TheHealthCareCritic

The Congress of the United States used every procedural trick possible to pass the health care legislation that President Obama was anxious to sign promptly into law. The daring legislative process was effectuated by a Congress that had a 14% approval rating and a President with a popularity of 46%, with both looking at a trillion dollar deficit for decades to come. Open deals that would be called “corruption” in any other country were made to secure passage of the legislation. The American public knows about the “Cornhusker” deal and the ”Louisiana Purchase.” Numerous other deals included promises to look the other way on unlimited requests for earmarks

by certain members of Congress, and a meaningless executive order by the President of the United States prohibited the use of public funds for abortion. These are the facts that are not known to the average American citizen:

• The legislation was structured to avoid the TRILLION dollar cost number (the estimated costs came just under the $1 trillion mark). That is why there are ten years of taxes and only six years of benefits.
• The CBO, which is supposedly independent, spent a lot of time with the Speaker’s office in order to tweak the legislation to produce the desired budget surplus over the next decade. This was done, as can be easily demonstrated, by making wild-eyed assumptions that no self-respecting examiner can accept.
• The fact that the only way for the surplus to be generated is through the manipulation of the numbers that will prove later to be politically impossible to implement: cutting Medicare and taxing the Cadillac plans.
• Congress exempted itself from the legislation and gave wide latitudes to the Secretary of Health and Human Services in the implementation of the legislation, and protection from its likely legal consequences. This is the same Congress that exempted itself from the Social Security tax, from sexual harassment laws and from limits on retirement income. A Congressman can retire with the same after serving only ONE TERM in the Congress.

There is little or no argument that health care costs must be controlled. The real issue for the American people to sort out next November is whether the drive for “reform” required tearing down the political fabric of our nation, and further undermined the fiscal soundness of the United States.

The Pattern is clear and the ideological inference is inescapable. It started in the early days of the OBAMA Administration and it culminated with the virtual takeover of the health care sector (17% of the US economy). The US government is short order acquired control of about 2/3 of GM, one third of CITI, all of AIG and control over Freddie Mac and Fannie May. It is now well positioned to control the health insurance sector and have influence over the life of every American.

All of this was done in the name of good, fairness, the welfare of children, ending waste and corruption in the government run programs, limiting greed, and regulating an abusive, out of control health care industry. Who can possibly be against this? The irony is that even Roosevelt who had massive, bipartisan support for the Social Security (SS- 1935) program got is completely wrong. The program is costing infinitely more than was anticipated. President Johnson did no better. The Medicare program (1965) is almost bankrupt and no attempt to save it will succeed without increasing taxes and /or cut benefits. The Combined SS and Medicare unfunded liabilities are at 107 trillion. Yet, President OBAMA is cutting Medicare not to reduce its unfunded liabilities an increase its solvency, but rather to use the money to sustain an unpopular takeover of the health care sector. In so doing the Medicare cuts are double counted. Medicare is no better off under either scenario. And, the ‘big lie”: the OBAMA health care reform reduces the budget deficit over the next 10 years by some $130 billion exacerbates our budget numbers, and further stresses our political structure.

The United States has run budget deficits since 1970 with a few years of interruption during the Clinton Administration won through strong arm tactics by then Speaker Gingrich. The current fiscal year budget deficit is projected to be $1.27 trillion on a budget of $3.8 trillion, down from the previous year of $1.56 trillion. The budget deficit was $458 billion in 2008 with the US fighting two wars and restructuring its internal security system.

The new policy indicates that those in charge believe that deficits do not matter. Soon the interest on the national debt will exceed the total defense spending of the United States. Every trillion dollar in debt costs the US a billion dollars a day in interest. How long can this be sustained is what driving the American people to demand fiscal accountability and transparency.

The lessons need not be learned all over again. There are many that can be drawn from the European experience. An overregulated market is inefficient and grows very slowly. Those working inside of it spend their time answering to the government instead of producing goods and services. That is why Europe has been growing at only 1.7% in the last ten years. Add to market rigidities powerful labor unions and dramatically changing demographics and the situation may not be correctible without major restructuring of the welfare state and the very essence of what entitlements are truly legitimate and what limits must be placed on them. Structural changes are inevitable as Greece and now Portugal are finding out.

