Democrat's Health Care Conundrum

Health care “reform” is becoming a quite the conundrum for the Democrats as they struggle to get it passed in Congress. The bottom line is that there is no way to “solve” this problem that doesn’t harm one or more politically powerful segments of the public. For the moment the Obama administration and its allies in Congress have chosen the elderly as the principal loser. This is a very risky choice as the elderly are notoriously defensive about their benefits and vote disproportionately to the rest of the population.

As I have mentioned in my prior post, the Medicare/Medicaid programs are receiving massive de facto subsidies from the private health programs via the price controls contained in the government programs. The idea that we can reduce Medicare costs by 400 to 500 billion dollars by eliminating waste and fraud doesn’t receive much support even from the pro-administration talking heads and none from anyone else. With increasing numbers of doctors refusing to take Medicare patients, additional pressure truly will undermine the program. And, don’t forget this was already a crisis given the pending wave of baby boomers that are now entering the program.

On the other side of the issue, we have the uninsured that basically breakdown into various subgroups each with distinct problems. The most aggrieved are those with pre-existing conditions who can’t get or can’t afford coverage. Then we have those in jobs, usually low paying, that don’t offer health plans. These two groups clearly merit some help. One can pass regulations that prohibit insurers from dropping clients who have developed a serious health condition while covered and develop a system to attack pre-existing condition lockout. However, these reforms will increase the cost of insurance even more on the private insurance sector. Now we have aggravated the mainstream working middle class and their employers. The solution for the working poor most clearly will require massive government support which means taxes.

Then we have the largest group of uninsured those who are temporarily out of work. In a major recession this group is certain to grow. In one sense we have mostly solved this issue with the COBRA bill of the 1970s but the kicker is that in most cases buying your former employers health plan is too expensive for the unemployed. One could create an unemployment health insurance plan that would pay these costs but who would pay for it? The worker with yet an additional payroll tax, the employer, or some split between them?

Two additional groups to consider are those who don’t have employer insurance and can afford to by private coverage but don’t buy it for some reason. Most likely because they don’t believe they will get sick and they would rather spend the money on other things. And, then we have the illegal aliens who crowd the emergency rooms in some states. Bringing the former group into the system would clearly be helpful to reducing costs (probably the only uninsured group for which that was true) but given their choices, mandating coverage would hardly incline them to vote for those making that decision. The public will generally oppose insuring the illegals under a government program and they can’t vote. So providing for them is just a loser politically.

So even with the best of motivations finding an acceptable solution is problematic. But, given our Congress that is driven by diverse special interests, writing five forms of the bill to be hammered out in secret and voted on before it can be understood, one can hardly expect the best motivations. It remains to be seen if the Democrats can patch together a bill that will until all of them in order get it passed in the Senate. It also is unclear whether a success in the fact of public opposition would ultimately rebound to their benefit.

The Dangers of a Government Health Care Option

Before we pass Obamacare it would be useful to explore the impact of government health care programs. The two issues that are raised by the advocates of so-called health care “reform” are: the fact that health care cost have been growing significantly faster than the consumer price index and that there are some 45 to 50 million people in the U.S. without health coverage. Obviously these two issues are linked in that rapidly growing costs have priced insurance out other reach of poor people and small businesses. The advocates see a massive government program with a government run option similar to Medicare as the solution. The government plan is claimed by President Obama to “keep the private insurers honest.” My own observations call this into question.

Several years ago, before my mother passed away, I had the opportunity to see how Medicare operated compared with my employer provided plan. Let’s as an example consider an office visit with a few basic lab tests. This results in a charge of $400 for example. In the case of my private insurance, since I was going to a preferred provider, the plan paid $120 to settle the claim. On the other hand Medicare paid only about $60 for my mother’s visit. If you think that it was the quality of doctors - it wasn’t. My mother was going to a specialist while I was going to a primary care provider. So what is the answer to this mystery?

In the early 1980s the cost of Medicare was growing fast and considered out of control. The government came up with a simple solution. It made a rule that it would set the prices that Medicare would pay for various services. Providers are given the choice of taking this “assignment” for all Medicare patients or not treating any of them. So given that expenses need to be paid the providers simple responded by increasing there rates for everyone else. As the government held down the assignment rates for Medicare, the rates for everyone else soared. So the driving engine of the first problem, rapidly growing costs, is largely the government’s Medicare program.

So when you see the cost of your insurance increase, understand that much of that money is going to cover the costs that are induced by government healthcare programs. Of course there are also the cost due to those don’t have coverage and can’t pay being treated pro bono, increasing malpractice insurance costs generated by our out of control tort system, and the costs of new advanced medical tests and treatments.

Now let’s consider what will happen if we implement the proposed government option for the general population. There basically two possibilities that most be considered. Either we follow the Medicare model and establish an assignment system or let it compete in the market. If the latter case is followed it is most unlikely that government bureaucrats can compete with private insurance companies an even competition. Either they will use the assignment approach from the outset or they will be forced to it eventually in order to save the plan. So ultimately the government will set prices that will undercut and drive the private plans out business.

As I mentioned before, a significant amount of the “fair market” costs of Medicare are already being paid by the inflated costs of the private plans. So if the government plan does the same thing there soon won’t be enough private plan money to support the system. Putting it another way, he government costs for both plans will skyrocket above even the most pessimistic initial estimates. The result will be both massive tax increases, increased premiums for the government plans, and rationing of care, or all of the above.

What we should take away from this analysis is that previous government policies to tamper with the health care price structure are major cause of medical price growth. Any attempt to extend these approaches to the rest of the health care system will only compound the problem greatly.