Saturday, September 12, 2009

OBAMACARE FOR DUMMIES

First off, let me confess that I'm mostly going through this exercise of deconstructing the Great Healthcare Debate for my own good. For months I have read and listened to all the arguments and commentary but have never felt that I have a complete lock on what it's all about. So bear with me as I think out loud and wander through the policy labyrinth. Let me also let you know up front that I'm a Republican who thinks the federal government is the most inefficient, incompetent, wasteful, lame brain institution that this nation has had the misfortune of being saddled with. I never cease to be amazed by the abiding faith that liberals put in an organization that makes decisions based not on what is rational and right but on political expediency. Moreover, how much can one expect from an institution that can fire a egregiously bad employee only after going through an obstacle course that requires the destruction of a ten acre forest in paperwork and can take so long that the bad employee will probably have retired on his cushy government pension by the time the dismissal papers are stamped.

With that said, here goes:

From what I gather, there are three main issues that Congress and the President are trying to address: 1) what to do about the uninsured 2) how to keep overall healthcare costs down 3) how to make insurance policies more user friendly in the way of being portable (i.e., can be carried from job to job) and open to all regardless of a person's particular health condition. This third issue is really not an issue because the insurance companies have basically agreed to make insurance portable and open to all, subject to an overall plan being passed that requires everyone to have insurance. The latter requirement is a boon to insurance companies as more people sign up for their plans, thus enabling insurance companies to be more generous with the terms of their policies.

The first two issues are somewhat connected in this way: those without health insurance do get health care, only they get it in the most expensive way, namely through the hospital emergency room. And because the uninsured are not able to afford preventive healthcare, their maladies often get acute before they make the visit to the hospital and thus require more expensive treatment. Ergo, getting more of the uninsured insured will help bring down the cost of our nation's aggregate cost of healthcare.

The notion of supposedly 45 million uninsured in the US demands clarification. First, of that number there are many millions who are eligible for Medicaid/Medicare but for whatever reason do not enroll. Second, there are many millions who can afford health insurance but elect not to buy it, like kids in their twenties who think they are invincible and don't want to spend beer money on health insurance. Finally, a significant portion of the uninsured are illegal immigrants, who will supposedly be excluded from any plan that gets signed into law. (The exclusion of illegals doesn't make a lot of sense to me. Okay, so taxpayer dollars will not be spent on providing insurance for this group. Great, so now private hospital dollars will be spent on this group's expensive use of emergency rooms. Are we as a society better off with the latter situation?) Some estimate that after deducting all the above subgroups from the 45 million, roughly 9 million are left who are legal citizens, who are not eligible for Medicaid/Medicare and who would like insurance but can't afford it.

Some argue cogently that providing insurance to the uninsured is about more than numbers and cost savings. We as a nation, they argue, have a moral imperative to provide health insurance for the needy. For those 9 million, I would agree. Nevertheless, those other 36 million uninsured present a economic/fiscal problem that can't just be waved away.

The bills floating around in Congress address the issue of the uninsured by mandating that everyone get health insurance, except the illegals. Those who can not afford insurance will receive subsidies from the federal government to buy insurance. These subsidies constitute most of the costs behind the $900 billion to trillion dollar estimates that number crunchers bandy about as the overall cost of universal health care. Lower the subsidies and you lower the overall cost but raise the number of people who will remain uninsured.

So there you have it, the financial logic of universal healthcare, the connection between issues one and two: universal insurance means that healthcare costs will go down. Yes, universal healthcare will cost the government as much as a trillion dollars over ten years, but once everyone is on a health plan and out of the emergency rooms, then overall health care costs will decrease.

Alas, there is a problem with this logic: No one believes that the above-mentioned putative savings will significantly offset the costs of the subsidies as no real evidence exists to support that presupposition. Consequently, Democrats have been scrambling to devise various tax/spending cut schemes to cover the cost of the program. Taxes could be raised on the wealthy. Taxes could be raised on "gold plated" health plans (unions have a problem with this since most of their health plans are super-deluxe). Fraud and abuse--eveyone's favorite twin bete noir--could be cut out of Medicare. Of course, one might wonder if fraud and abuse are so easy to cut, then why haven't government overseers done it already.

What most conservatives expect is that a plan will be enacted with no real means of paying for it and twenty years from now we will have another exploding entitlement to add to exploding Medicare and exploding Social Security and our government will be bankrupt in a way that not even the scariest scaremonger envisioned. The federal government has never been up to the task of inflicting the cost necessary to pay for its goodies. The federal budget deficit over the next ten years is expected increase by $9 trillion, even before taking into account the cost of Obamacare. Analysis show that both Medicare and Social Security are bankrupt by tens and tens of trillion of dollars.

