Tuesday, May 18, 2010

The Real Problems with “ObamaCare”

There's been a lot of messages running around talking about the subtle, hidden traps buried in the middle of the current health insurance bill. The problem is, it's the main talking points that are going to hurt everyone except the providers. I'd like to lay down a more straightforward view. I'm also going to provide some links to fact, news, and opinion pieces to back my point, with links to more information. I know that it's too long to be fit into a sound bite, but a little knowledge is the only way to counter the lies and half-truths that have surrounded the debate so far.


Health insurance, especially employer and government insurance, is the problem, not the solution. As long as the costs are paid by someone else, prices will rise until we simply cannot afford more. Too many people and companies have learned to leech off of the seemingly unlimited amount of money flowing from health insurances, and will outstrip any subsides that the government provides. Until we free people to buy, or not buy, their own insurance, everyone who needs medical care will suffer. The main idea behind the current bill is to find a way for ordinary people to be able to afford the outrageous costs of health care in this country, instead of attempting to lower those costs.


First, one of biggest ideas lost in the entire debate, was a history of how we got here. When a mechanic tells you how to fix your car before you've told him what the problem is, he's probably got the wrong solution. So first let's go back a little and see where we started with a piece called “How Government Solved the Health Care Crisis”, which tells how the AMA, on a state by state basis, got rid of lodge physicians around 80 year ago.

In the late 19th and early 20th centuries, one of the primary sources of health care and health insurance for the working poor in Britain, Australia, and the United States was the fraternal society.

Why do we have a crisis in health care costs today? Because government 'solved' the last one.”


Even then, however, health insurance was rare, and prices were still affordable for most people. Those who couldn't afford a doctor, were often treated for reduced fees or even for free. In 1942, during World War II, wages were frozen. In order to allow companies to compete for good workers, they were allowed to offer health insurance, tax free. This quirk in the tax code was never removed, and is why most people now have health insurance through their employer.


In 1945, the McCarran-Ferguson act allowed the states to regulate “the business of insurance”, which is why most all states are now dominated by only one or two insurers. Please note that the commerce clause of the Constitution was supposed to ensure that the states could not restrict interstate trade, because the states had abused that power under the Articles of Confederation.

In 1965, Medicare and Medicaid were established. In 2009 SCHIP, now know as CHIP (Children's Health Insurance Program) was added to the federal government's list of medical insurance companies. The federal government is already the biggest insurer in this country, and it's growing uncontrollably.

As a result, while Medicare's annual costs were 3.2 percent of Gross Domestic Product (GDP) in 2008, or about three quarters of Social Security's, they are projected to surpass Social Security expenditures in 2028 and reach 11.4 percent of GDP in 2083.


(The 2009 report expected Social Security to take in less than its expenses in 2016; that's now projected to happen in 2010, so the report was apparently too optimistic.)

In 1974, ERISA became law. Although its intention was to get companies to properly fund their retirement plans, it allowed them to roll their benefits, including health insurance, into those plans. It also allowed companies to self-insure, using a health insurance company only for administration. One gaping flaw in this plan was pre-emption, which was intended as a way for multi-state companies to offer consistent coverage by pre-empting state laws, but it ended up preventing many types of lawsuits against the insurance companies that ran these plans. This allowed insurance companies, using federal protection, to safely drop people without penalty (recissions).


Why does medical care cost so much?

The simple answer is: because very few people pay for it themselves. If Ford started selling all of their cars for over $150,000, they would stop selling cars. $10,000 couches may exist, but very few people buy them. In almost every market that you can think of, there are cheaper, more common options, and less common, more expensive options. You have inspectors, reviewers, comparison charts, shopping services, professional reviews, peer reviews, and wealth of information on the internet to help you figure out what you can get for what you're willing to pay. But not health care. Take chemotherapy, for example. It's probably our most expensive treatment available, often costing thousands of dollars per week, and probably causes more suffering than the cancer itself. So, how effective is it? Here's a quote from a study done in 2004, which was published in a well-respected, peer reviewed medical journal (the Journal of Clinical Oncology):

"The overall contribution of curative and adjuvant cytotoxic chemotherapy to 5-year survival in adults was estimated to be 2.3% in Australia and 2.1% in the USA."


Of course, some cancers respond better than others, but even broken down, the results aren't that good:



If you had to pay thousands of dollars a week out of your own pocket, along with increased suffering, for such lame results, would you?

But it's not just drugs. Doctor salaries are also part of the problem. To be part of the top 5% of wage earners in the United States, you need to make around $160,000.



Now, compare that to what doctors make:


In particular, surgical specialists can make enough to put them into the top 1% (over $410,000).

Meanwhile, paramedics can also do surgery, but earn around $20 to $30 per hour.

Most insurance companies negotiate their rates based on the Medicare reimbursement tables called the RBRVS, which is controlled, in large part, by the AMA.


But in the end, it's not the insurance companies, or the AMA, or the pharmaceuticals, or the hospitals, or the medical manufacturers who are to blame, but the fact that about 90% of the people in the United States are covered by health insurance paid for by someone else (about 5% buy their own, and another 5% go without). Most markets scale back when people stop buying. In medicine, even the most expensive treatments are paid for, and the insurance companies (including government insurances) simply spread the pain.

The bill

So now, lets take a look at some of the “benefits” of the health care bill.

