government won’t allow premiums to rise at this even more ridiculous rate to account for this ridiculous mandate.
- As fewer and fewer insurers remain viable, and the ones that do are forced to provide a worsening level of service, people will become frustrated and demand action. The government takes an ever broadening swath of patients under their umbrella under…hello – Public Option.
On one hand, the private health insurers are so reviled because of their practices, most people don’t care right now. But what they will care about is the unintended consequences. The problem is, people are so enamored with “hope and change” and making history that they’re missing the likely implications of this problematic bill.
I think at the end of the day, there’s going to be buyer’s remorse.
I hope I’m wrong.
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