The Debate Is Not Over:
A Framework for True, Viable and Sensible Health Care Reform
Nicholas Pandelidis, M.D.
This paper, written from a free market, individual-centered perspective, examines:
- the serious deficiencies of our current health-care system
- the underlying root causes of those problems
- the looming government fiscal catastrophe secondary to health-care entitlement spending
- the failure of the recently passed health-care “reform” to address the grave problems facing our nation related to health-care delivery
- the harm the recently passed health-care “reform” will cause to our seriously ill economy
And the paper includes a proposal for a framework to truly, effectively, and sustainably reform our health-care delivery system.
Although initially interested in the health-care reform debate as a physician in the system, I have become passionately engaged as a father and uncle, and as a believer in the goodness of traditional America. I am the son and grandson of immigrants, but ultimately, as Americans we are all sons and daughters of immigrants. Parents and grandparents working hard and sacrificing for their children to have a better life had been a hallowed American tradition and a critical underpinning of our American society. Now, this tradition of parents sacrificing for their children’s futures has been turned on its head by ever increasing deficit entitlement spending. We are spending the future resources of our children and grandchildren so we can benefit now. Inherently, this robbing from our posterity also means we are not saving and investing in our country now so our children can have a better life tomorrow.
This analysis reflects the author’s strong belief in the essential efficiencies and fairness of truly free markets as well as in the individual’s right and responsibility of self-determination and of self-reliance. Further, I have 3 daughters, 3 nieces, and 9 nephews who deserve their opportunity to live the American Dream – a dream made possible by the protection of our unalienable rights bestowed on us by our Creator
Framing the Debate
Although President Obama and the Democratic Congress have passed so called “health-care reform”, in fact, that “reform” can only make the health-care crisis worse, not better. To move forward with critically needed constructive health-care reform, it must be understood that two distinct starting points underlie the push to reform our current system. The first perspective stresses the need to address the problem of the uninsured and the related problem of those with pre-existing medical conditions. The second perspective stresses the need to control the escalating costs of health-care. Realistically, to move forward with constructive reform, it must be acknowledged and understood that the first perspective must be subordinate to the second. Very clearly, growtn of health-care cost is fiscally untenable going forward. Reform that expands access without first controlling costs can only result in accelerated failure of the system and is no reform at all. The failing health-care payer system that threatens the financial viability of individuals and families, small and large businesses and the fiscal soundness of our state and federal governments makes all other health-care issues moot. Access to health care for the uninsured or for those with pre-existing medical conditions must be addressed but can not be addressed on a sustainable basis until tackling the fundamental issue of unsustainable health-care costs growth. That being said, proper reform that results in lower health-care, costs and thereby lower health-care insurance costs, would go a long way toward addressing problems posed by uninsured patients and pre-existing medical conditions by making coverage more affordable.
Before addressing the central issue of escalating cost, a brief examination of the uninsured population will help give perspective to the health-care reform discussion as well as to the proposed solutions. The number of uninsured persons is somewhat fluid and undoubtedly worse in our struggling economy. The US Census Bureau placed the estimate of the number of the uninsured in 2007 at 47 million or 16% of the population. Conversely, 250 million Americans have coverage and, for the most part, are satisfied with that coverage. The number of uninsured individuals is significantly related to employment. 2008 statistics from the CDC found that change in employment accounted for 24% of the uninsured.
A study done by the Agency of Healthcare Research and Qualitylooking at statistics of the uninsured during the period of 1996-2008, found that for the full year of 2007, there were 39.9 million uninsured persons under the age of 65. That number included 5.9 million children who qualified for government subsidy or whose families were able to afford insurance. That number also included 12 million illegal aliens. The AHRQ also found that of those uninsured individuals 18-24 years of age, 55% were uninsured for at least a month but only 18% for a 2 year period, indicating many individuals without health-care insurance are so only temporarily. These data indicate that the actual number of chronically uninsured amounts to a fraction of the commonly reported 47 million uninsured – bringing into question the logic of addressing the problem of the chronically uninsured (a small percentage of the population) with a massive federal takeover of health-care that would affect the great majority who have and are happy with their insurance coverage.