The fear of a truly competitive market, especially for labor, that runs across the current European tradition and mindset, is another handicap in the European domain. Even President Sarkozy of France is learning not to push the peddle of reform too hard. The Clarion was sounded in the recent regional elections. The jury is still out as to whether Greece will succeed in reversing budget overruns, distorted accounting, and in restraining labor demands that have little to do with the productivity and the national welfare.

Europe has recognized that it must reverse its policies that are encroaching on personal freedom and the growth potential of its economies, while the United States is hell bent on copying their system knowing that the evidence is contrary to OBAMA’s assumptions.

Yet, the Obama administration is pursuing a strategy at odds with the American tradition: increase the size of government even if you borrow astronomical amounts of money. Federal, state and local government spending has reached an unprecedented percentage of GDP in 2010: 37.5%. We are quickly catching up to Europe’s 52% and that is without the inclusion of the new health care costs.

If we only subtract the ‘savings’ from the cuts in Medicare (almost impossible to execute politically), and if we eliminate the projected $200 billion cuts in doctors reimbursements, and if we stop the political nonsense about taxing the Cadillac plans that union members enjoy, we will add $800 billion to the OBAMA deficit  OBAMA. The Health care Bill that is now law is really a $2 trillion plan.

This is not the time to do any of this. America is losing its edge in the world. More massive budget deficits exacerbate this in pronounced and dangerous ways.

The temporary euphoria over the passage of HR3962 will inevitably yield to reality. I trust and hope for the sake of America that it will be sooner than later.

Joe Concerned

Will the American people be better off than they were before Obama and his health care reform? The answer is a resounding NO!

The exact benefits of the health care legislation are very probabilistic at this time. But the intent and the ultimate outcome are clear. The promises are that the insurance industry will be more responsive with government manipulating the market, deficits will be minimal ( if any), the quality of care will be higher, overall health care costs will be contained ( if not reduced), and the coverage will be comprehensive for all Americans. Anyone and any business, small businesses especially, will be able to purchase coverage. But all existing proposals under the new law would leave about 10 million Americans without insurance and are extremely unlikely to bend the cost curve unless you rob Peter to pay Paul, or you severely restrict access. The evidence suggests overwhelmingly that the same government that directly controls about a third of the U.S. health care system has failed miserably in the costs containment arena. Medicare which was projected to cost $12 billion in 1990 ended up costing $110 billion and cost well over $400 billion in 2009 rising at 10% per year. This is not true only in the U.S. but in all developed countries. Health care costs have invariably risen.

The government insurance option at this point is limited to the high risk citizen. Taking them off the list of customers for insurance companies will not control costs nor improve quality. The majority of U.S. health care dollars are spent on them. Therefore, the government is positioning itself to compete aggressively in this field and possibly freeze out the private insurance companies. Insurers may well welcome this. They may well use it as a dumping ground for high risk patients and thusly realize a bonanza especially if they are able to cherry-pick their client base. This will invite further scrutiny of the insurance industry and even more controls. Additionally, it may allow for other public options for other types of insurance on the grounds that the insurance companies are misbehaving by making excess profits. It will be argued that competition from the government will discipline them. There will be more innovative taxes than the ones already enacted into law under the guise of health care reform. The surcharge on the Cadillac Plans was only the first salvo. The insurance companies may well exit the scene as they become squeezed on the low end of the insurance market, on the high end and everywhere in the middle. Government will end up taking over the insurance sector either by buying companies outright, or by simply taking an equity position in financially troubled companies in exchange for an infusion of capital. The GM model is an excellent example. The US government currently owns 61 % of GM. The Obama reform thus becomes a mechanism for the gradual takeover of the private health care sector.

