(This is a timely interjection in the "Health Care" debate from Mike Walker, USMC Colonel, retired)
All,
The head of the CBO recently stated that the Pelosi Health Bill will increase not decrease health care costs. To understand why the increase will occur we need to look at the four disjointed and unbalanced revenue streams that influence the price of health care and health insurance.
We also need to make the distinction between getting health care and having health insurance as this will have an impact on the future cost of health insurance. For millions of Americans without health insurance, getting health care is not an issue as they get it the old fashioned "pay-as-you-go" way i.e. they get sick, they go to the doctor's office, get treated and then pay their bill.
They get all the health care they want without having health insurance. I do not recommend this model (due to the cost of a major illness) but it is a component of the system we need to watch. More alarmingly, there is a mutant form of "pay-as-you-go" health care in some government run health care programs that creates a risk to the financial stability of the health insurance program. More later.
Let us return the four major revenue sources for Americans seeking health care.
1. The largest revenue source today is the Federal Government via Medicare/Medicaid
2. Next are those who have private health insurance.
3. We then have those cited above who do not have health insurance but get health care through "pay-go."
4. Finally, we have those without health insurance who cannot afford to "pay-as-they-go" for health care.
As is well understood, the last group still gets health care. The cost is not offset by revenue so the health care system looks elsewhere to pay the bill, primarily by increasing the rates paid through private health insurance. That is why insuring this group, if done right, can benefit everyone paying for health care.
What is less well understood is that Medicare/Medicaid also drives up the cost of private health insurance. The Federal Government does this, in the case of Medicare, through artificial cost controls i.e. they set a price for goods and services through the Sustainable Growth Rate (SGR) calculation that is below the actual cost of the heath care provided.
This distorts/perverts the equilibrium of the market and again, as in the case of those unable to pay for their health care, requires health care providers to look elsewhere for money to pay the bill. Again, the burden primarily falls on those covered by private insurance through higher premiums.
This distorted outcome will be exacerbated under the Pelosi Health Bill, as it proposes to further reduce the Federal Government payments for Medicare, which is one reason why the OMB raised the alarm.
There are only two viable remedies to ensure services match resources (or balance revenues to costs): (a) Limit services or (b) find additional revenues.
Most means of limiting services are not included in the Pelosi Health Bill so that leaves finding more revenues. Further, any government run health insurance program is guaranteed to follow Medicare with an SRG-type mechanism that will further distort/pervert the market calling for more revenues.
In both cases, this will default to Americans who get their health care from the private insurance sector through increased premiums, increased taxes on employers, or a combination of the two. None of this is good news for the economy.
There will be some efficiency savings from improved use of information technology, etc but since the greatest inefficiency in the system is not going to addressed (the effects of litigation) these savings will not add up to much of a change at all.
While the plaintiff lawyer industry only generates about $4 billion annually through health care court cases, up to 9% of the total cost of health care is tied up in excessive malpractice insurance and, even more damaging, medically unneeded testing that is carried out as “prevent-defense” against possible litigation.
Finally, let us revisit the "pay-go" system and the risk of a physically and financially devastating major illness for an individual who can afford but declines to get health insurance. A poorly crafted government health plan can significantly increase the cost of the plan if it does not require long-term participation by the "pay-go" participants in the health care system.
If there is (a) no barrier to/surcharge for entry into the government insurance plan based on pre-existing conditions and (b) the "pay-go" participants are allowed to opt in and out of the government insurance program at will then the plan has swallowed a "poisoned pill" for cost control.
What will happen is that many "pay-go" participants will only enter the government-run plan when faced with a high cost illness. They will then be willing to pay the premium equaling pennies on the dollar for the health care provided. As soon as they are well again they will opt out to save themselves the cost of the premium.
Everyone else in the government plan that is in for the long-term will have to pony up the additional dollars to pay for the bill for the "here-today-gone-tomorrow" crowd. If the cost of the government health plan is capped through an SRG-type mechanism then the costs will once again fall on the Americans in the private insurance sector.
All this has a remote potential of spiraling out of control if a tipping point is reached at some point in the future where the cost difference between the private insurance plans and the new capped government plan is so great that the numbers of Americans leaving the private plans for the government plan will cause the private insurance industry to collapse.
This is mentioned as the possibility of the home mortgage finance industry collapsing was also considered a very remote possibility in 2005 but became a harsh reality a few years later.
Fixing the health care system is critical. Now is the time to do it. But getting it right is the most important thing of all.
Warm regards,
Mike Walker
The author sits on the board of directors for a non-profit health insurance association in Southern California.