SMALL BUSINESS TAX CREDITS-- Offers tax credits to small businesses to make employee coverage more affordable. Tax credits of up to 35 percent of premiums will be immediately available to firms that choose to offer coverage. Effective beginning for calendar year 2010. (Beginning in 2014, the small business tax credits will cover 50 percent of premiums.)

Tax credits sound better than subsidies, but look who's getting them: the business that's providing the insurance. We need to get away from employer-linked medical, but instead this act makes it worse. If subsidies are required, shouldn't they also be available to people who buy their own?

BEGINS TO CLOSE THE MEDICARE PART D DONUT HOLE-- Provides a $250 rebate to Medicare beneficiaries who hit the donut hole in 2010. Effective for calendar year 2010. (Beginning in 2011, institutes a 50% discount on brand-name drugs in the donut hole; also completely closes the donut hole by 2020.)

Further removes costs from drug purchases, encouraging the use of more expensive drugs, which will raise overall costs. They could have simply evened the costs out better. Part D was an unfunded gift to PhRMA.

FREE PREVENTIVE CARE UNDER MEDICARE-- Eliminates co-payments for preventive services and exempts preventive services from deductibles under the Medicare program. Effective beginning January 1, 2011.

This sounds good, especially given how important preventative care is to reducing costs, we know that because it's been reported as an obvious way to reduce costs. Except that it doesn't.


To avert one case of acute illness, it is usually necessary to provide preventive care to many patients, most of whom would not have suffered that illness anyway. … Researchers who have examined the effects of preventive care generally find that the added costs of widespread use of preventive services tend to exceed the savings from averted illness.”


HELP FOR EARLY RETIREES-- Creates a temporary re-insurance program (until the Exchanges are available) to help offset the costs of expensive health claims for employers that provide health benefits for retirees age 55-64. Effective 90 days after enactment.

Again, helps to tie people to employer chosen health insurance.

ENDS RESCISSIONS-- Bans health plans from dropping people from coverage when they get sick. Effective 6 months after enactment.

A good point, especially if it reverses the travesty of ERISA preemption.

NO DISCRIMINATON AGAINST CHILDREN WITH PRE-EXISTING CONDITIONS-- Prohibits health plans from denying coverage to children with pre-existing conditions. Effective 6 months after enactment. (Beginning in 2014, this prohibition would apply to all persons.)

This is probably the most popular feature of the bill, and its worst. The pre-existing condition problem can't be solved by simply wishing it away. As the law stands, the smartest way to deal with the cost of health insurance is to simply go without it, and pay the tax/penalty, until you need an expensive treatment or surgery. Many people are free to do this, and others could simply work out a deal with their employer. If you save up what you would have spent on premiums, you'd be far ahead of those who are paying for health insurance now.

In Massachusetts, this is already happening: http://www.boston.com/news/health/articles/2010/04/04/short_term_customers_boosting_health_costs/

That would take the healthiest people off of the insurance rolls, which would concentrate sicker people into smaller groups, which would force the companies to raise their rates. That would make insurance even more expensive, and encourage more people to drop it. Of course, there's no way to tell if, or when, or how fast this process might take, or whether private insurance could survive the squeeze. And congress could intervene to raise penalties to get healthy people back into the pool. But this provision could easily leave fewer, not more, people with health insurance.

BANS LIFETIME LIMITS ON COVERAGE-- Prohibits health plans from placing lifetime caps on coverage. Effective 6 months after enactment.

Another popular, but disastrous, idea. As much as we might fantasize that we can spend an unlimited amount of money on every person, we're already suffering from it. As pointed out above, we are often paying too much for only marginally effective treatments as it is. In fact, people without health insurance often get better treatment because providers are more likely to avoid unnecessary treatments. The only effect of this provision will be to drive prices up even faster than they are today.

BANS RESTRICTIVE ANNUAL LIMITS ON COVERAGE-- Tightly restricts new plans' use of annual limits to ensure access to needed care. These tight restrictions will be defined by HHS. Effective 6 months after enactment. (Beginning in 2014, the use of any annual limits would be prohibited for all plans.)

TANSTAAFL (There Ain't No Such Thing As A Free Lunch) still applies. The only way to limit out-of-pocket expenses when you need it, is to take it from your pocket when you don't. Again this will drive prices up even faster than we're used to. It also even further discourages people from shopping around for medical care.


Not exactly. The CBO has to use the assumptions that they've been given, even when they're known lies, and that's without taking into account the price hikes that we're likely to get.


Other links

Fifty Fallacies about Health care:


How American Health Care Killed My Father:


Medical spending graphs:


Heritage's review:


A more detailed history of health care in the United States:


1 comment:

  1. Enacted in July 2010, the end result will show North American companies deciding to send appointment setting, sales, lead generation and customer support jobs offshore to stay competitive or risk going out of business. Many business owners will hire a nearshore employee who is 100% qualified and dedicated for their project.

    Bilingual companies are claiming that their bottom line will increase since ESL call center employees in Costa Rica are as effective as transitional in-house staff for half of the cost. This proven strategy will give small to medium sized companies the option to scale up their BPO staff without getting caught in the Obamacare challenge next year.

    Will the delayed start date of OBAMACARE affect the US unemployment rate in 2015? The U.S. healthcare reform (“Obama Care” or the “Patient Protection and Affordable Care Act”) is intended to pressure large and small employers through force and taxation.