The basic law of economics argues that low cost producers (sellers of health insurance) drive out high cost producers at any point in the insurance coverage spectrum. The lowest cost producer for a package of medical services of comparable quality could in fact dominate the market. But alas, this has not happened. While insurance companies are trying to cut costs, limit accessibility to some services, and increase co-payments, health care costs have continued to rise. This is so because the costs of technology and medicine are rising, and providing excellent health care while doctors are closely watched by the ever aggressive trial lawyers makes health care even more costly. All the increases are occurring while the health care components of a basic insurance coverage are politically determined by ever more generous state legislators. This increases the health care wedge (the difference between the actual cost of health care and what patient pays for it). That wedge represents a free good: an incentive to increase the demand for medical services. This will affect insurance costs whether the policy is sold by the government or by private insurers. The difference is that the government has its hands deep in every taxpayer’s pockets.

It is, therefore, impossible to believe that the market, even as it is restructured, will allow a new private health care insurer that has indeed built the “better mouse trap” that seriously reduces the cost of health care, to enter the market and realize a large return on investment. Too many obstacles have been erected to eliminate that possibility. Further, the new entity must have the power to coerce, punish and legislate. The US government with its HCA does indeed have these powers, exclusively.

The returns on equity in the health care insurance sector do not encourage entry either. The health insurance sector operates like a regulated industry with strong interference and guidelines from the government (federal, state and local). The returns on equity are modest while all insurance providers are struggling to contain costs. Of the top 14 insurers, few (Aetna, United Security Group, WellPoint, American Medical Security Group, and United Health Group) have returns on book equity exceeding 10%. Several are below 10% and two: Amerigroup Corp. and Humana, are losing money.

President Obama promises to fund the reform scheme with cost savings and taxes on the “rich”. During the Presidential campaign the rich was defined down from those earning $250,000 per year to those making $100,000 per year. This will be repeated and soon the “rich” will be every person with a job.

The control over health care costs will ultimately come through continued coercion of health care providers, by rationing health care, by reducing reimbursements to doctors and hospitals, by reducing the care or the quality in health care, and by simply cutting off a large segment of the elderly or the seriously ill population from demanding the more expensive forms of health care. This is rationing.

The ebullience that we witnessed after the passage of the health care legislation is like the fizz once a bottle of tonic water is opened. The fizz disappears quickly, however, leaving the taste of the remaining water worse that that of plain water

Joe Concerned

The profile of those individuals that the Obama Administration wants to turn the system upside-down for is vastly misrepresented. The need for a grand scheme for reforming the US health care system to provide medical coverage for all is vastly exaggerated. A careful examination of the data leads inevitably to the conclusion that baby steps are indeed all that is necessary.

Sixty percent of the Americans get their insurance through their employers. Nine percent buy insurance directly. Of the latter group about 38% buy the insurance to supplement their Medicare coverage. The government provides medical insurance to 14% of the US population through Medicare. This percentage is rising fast as the baby boom generation begins to retire. The next largest program covering 13% of the US population is Medicaid. This program targets children (SCHIP), pregnant women, elderly and disabled people. The third government program is for Veterans who account for 4% of the US population. Those uninsured are about 45 million and represent 16% of the US population. Contrary to public opinion they are not all poor or helpless. In fact a disproportionate percentage of them are perfectly able to buy private insurance, but do not, preferring instead to free ride a system that is currently set up for abuse.

Only 25% of the uninsured have income below the Federal Poverty Line (FPL). The next 25% are 100 to 199% above the poverty line. Fully 28% are above 300% of the FPL. Almost 80% of the uninsured are under the age of 44. Only 21% are below the age of 18. In the 18-44 age-category, about 40% are below 200% of FPL. A substantial majority (57%) of the uninsured are childless adults. Almost half of the uninsured are white and about 30% are Latinos. The foreign born (a polite designation for illegals) account for 21% of the uninsured population or about 10 million persons. Almost 74% of the uninsured have full (46%) or part time jobs (28%). The membership in these groups is dynamic. Almost half the uninsured have no insurance for six months or less. Almost 51% are uninsured for at least one year. But as some leave the uninsured ranks, others enter.
The fact of uninsurance is transitory to a considerable extent. But, everyone is receiving medical treatment, often using the most expensive venues: emergency rooms, often arriving in ambulances paid for by the US taxpayers. We all pay for this abuse.

