Resistance Begins at Ohm!

Monday, August 3, 2009

What is really the problem with healthcare costs?

It's medicare. There are millions of Americans about to retire and enter into the medicare rolls.
It is an entitlement they have been paying for their entire working life.
The government did not set aside the money they have been collecting. They have been spending it on a host of domestic and international agendas from wars against terrorism (where is that country anyway?) to 40,000 trailers for Katrina victims (many of whom apparently did not want to pay for flood insurance).
So now, with the millions of retiring Americans entering the medicare system, there isn't enough money to pay for their medical care.

What to do?
It seems pretty simple. Either the costs need to come down or the enrollment needs to be reduced. Or some combination of the two. It's not rocket science. Can't afford it? Buy less, buy cheaper or don't buy.
What am I missing here?
So, let's look at the approach we have been using - buy cheaper. That has translated, at least for medicare recipients, into higher fees and copays. It has also translated into much lower reimbursements for the people providing care - from doctors to labs to hospitals. Everyone is taking a smaller payment except the pharmaceutical industry. There is competition there however, so prices are low for a long list of prescription medicines. There is also some competition for medicare part B however, the premiums are higher for the private programs. Well, duh, they do have a lot of administrative overhead just for the privilege of competing with the federal government program. The pressure to reduce costs for services to medicare-eligible people has the effect of shifting the cost burden to people who aren't getting medicare (or medicaid, but that's another story). The people who aren't getting medicare fall into three categories, people who have their own insurance, people who have no insurance and people who are getting medicaid. For the most part the people who have no insurance aren't helping pick up any of the costs, they are just creating more costs that aren't paid for. Just because the government won't pay doesn't mean the costs go away. Someone is paying for the difference between medicare reimbursements and business costs. Business costs include the losses from treating the uninsured. It all ends up getting tacked onto the bill for the people who do have insurance. Hence the premiums go up faster than the rate of inflation.
Congress is saying well, if we just have more people paying into the program, then we'll have more money to pay for the people who are using the program. If all the customers are a losing proposition to medical professionals, what happens? They quit working. Or they can't get financing to do business. Credit swaps and the car industry all over again. Maybe we can't sustain the status quo, but we can't sustain that either. Adding people onto the rolls for public insurance doesn't work unless they are paying their own way plus paying for all the free rides. Your private insurance is not going to survive - it can't. The government needs to spread the financial pain for mismanagement and stupid decisions across a much broader base of people. Like everyone. And more than once.
One of the cost savings that is being looked at is the larger premium paid for medicare alternatives. The effect of eliminating those programs will be to reduce the margins providers receive for service, create more gaps where treatments are not covered, and add a lot of demand on providers who really don't want any more medicare business. So, you can reduce the cost of the premiums, but you aren't going to reduce the cost of the care. You are just going to shift it over to people who have insurance. Private health insurance premiums go up again. Government costs may be reduced, but only at the expense of the people who are on medicare and the rest of us. Plus, many of the options that medicare eligible people now have for care (such as HMOs) are eliminated. Pretty much you get what the government gives you and you pay for everything else yourself. You won't be able to choose a plan that best meets your needs - there will only be one plan. And the insured are not getting any choices about their premiums either.
The insurance companies use the same strategy. Buy cheaper by increasing payments from patients (copays and deductibles), and cutting the reimbursement costs for participating providers. Buy less by reducing the amount of care (eliminating wellness visits, chiropractic, routine labwork).
At some point, there really isn't much more to be squeezed out by just paring away at the edges. There is a point of diminishing return, and a point of catastrophic collapse. Let's face it, if you are losing money providing service to 20% of your customers, the other 80% are picking up the difference. The more customers in the losing side of the equation, the higher the costs to the full-pay customers. Ever wonder why the bill for that lab test is $225 but your insurance company only paid $30? Something is wrong with that picture. The price for the service is nearly completely disconnected from its cost. Everything else ($195 in this example) is related to the cost of doing business, not the cost of the test. The principle is the same whether you are talking about the portion of people paying the premiums or the portion of people paying the taxes. The people in the middle between poor and wealthy (who probably aren't paying income tax to begin with), between the young and the old, the ones who are working and by and large not sick already, are going to be paying the bills for everyone else. That's just the way it works. The more people receiving services who aren't paying their full share, the more the rest of us are going to pay.
One thing that would be particularly effective for both the government programs and for the privately insured is to reduce the cost of doing business. Two big areas there are malpractice insurance and record keeping. Every insurance company has their own way of paying claims. Providers need to send information in a format that a particular insurance company wants. So, if there was only one payer (single payer), then there would be only one way and that would make things much easier (cheaper). But does that mean the government and only the government should be the one payer? No, it doesn't. It would make a lot more sense to standardize on the claims process. Besides, the government itself will have different requirements for medicare vs. medicaid vs everyone else.
Another business cost is maintaining patient medical records. If those records could be standardized, supposedly everyone would be using the same system for recording, maintaining and sharing information. Electronic records are easier than paper ones - except when people refuse to use them. The government wants to have all medical records in an electronic form. And they also want access to all medical records. And of course, that will cost money. Plus, what are they doing with those records? Whatever it is, it will cost more money. What they are doing with the records is another subject, but if you value your privacy at all, you should be very very concerned.
Why is it that no one is discussing things the federal government could do to reduce the cost of malpractice insurance? In many places for certain specialties, malpractice insurance cost has already arrived at the catastrophic point where physicians simply refuse to practice because the premiums are too much. Congress could reform the area of law that deals with malpractice and reduce the amount that could be awarded. Really, who is going to spend 80 million when they are already dead. The lawsuit lottery seems to be untouchable, perhaps because congress is pretty much just a bunch of lawyers who can't make it in private practice apparently. Another option would be to tax the hell out of those judgments and put that money back into the public programs. It doesn't do any good to put the money back in the treasury where it will be used for something else like $4500 car rebates.

