Health Care Reform: The Built-in Schemes and False Promises
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
This entry was posted on Tuesday, March 30th, 2010 at 1:46 pm and is filed under Healthcare Reform Bill, Obama. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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