If the illegal population is not considered (there is a logical argument that the cost of illegal immigration should be a part of the Homeland Security budget because of the failure to control our borders), and if those who are over the 200% FPL threshold (40% of the uninsured- adjusted to prevent double counting), therefore able to buy basic insurance coverage (partially or totally unsubsidized), are also subtracted from the total, we are left with only 40% of the uninsured population. This data may be very conservative as some government statistics indicate that only one third of the uninsured are below 200% of FPL.

All of this translates into a population of about 18 million individual (maximum)that is at risk in terms of health coverage. Assuming the government pays fully for a basic coverage from private insurance at $5,500 per person, the total additional costs will be almost $100 billion per year. This cost will have to be reduced by the considerable saving resulting from removing those individuals from the free riders rolls. The government has another option. Place the 18 million in the Medicaid program. At a cost of 3,600 per adult, the Medicaid option will cost about $65 billion per year.

But, many who can buy insurance may still opt not to. The challenge to the government in this case is to restrict, hopefully eliminate, all free riders on the health care system. The size of the co-payments, taxation, payment for ambulance service if the doctor determines that there is not a serious emergency are some of the mechanisms to force the uninsured who can afford insurance to buy one. Thus,for the system to work, it must be controlled and incentivizezed on both ends of the spectrum: the purchase of a subsidized private insurance and receiving free medical services.

Conclusion
The proposed transformation in the health care system of the US is not necessary and may well be very harmful.

There is a large set of options to use effectively short of gutting the system. We believe that the push for “reform” is primarily ideological. Copying the European health care system is a terrible idea: everyone gets squeezed in terms of access. The rising costs of health care are incorporated indirectly in a punishing tax structure. This is not the American way that has fundamental choices as its anchor.We need not follow the European path despite OBama’s deep admiration for it.

Simple steps will go a long way to correct the problems:

• Allow for interstate sale of insurance
• Tort reform
• Stronger enforcement of the anti fraud laws and vigilant oversight over the insurance companies and the HMO
• Deal decisively with preexisting conditions.

The proposed health care bills making their way through Congress will inevitably result in massive income redistribution. The ‘rich’ who pay their old insurance bill will see their premium increase (Anthem Blue Shield Blue Cross) already announced a massive increase in premiums of 40%). In addition they will pay a higher premium so the government can provide insurance cost subsidies for a large portion of the population, plus the costs of new government mandates to be included in the ‘basic package” (they may include some form of plastic surgeries and abortion coverage) plus the costs of covering illegal immigrants(inevitably, if not immediately) plus the costs of enforcement to make certain that everyone who can buy insurance indeed does so plus the costs of the new agencies and associated bureaucracies that the government is scheduled to put in place, and plus the higher premium due to the fact that insurance companies will have to shift their costs from policies that have a price ceiling on them (the basic coverage) to those who have the more generous insurance plans, especially the Cadillac plans. The cost shifting will be magnified from historical levels as about twenty million Americans will be shifted onto Medicaid.

Health care costs, you see, are like a balloon. You squeeze them on one side, they expand on the other.

These are only the indirect taxes that the average American will have to pay. The OBAMA Administration has already announced plans for higher tax rates on Medicare,higher taxes on those making more than $200,000 (initially), higher capital gains taxes, other taxes in the form of increased fees and new ones, and the employer mandates that compels them to buy health insurance for their employees at prices they cannot afford which leads them right into the government option.

While the cost of health care to those who can pay for it will inevitably increase, the question is the other side of the ledger: what are the Americans getting for all of this given that over 90% of them are quite happy with their current health care situation. We leave this discussion to another narrative.

