Thursday, September 17, 2009

Better Than a Poke In The Eye

The recently released “Baucus” senate health care reform plan has the virtue of providing health insurance coverage for a good proportion of the currently uninsured. Everybody will be required to have health insurance, just as we must now have car insurance, but the cost of insurance will be subsidized for the poor and the lower middle class. Those costs will be recovered through “fees” (basically new taxes) on health insurers, pharmaceutical makers, health labs and medical device makers.

Providing health insurance for the poor is a good thing. It could even nominally reduce costs by reducing use of emergency rooms, (which we all pay for in increased costs), the method by which the poor get health care now. It also introduces some slight regulation of the insurance industry, eliminating the more egregious practices, such as denying coverage for pre-existing conditions, and by setting some minimum coverage standards. Regulation like that is badly needed.

However, the plan does not propose to reduce overall health care spending. The high, “unsustainable” cost of health care has been Obama’s main argument for why reform is needed. This plan does not address that argument. There will be non-profit consumer cooperatives established for the purpose of providing health care insurance. These are supposed to provide much-needed price competition, but it is hard to see how they would, unless, over time, they became extremely large and essentially became the “public option” not included in this plan. A small insurance co-op just wouldn’t have enough actuarial muscle to spread the risk.

State-based exchanges, or central markets, would be set up where individuals could easily compare prices and coverage from health insurers. That will help with price transparency, but is not much different than spending a few hours on the internet. You still can only buy insurance from companies licensed in your state, which is a limited choice. And if the pricing information is provided by the industry, it will be about as transparent as mud. Have you ever tried to compare pricing for TV cable services, or wireless services online? There are so many vaguely defined variables, misdirections and subtle subterfuges that a straightforward comparison is impossible. I am not sanguine about the helpfulness of that idea.

We should assume that the taxes levied on the health care industry to pay for the Baucus plan will be passed along to consumers. The companies are not going to just take the hit. They will raise the cost of coverage, probably across the board but mostly on the high end. This will have the effect of employers choosing to offer lower grade coverage or higher prices, and the same for individuals buying their own coverage. There are simply no price controls in this plan. By assigning the new costs disproportionately to higher end consumers, the plan effects a wealth transfer, the rich subsidizing the newly insured poor. That’s not a bad thing in principle, but it does nothing to reduce overall costs, which was the problem to be solved.

So this plan is batting .500. It does address one of the two outstanding problems, health insurance coverage for the 50 million uninsured in this country. But it whiffs the second problem, lowering the overall cost of health care. One out of two is better than none out of two, but it is not the sweeping FDR-like vision many had hoped for. Perhaps it is not the final word.

Sunday, September 6, 2009

It's the Insurance, Stupid

President Obama will soon give a big speech to congress (mostly to the Democrats) about health care reform. He needs to right the ship of discussion quickly. It has been listing badly under the weight of irrational and malicious propaganda from the right and petty bickering on the left.

The plain fact is that the current health care system is financially unsustainable. Three quarters of Americans will simply have to go broke from health care costs if it continues on the present course. Or, more likely, premiums will rise sharply and benefits will be cut to keep it going, leaving more of us out in the cold. None of these is a desirable outcome. Ergo, we need to reform the health care system.

Obama has at least identified the problem correctly as an insurance problem. The problem is not that doctors are price gouging. The problem is not that hospital profits are too high. The problem is not that the quality of health care is low. The problem is not fraud (although there is some of that, to be sure). The problem is not frivolous use of medical services. The problem is cost, cost cost. Why are the costs so high? Because the insurance companies charge too much for the services they render. The problem is with the insurance companies.

I am very satisfied with my health insurance just the way it is. It is comprehensive and low cost. I fork over a $15 copay every time I visit the doctor, and that’s it. I don’t even know what the true cost is of the medical services I receive. As far as I know, anything I want costs $15.

What do I pay for this fabulous level of care? Thousands and thousands of dollars! I pay about $6,432 annually for basic health insurance (including wife). My employer pays at least that much, probably double that amount. I also pay $624 per year for dental insurance (employer pays the rest) and $3,214 a year to medicare, a service I do not use, so I am donating that amount to “the system” so others can benefit.

But just looking at basic health insurance, Aetna gets $6432 annually from me and let’s assume $12, 864 annually from my employer, for a total of $19, 296 per year in premiums. And this has been going on for the past 40 years, at ever increasing rates. I can guarantee that I do not consume $20K worth of medical services in a year and never have. So Aetna has literally, made a fortune on just me and my employer!

Now, granted, my employer can deduct some of their portion of the insurance payments from their taxes, which amounts to a government subsidy (a partial “single-payer” system). And granted, I paid less for insurance in the distant past. And granted, when I get really old, it is not inconceivable that I might blow through $20K in medical services in a year. But I have been paying in for a long time, and I am just one person! Millions upon millions of people have been paying these same premiums into Aetna and the other insurance companies for years. Who is getting rich?

Does the “free-market” system of insurance work? It works for me. I have no motivation to change anything. But in two years, my employer-subsidised medical insurance runs out. Then what will I do? Will I be able to come up with private insurance? Preliminary research shows that I will have to pay at least $1500 a month, or about $27,000 a year for private coverage that includes only the most catastrophic medical events, with a high copay and a high deductible. That is nasty. No more annual physicals. No more lab tests that detect potentially serious conditions before they occur. No more going to the doctor every time there is an infection, rash, or pain that is not life-threatening.

I simply cannot not afford the level of coverage I have now once I separate from my employer. It is no wonder that nearly 50 million Americans have no medical coverage at all. It's expensive! I will just chance it for a few more years until I qualify for medicare.

Obama has suggested that the government should offer public insurance to compete with the private companies, like Aetna. Presumably, it would be cheaper than Aetna’s and just as good. That would force Aetna to lower their prices (and take a lower profit, poor babies.)

Critics object that if there were a public option, many small to medium employers (and maybe the large employers too) would simply stop offering health benefits. Why should they, when the public option is available to anyone? So, the complaint goes, the public option would force out the private option.

That objection is nonsense, borne of either ignorance or malicious disinformation. Why would private employers continue to offer health coverage? For the same reason they offer salary: to compensate employees! Health insurance is part of the compensation package. If my employer stopped offering health care coverage, that would be equivalent to a $12,000 per year pay cut. Forget that. I would look to a more generous employer rather quickly.

Secondly, if the public option is cheaper and just as good, and let’s say employers do stop offering private coverage, and workers move in throngs to the public option, what is Aetna going to do? Will they say, “Oh well, it was good while it lasted, but now we’re out of business. Too bad?” Of course not. They are not going out of business. They will fight back, and that is the whole point. They will lower premiums and improve services and do whatever it takes to be competitive and stay in business. And that is exactly the desired outcome.

Who could be against lower costs for health care at the same high level? Only a few groups. The insurance companies are against it, of course. And the politicians they support are against it. And all the lawyers, accountants, adjustors, clerks and millions of others who feed off the insurance industry would be against it. But those are all greedy self-interests. It is perfectly clear that health insurance reform is in the best interest of the public.

I hope Obama addresses the health insurance issue head on and does not get drawn into peripheral or nonexistent issues such as “unnecessary lab tests” fraud, paperwork reduction, tort reform, health rationing, “death panels”, and so on. None of that is keeping his eye on the ball. Insurance is the ball.