A study out of Baruch College, City University of New York, reviewed information from surveys of the uninsured population and found that 43% of those in the 18-64 year age group had incomes of at least 250% of the Federal poverty level suggesting that many persons in this category have made a financial allocation decision not to obtain health-care insurance though they likely could do so, albeit significantly constraining other discretionary spending. The investigators in this study classified these persons as “voluntarily uninsured” and the remaining 57% with lesser financial means as “involuntarily uninsured”. They further found that the entire uninsured population still had significant access to health-care services, utilizing services at approximately 40% the rate of those with insurance. Interestingly, the percentage of the uninsured group accessing cancer screening services roughly equals that of those in the Canadian nationalized, single-payer system.
Unsustainable Health-Care Cost Growth
Returning to the essential issue, health-care costs continue to climb, putting increasing fiscal strain on Federal, state, and local governments, as well as on businesses and families. According to a 2008 Congressional Budget Office report, from 1965-2005, costs have increased by a factor of 9 in inflation-adjusted dollars. Over that same period, health-care expenditure has increased from 5% to 15% of U.S. GDP. A separate CBO statement reports Federal outlays for Medicare and Medicaid have risen 5 fold from 1970 to 2009, as measured as a percentage of GDP. In a recent letter to Senator Kent Conrad, the Chairman of the Budget Committee, the Director of the CBO reports that by 2017, Medicare Part A will have insufficient funds to pay for all covered services. The 2009 Medicare Trustees Reports estimates that the projected unfunded liability (the difference between costs of the benefits promised and the projected revenue from dedicated Medicare taxes and Medicare premiums) is $89 trillion dollars. This gap can only be closed with either significant benefits cuts, significant tax increases or both. That report estimated that a tax solution alone would require total payroll taxes to ultimately climb to 37% to meet the retirement promises (Medicare and Social Security) made to the young people who today are entering the work force. If payroll taxes don’t rise to cover the deficit, general tax revenues would need to be transferred to cover the shortfall. Currently, 13% of Federal tax revenues are spent to cover the Medicare and Social Security shortfalls. That same report, projects that percentage to grow to 27% by 2020 and 49% by 2030. As more of the budget flows to these entitlements, the other federal government services that now receive 87% of the federal budget — e.g. defense, education, infrastructure maintenance, and the thousands of other federal programs — by necessity, will be progressively and drastically scaled back with alarming consequences.
Costs have grown even faster in the private sector. A recent Kaiser health benefits survey found that employer-sponsored premium costs increased 119% from 1999 to 2008, far outpacing wage growth over the same period. The escalating costs have had significant chilling effects on the general economy and employment. Higher insurance benefits costs result in lower wages and, in turn, lower consumer spending and savings. For the businesses that provide health-care employee benefits, higher costs for that insurance leave less capital to invest in the business and make those businesses less competitive in the global economy. Broader detrimental economic consequences of these costs were confirmed in a recent RAND corporation study that demonstrated among corporations that provide employee health-care benefits, increasing health-care costs result in greater unemployment and lower industrial output.
Health-Care Costs Drivers – Superior Access to Care and Most Advanced Care
Recognizing that true legitimate health-care reform must first control costs, we must then first understand the reasons for the accelerating health-care cost growth in order to develop effective policy solutions. There are several significant drivers underlying this growth. First, our American society values good health and, thanks to our free market economy, has the economic luxury to spend a significant portion of our GDP in the pursuit of better health. We have the most responsive health-care system of any nation in this world (For those with private insurance and for the time being Medicare. Responsiveness is significantly less for those with Medicaid, VA, CHAMPIS, or uninsured.). We not only have rapid access to care for serious and life threatening illnesses but also for painful conditions and conditions that restrict the quality of our lives. For example, a young woman, who loves to run, tears her knee cartilage and is unable to run –not a dangerous or even a severely disabling problem but rather a quality of life issue. She likely can be seen by an orthopaedist, have an MRI done, and have surgery all within a couple of weeks. In contrast, that same scenario in Canada or England would take a year or more (MRI wait times alone can take 2 to 4 months). Obviously, rapid access to health-care makes our health-care expenditures greater but most of us believe such access is a key component to making our system the most responsive in the world and is worth the expense.
