The Supreme Courts review of ObamaCare dominated this week’s news flow. We focused on the legal aspects of healthcare: whether the individual mandate would be upheld or the entire package ruled unconstitutional.
Marco Rubio, the Republican Senator from Florida was interviewed on CNBC this week. His message was that the defeat of ObamaCare by the Supremes should not be viewed as a Republican victory but a call for the Party to mobilize and propose a better solution. He is on target.
We should ask ourselves why it is that our parents were much more satisfied with their healthcare delivery twenty-five years ago, yet most of the public is discontent today. The answer is simple. Twenty-five years ago, health insurance was a basic indemnity product. You went to the doctor, submitted the bill to you insurer and was reimbursed. The indemnity product was replaced by Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO) products with markedly different features. The major beneficiaries of this shift have been large organizations while the individual and small business sectors have paid more dearly.
General Electric and IBM bring large membership to the major healthcare plans like United Healthcare. Because of this scale the health plan is able to realize lower sales and processing costs and pass a portion of these on to the plan sponsor in the form of lower premiums. But unlike the indemnity plans, that likewise had these same economies of scale, the HMO and PPO negotiate special price arrangements with healthcare providers: your doctor, the specialist, outpatient facilities, and hospitals. Providers are guaranteed patient volume and they reciprocate by providing GE and IBM an extremely attractive price. Providers cover their fixed cost with these volumes, but the business, in terms of the profitability of these relationships is negligible.
So where do these provider networks realize a satisfactory profit margin? They must get it from small companies and individuals and this is reflected in higher prices; sometimes the individual and small company’s pay twice as much for the same procedure as do their large company brethren. And they do it with after-tax dollars whereas the large company premiums are tax deductible; most individuals receive no premium deductions on their taxes.
Healthcare has thus become unaffordable for the individual buyer. If that buyer is healthy; he says enough of this, I am removing myself from the system. He refuses to provide the profits for the entire healthcare system. If he is sickly, he goes to the emergency room and becomes part of the “doubtful accounts” of the hospital (about 7% of their revenue). Government picks up part of the tab through Medicaid. Large organizations get a fantastic deal while everybody else gets screwed. That is why we have 40 million people uninsured.
This is absurd. My father’s Oldsmobile healthcare system had the same price per procedure for everyone and people were happy; it was even a reasonable price. Our large corporations are globally competitive but only by shifting costs to the individual and small businesses as well as government. Preferred Provider Organizations are inconsistent with the “fair delivery” of healthcare. The argument should not be about government intervention into insurance and medicine but about reforming the financial structure of healthcare.
Second, let’s look at the free market component of Medicare. The Medicare population is approximately thirty-six million people. Of these, six million are active and healthy and for a private insurer, would be very profitable lives to insure. Twenty million are a breakeven proposition and the other six million are sickly and are responsible for huge losses to the Medicare system. Health plans skim the healthy patients with the teasers of gym memberships and prior to Medicare Part D, free drugs. Health Plans located their sales office on the third floor of buildings without elevators such that only the healthy could climb the stairs and cruised rural America for the still mobile elderly who were out milking the cows. The strategy was to capture the healthy population and be paid a full Medicare fee; realize a tidy profit, and, leave the remainder of Medicare with an inferior risk pool.
Third, Medicare Part D is a joke. Pharmaceutical companies charge what the market will bear and when the market could no longer bear it the government created Medicare Part D. This program is not a subsidy to the individual but a profit retention and maximization program for Merck. As with free market Medicare, it is a gift from the tax payer.
Let’s eliminate all of this. The tax shelter provided by premium deductibility was $320 billion in 2009. The cost of “cover your tail” medical testing is estimated to be $600B. The Medicare-Medicaid portion of that might be $250B. Both go a long way to fixing the budget deficit. Absolutely no one wants government involvement in healthcare, but we are perfectly willing to have government exist as an ignorant payer and consumer in “free market” Medicare and Medicare Part D.
The way we finance our healthcare needs to be changed. HMO’s and PPO’s are financial strategies, not a method of delivery. The suckers in this system will no longer tolerate paying above market for something that large companies pay a below market price. To demand that everyone get insurance when the system is so in need of reform is lunacy.