But back to the story. So now the uninsured person has, thanks to federal government subsidy, the wherewithal to buy insurance. So where does he buy his insurance since either he's unemployed or his employer doesn't offer an insurance plan? The prevailing idea is that he will go to some sort of exchange where insurance companies will compete against each other to provide the uninsured with insurance. This is where the real fight is being fought, where the Gettysburg of the healthcare civil war is being waged. Liberals are insisting that along with the dozens of insurance companies participating in the exchange and offering plans, the federal government should have a plan of its own to put before the uninsured. This government plan has been dubbed the "public option."

President Obama's rationale for the public option is that it will make sure there is real competition to provide the best plan at the least cost and to "keep the insurance companies honest." Come again? At last count there was something like 1300 insurance companies in the US. Is that not competition enough? And since when is the federal government the repository of all that is "honest"? Conservatives suspect, and rightly so, that the public option that liberals are so adamant about is nothing more than the camel sticking its nose under the tent, the camel in this case a healthcare system totally run by the feds.

How will private insurance companies be able to compete with the federal government? Private companies will compete viciously with each other to offer the most popular plan at the least cost in the most efficient way so as to generate the most optimal profit. Liberals think of profit as a dirty word. But bottom line, profit is a measure of efficiency. The government has no concern about being efficient or cost sensitive. The government will be in position to offer the best plan at the cheapest cost because it doesn't have to worry about making a profit. It will generate huge losses in order to drive private companies out of the market. And who pays for the huge losses? Taxpayers of course. Obama knows the game and is being disingenuous, which is a Washington euphemism for dishonest, when he doesn't level with the American people that a government run plan is ultimate goal and the public option is a means to that end.

The real fun starts after the government has taken complete control of healthcare and we have a nationalized medical industry. Realizing that they can not keep running huge deficits from healthcare and can't keep soaking people in fees and taxes to pay for it, then government officials will have no choice but to either drastically raise the cost of healthcare in order to cut demand or resort to rationing. One other option would be to increase supply of healthcare, ie pay providers such as doctors and hospitals more so that more people would choose to become doctors and more hospitals would be built. But one only has to look at how Medicare operates to realize that this would never happen. Medicare underpays providers even below the providers' cost. Providers make up for this buy charging customers on private plans more than they normally would have in order to make up for the Medicare stinginess. It's a dirty little secret that one reason private health insurance premiums have run up over the past 25 years is Medicare's starvation of providers.

So back to issue 2, or healthcare costs. Obama hardly ever speaks about tort reform, even though anyone involved in healthcare will tell you that frivolous lawsuits have been a significant factor in the run up of costs. Malpractice lawsuits represent around 2% in direct costs from payouts but have an even bigger, indirect impact in forcing medical providers to practise "defensive medicine," which means ordering tests and procedures not because they are necessary but just to cover the provider's ass from some predatory lawyer.

Costs are also high because Americans, when it comes to healthcare, want high cost services and products. We want CAT Scans and MRI's. We want the best drugs available, even if they cost more. We want our 80 year old grandmother to get that operation even if it extends her life only by a year. Our demands are not cost-conscious and consequently our healtchare is expensive. HMO's a decade ago tried to put some limitations on demand but got lambasted to the point that Congress almost outlawed them. To me, no matter whether it's a private or public solution, the real knot is this whole debate is how to get Americans to accept less than the most expensive treatment and products and settle for what a cost-benefit analysis would show is the "optimal" treatment or product. Government doesn't have the balls to do it, and every time private companies a la HMO's have tried the hue and cry has been such that politicians rush in and abrogate any sane effort at cost effective healthcare.

One could argue that the private market does address the cost issue through pricing. Higher quality means higher pricing. Normally, the price mechanism works in the marketplace by tamping down demand. But our healthcare system is based on third parties paying the bill, so that a disconnect exists between the end user of the product and the price of that product. Republicans have provided different proposals to tie the end user of healthcare and the cost of that healthcare together so that price elasticity exists in the medical marketplace. But these ideas, such as medical savings accounts, have never moved from the fringes of the debate.