The government option in the original health care bill has been set aside for now but will reemerge once the initial ‘reform bill’ passes. It will be incremental with ever more innovative political maneuvers to get it passed. The first increment has already started with the assault on insurance companies who are already being depicted as the enemies. The cumulative effects will be a single payer system no matter the original plan. This logic explains the sudden conversion of Congressman Dennis Kucinich on March 17, 2010. Here is how the government intrusion will occur:

• Government will load the basic coverage and offer it directly at a price that no private insurance company will be able to offer on rational economic grounds. This is because political decisions will be driving the price and the coverage and not economicrationality. A country that spends almost $800 billion to save the financial sector will not argue about a few billions here and there “to help the poor and the lower income class” obtain affordable medical care will matter much in an age of trillion dollar deficits.
• The uninsured will be required, initially or eventually, to buy  insurance. The cost of the government option will be lower and the government has the power to coerce and impose penalties (using agencies like the IRS). The government will not subsidize the more expensive insurance provided by private companies as would have been the case under the McCain plan. But, buying insurance and paying for it are two different things.There will be those who sign up and end up paying none of the premiums. The government will pay for their misdeeds on the back end: free medical care at emergency rooms. Should enough people default on their premium payment, the government will by necessity take over the lower quartile of the insurance market or bail out the insurance companies they hate so much. The first option will be more ideologically correct.
• The government will declare many currently available and privately funded insurance programs as not “qualified”. One example of many will be an insurance policy that simply covers major health care costs or catastrophic cases. People holding ineligible policies will be forced to buy government insurance, or else pay a substantial penalty.
• Some coverage (e.g. abortion, which will be eventually included in a government program- it is, e.g. paid for by many programs in the state of California) may not be available in many states. Government insurance will be sold in every state including those states that do not subsidize abortion.
• The private insurance companies will be at a distinct disadvantage to compete with the government plan as current laws:
• Do not allow for the interstate sale of insurance. The US government will be selling its health insurance in every state of the union at rates determined by political-economics, if not pure political considerations.
• Do not require government to pay taxes on practically anything
• Do not allow for the creation of cooperatives for small business to purchase insurance at a reduced cost
• Allow the states to mandate the minimum coverage for basic care. Even a stripped version of that at the Federal level will place the private companies in jeopardy
• Allow trial lawyers to make the life of private insurers miserable. Government entities may well be exempted from this invasion. In fact, one version of the Bills exempts the Secretary of HHS from legal liability.
• Allow insurance companies to continue limiting portability, and excluding persons with preexisting conditions. The Federal option will have none of this. It will then become more desirable from a cost point of view and from a benefits point of view.Government in a nationalized health care system will by definition not have (on the surface) any excluded person for any reason.
• The Federal government will keep the size of the subsidies (explicit or implicit) for its insurance plan high enough so the cost of its unique insurance plan will be well below the cost of private insurance
• The government will allow for clinics throughout communities no matter how economically inefficient they are. People like “local services”
• Small business will be required to provide health insurance. They will choose government care simply to reduce cost and simultaneously meet government mandates. Else, they may face penalties of all sorts (in fact there is an explicit tax on small businesses that do not buy the government plan). The government option will be the least hassle option.
• The Federal government could impose all kinds of restrictions and taxes on insurance companies. A surtax on “excess profits” could  be imposed on insurers that may benefitfrom the introduction of the government option. Insurance companies that end up cherry picking their insured will be penalized.

Conclusion

The political shift in Washington has brought about an ideological shift that is broad andfundamental. It has guided all government actions/ policies starting with the banking sector, going to the auto sector, to the health care sector, to executive wage controls, andto ever newer mechanisms for government intrusion in all segments of the economy. The absence of a government option in the revised health acre legislation is a necessary political pose. It will come later in omnibus legislations (perhaps piece by piece) or in the documentation of the failures on the new system (structured to fail) that inevitably leads to a government bailout (and ownership), especially in the basic coverage of health care.

If the OBAMA health care proposals is not stopped now, America will pay a huge price in terms of access to quality health care, total costs of health care, and the inevitable large budget deficits that accompany them.

JOE Concerned