Our pursuit of good health has also led to significant investment of resources to develop unprecedented medical care and technological advances. Private sector U.S. medical companies have been at the forefront of medical care progress. Their innovations have improved the quality of our lives and extended the lives of our citizens as well as those of other countries. The development of drugs to combat AIDS is one such life changing example. Although significantly contributing to health-care cost, these technological advances have been worth every penny. Moving forward with the health-care our country urgently requires, reform must control unsustainable cost growth, but must not and does not have to ration or decrease our access to heath-care. Reform must not discourage further progress and innovation in health-care. And reform must not discourage the best and brightest from going into health-care.
Health-Care Costs Drivers – The Third Party Payer System
While the pursuit of progress in the medical field ultimately brings us significant benefits, other major drivers contribute to escalating health-care costs that add no such value. Of those, the third party payer system is the central critical driver of health-care costs. It is estimated that 5 out every 6 health-care dollars spent are paid by a 3rd party payer. The 3rd party system effectively disconnects the consumer who utilizes health-care from the cost of that care. For both private and government provided health-care insurance, the consumer of health-care services has little or no incentive to utilize health-care dollars wisely. We have all seen “The Scooter Store” commercials. “Attention Medicare beneficiaries, if we pre-qualify you for a scooter, you won’t have to pay one cent for your scooter.” Or another example commonly experienced in orthopaedic practice: a patient demanding an MRI be done to evaluate a problem even though the physician does not feel it is indicated.
It is natural to value little something that costs little. Further, to some extent, many consumers feel obligated to utilize as much of their health-care benefit as possible. Those with employer provided insurance understand that they have deferred significant direct compensation for their health-care and want to get their (deferred) money’s worth. Similarly, many of those with government funded insurance feel entitled to utilize that government benefit as much as desired. This arrangement creates an unlimited demand for health-care spending. The truth of this situation is evident in the legislation that requires certificates of need (CON) in many states for opening MRIs, surgical centers, and other costly health services. CONs control cost by limiting supply of those services. In the current health-care system, our “real world” experience has demonstrated the more capacity that exists for a particular health-care service, the more that service is utilized and the greater the expenditure on that service. In the rest of our economy where free market incentives do function, the greater the available supply of a particular service mainly results in lower costs and greater quality of that service.
This same uncoupling of the consumer of services from the cost of those services also discourages competitive pricing and transparency of pricing and as a result pricing for health-care service varies considerably. The most common response to inquiries regarding the cost of a particular service made to hospitals or providers is “What is your insurance?” Similarly, because the service costs little to the consumer of that service, there is little demand for accountability or transparency with regard to quality or appropriateness of that service. Many times tests are repeated simply because no one has asked if the test has been done or because it is easier to repeat the test than to track down results done elsewhere. Additionally, the 3rd party payer system neither rewards higher quality care nor discourages lesser quality care and as a result quality of care varies more than we would like to admit. Further, the third party payer system, by effectively guaranteeing payment to hospitals and providers, encourages increased expenditure and does not promote competitive pricing for services.
Over the last few years, the spiraling upward costs for medical and surgical treatment in this country have spawned an out of the country nascent industry known as “medical tourism”. For individuals or companies that pay for all or most of their medical care, medical tourism offshore surgical programs provide a cost effective alternative for costly surgical procedures. These surgeries are performed by Western or Western-trained physicians in state-of the-art facilities. These programs operate on a consumer cash basis, provide equivalent or better surgical outcomes, and cost 25% to 80% less than the same surgeries performed in our country. Part of the savings results from elimination of insurance administration overhead, but consumer oriented market forces spur the cost efficiencies, as well as the quality outcomes.