And after thinking this issue through out loud, I have circled back to the ultimate, underlying problem, which is that US healthcare costs are too high. A ramification of that is that too many people go without insurance because they can't afford it. But to really understand the problem, one has to ask why are US costs so high compared to other developed nations' costs. The simple reason is that Americans are spoiled. We want everything, we want the best, but we don't want to pay for it. We want the best brand drug, even though a generic is available at a much lower cost. We want a CAT scan even when a CAT scan is really not necessary; but we want it just to be extra sure. We want our 80 year old grandmother to get that expensive treatment even though it might extend her life for at most another year. We want pharmaceutical companies to keep coming up with those miracle drugs that cost billions to develop but we bitch about the high price of drugs. We want to be able to sue our doctor at the drop of a hat with the same hope we have when we buy a lottery ticket, a big payoff to send us into premature retirement. We want these things despite the expense because, thanks to our third party pay system, we don't directly suffer the expense. When's the last time you asked a doctor the cost of a procedure or prescription that he was proposing. We eventually come to recognize the expense when insurance premiums go up; insurance companies are the ones after all who have to pay the bill. Rather than connecting the rise in premiums to our expensive demands, we blame the mean ole insurance companies who are just out to make a profit, when in reality the insurance industry's profit margins are in the middle of the range compared to other industries.

So who's going to tell the American people that they can't always get what they want? The HMO's tried to and look how far they got. The federal government? Yeah, right. And single payer, federally run plan doesn't address this basic problem; instead of hundreds of payers, you have one. Other government run systems, like the UK's, do in fact address the problem by rationing. Get ready for the Second Revolutionary War if the politicians have enough spine to try that here.

Americans have high cost healthcare because that's what Americans want. When politicians try to bring costs down by taking away what Americans want, they find that the majority prefer rising costs and millions of uninsured to losing the prerogatives mentioned above. Bill and Hilary learned that in 1994 and Obama is about to learn the same leason.

9 comments:

Anonymous said...

Profit is a measure of efficiency? lol Right. And even if that were true are the companies that rip us off the most efficiently the best for our society?

Nick Goreman said...

Of course profit is a measure of efficiency. If the business owner doesn't invest capital wisely, doesn't keep costs as low as possible, fails to charge the optimal price for his goods or services, then he will go out of business. Profit is not evil. It's an amoral measurement. And who's ripping you off? Is someone forcing you to buy from the person you think is ripping you off? Apple charges way more than other devices and is one of the most profitable companies in the world. Is Apple ripping you off? The US is the center of innovation, technological progress, creativity because it allows entrepreneurs like Steve Jobs to pursue profit.

Anonymous said...

Efficiency is only one of many variables in the equation to attain profits, along with creativity, quality, etc. Thats why Apple is one of the most profitable companies in the world. Efficiency is by no means the end all be all. If that were true then mindless manufacturers or 'chop shop' investment firms would surely be ruling the market. As that isnt the case then surely more must go into the equation would you agree with that?

Nick Goreman said...

yeah, I would agree. Great companies have great ideas. But they have to be efficient to bring those ideas to fruition. One thing that distinguishes US research from British is that Americans have a knack for commercializing discoveries or new technologies. Who are u, btw?

Chelle said...

Thanks for this explanation, Nick. I'm a Canadian, living in Canada but married to an American husband with American in-laws. I haven't always understood the medical system in the US and my US family hasn't always been able to explain it concisely. Now that Obamacare is green lighted (so to speak), I was even more confused. You've helped shed some light on the subject!

Anonymous said...

Correction...in a market based capital economy with limited government intervention....profit=efficiency....if you do not believe in these principles the entire EU would be happy to have you and we would be happy to be rid of you. The author is right....we are spoiled. You can't have over arching economic equality in a system based on competition and profit. So pick one or the other.

George Richardson said...

Very enlightening and easily understood, thank you for making this information available. I look forward to more education!
George Richardson

ladyfirehawk88 said...

What I want to know is, what's gonna happen to people like me? Im testing heal insurance from my soon to be x hubby. I can not afford what my agency offers and do not qualify for Medicaid/care. I live pay check to pay check. working two jobs when I can. there's others like me in my field of work. what can we exxpect? Are we just left out in the cold? Have to get third job to pay for health care? Should I just give up and live on the streets?

TREEeditor said...

nick, I am linking your post of obamacare for dummies to my Garwood TREEeditor blog. Looking around your summation is as good as anyone elses, but with a jab or twos at the system itself. I agree that the govt is a monopoly and thus not prone toward working with the most expediency or cost effectiveness, but like the teaparty we have to live with it until something better comes up.