Let's look at the other part of this side of the equation - reducing enrollment. Insurance companies use different techniques, but one that is particularly vexing is eliminating pre-existing conditions. That is managed to some extent in employer-provided plans. In individual plans, it isn't. I'm not saying it is the right thing to do. I'm just pointing out the logic behind an insurance company saving money by not paying for claims for people they know are already sick. In the public plan, the concern is that costs for treatment will be compared with whatever the government decides is the remaining useful life expectancy. If your hip replacement is $100,000 and you can be expected to have 5 decent years left, then the cost per year is $20,000. If that is too expensive in the opinion of the government, oh well, take two aspirin and call me in the morning. It's the same basic idea as pre-existing condition it's just at the other end. Your pre-existing condition is your age and your chronic lack of health. And it could include your poor lifestyle choices such as smoking, obesity and alcohol use - things the government has already decided shorten your useful life expectancy.
Another strategy for reducing enrollment is to increase the age of eligibility. Of course, in a single payer government run public program, every one is eligible. Death is the only sure exit. Abortion and euthanasia come to mind.
And finally, there is an approach I'll call selective ineligibility. That would be where a waiting period is imposed, either explicitly (like you only get 1 doctors visit a year whether you can pay or not) or implicitly (like the waiting period for a doctors' appointment happens to be 12 months). You are ineligible because you had a pre-existing service rather than a pre-existing condition.
So, that pretty much rounds up what I see as the options before us. What Congress is talking about doesn't seem to have much to do with the problem or the solutions. It seems to be mostly marketing hype about how great it will be when we have it.
Here's an alternative idea: What if we got rid of medicare and medicaid, the government run programs? What if we used insurance companies with a common claims process? What if the government got out of the business of managing care? For that matter, throw Veterans' health care system in the pot as well. Most veterans I have spoken with are far less than satisfied with what they are getting. It is basically rationed, costs are increasing and benefits are decreasing. The promise has not been fulfilled. Skip that huge bureaucracy, make the military pony up the premiums and let veterans choose what type of program best meets their needs. People can and should be allowed to choose for themselves whether they want a traditional cost-reimbursement insurance program, a managed care program or a hybrid. One size does not fit all.

A note about future cost savings. Congress always seems to exempt itself from basic accounting practice and principles of capital investment. If a company is considering making a big down payment, cost outlay, investment or up front expense (whatever you want to call it), they will look at the return on that investment in very concrete mathematical terms. It isn't esoteric - well somewhere down the road, we'll find some savings to make up for it. For example, parts of the formula are the cost of money (interest), the projection of payments due in the future (like bonds where you need to have your cost savings in the bank before the bill comes due), and the value of money. The value of money says that spending $100 today in order to save $100 ten years from now, is costing you at least the price of inflation compounded. So, unless you are saving at least $140 ten years from now, you aren't saving squat. I don't hear congress talking about the interest we will have to pay for spending all this money we don't have right now. Even if you say we're spending it already, you have to look and see if it is actually cash spent or is it cash borrowed. Cash borrowed for whatever reason is a lot more expensive than available cash spent. Spending more cash you don't have isn't saving a dime unless you are saving more that the sum of the cash, the interest and the lost value due to inflation. And the more you spend, the more inflation goes up and then the more interest goes up. To make up for a $trillion spent now, we would have to find a $trillion in savings from what we would spend otherwise. That's not going to happen. So, we are then tossing out the current program, and starting over. Except we are ignoring how much it will cost to change and how much it will cost to "settle the old debts." All those costs need to be compared to what we are doing now, and what the status quo will cost in the future. Just saying so doesn't make it so. It just makes them look stupid.

A note on medicaid - this is a program that the federal government pretty much requires the states to administer. States have a lot of latitude with this program, as long as children are insured (and they don't even need to be poor children). That situation leaves accountability for program costs unclear. This piece is not so easy, and I am not sure how a public program would affect the states. We know as long as the States have a large stable tax base, medicaid seems to be OK. The last 2 years have taught us there is no such thing as a large stable tax base. The eligible population isn't stable either. So, I'm going to set this aside until I have a chance to study it some more.

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