TheHealthCareCritic

A very simply but accurate depiction of U.S. Healthcare Reform.

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