One final thought with regard to the driving of health-care costs by the 3rd party payer system – envision the cost of auto insurance if that insurance not only covered accidents but also routine maintenance, improvements, or even a new car. And further to put the magnitude of some of these costs in perspective – a recent review of an Explanation of Benefits insurance form for a lumbar decompression and fusion, an elective operation, indicated the private insurance company paid, (including preoperative evaluation and treatment, hospital services, and physician services), nearly $35,000. One could buy a top of the line Honda Accord for $30,000.
Health-Care Costs Drivers – Government Regulation Restricting Insurance Industry Competition
While the 3rd party payer system creates detrimental incentives that primarily drive the unsustainable cost growth in both the government as well as the commercial health-care insurance systems, there are additional governmental policies and regulations that disrupt beneficial free market competitive forces and unnecessarily add to the cost of private health-care insurance. State legislated coverage mandates significantly add to the cost of health-care insurance. The mandates are of 2 general forms. The first type requires insurers to provide coverage for particular services that may include, for example, drug/alcohol rehabilitation, smoking cessation, infertility, autism care, hair restoration, etc.; may further require coverage for provider services such as chiropractic, massage, acupuncture, etc.; and finally may also require coverage extension to include grandchildren, dependent family members, domestic partners, etc. The Council for Affordable Health-Care recently compiled a state by state accounting of the number of mandates and estimated the cost effect on premium prices. The number of these types of mandates differed from state to state from as few as 20 to as many as 60. The estimated increased premium cost of insurance because of these mandates ranged from 20 to 50% among the 50 states.
While not intrinsically inappropriate, these mandates increase the cost of health insurance. Many individuals or families who presently can not afford health-care insurance could afford simpler and more limited coverage insurance. They could choose policies that do not include coverage for services they personally would likely never need e.g. drug or alcohol rehabilitation or perhaps infertility services, etc., while still getting essential medical care coverage. Worse yet, not infrequently, mandates for less standard services e.g. acupuncture, hair restoration, etc., more likely resulted from that service’s special interest group making a campaign contribution to a state legislator rather than a convincing argument made to that legislator that such mandated service benefits the insured and is worth the additional premium cost.
“Guaranteed issue” and/or “community rating” requirements comprise the 2nd form of mandates. Guaranteed issue requires insurers to issue policies regardless of a person’s health status while community rating requires insurers to blend the utilization of services risk of a particular (higher risk) person with the risks of a broad group of persons. Insurance companies set premiums by actuarial calculations; that is they make estimates, based on huge data bases of statistics, of likely expenditure costs for a specific pool of insured persons. “Guaranteed issue” mandates, which require inclusion of persons with pre-existing conditions, increase the expected medical care benefit costs for a particular insurance pool, and therefore the overall premium cost of insurance for that group. “Community rating” mandates prevent an insurance company from setting premium cost for an individual in a given insurance pool to reflect the risk that particular individual contributes to the overall pool of risk. Instead, the increased anticipated care costs are spread across the entire pool of the insured. As a result, a healthy young person would be unable to get a health-care insurance policy premium that accurately reflects their much lower likelihood of utilizing services than that of an older or less healthy person. A WellPoint Study found that “guaranteed issue” and “community rating” mandates in the now passed health-care reform bill will increase the premium cost for a healthy 25 year-old by more than 150%. In the end, as a result of increased premium cost, many younger healthier people will opt out of buying health-care insurance, leaving less healthy persons in the insured pool, further driving up the cost of insurance for those persons left in that insured pool. And those young healthy persons, who elect not to buy insurance because of the increased costs, now get counted in the ranks of the uninsured.
Mandates not only increase the cost of insurance but, along with other insurance regulations, distort market forces and lead to decreased competition among insurance providers. Current insurance regulations further require individuals and businesses to purchase health-care insurance within state boundaries. Mandates and regulations vary from state to state, variably complicating the business environment for insurance companies. In any given state, there are only a few providers large enough to comply with the varied regulatory environment and still operate profitably. With fewer providers competing to sell policies, premium prices are higher and customer service is inferior. Further, current insurance regulations do not allow groups of individuals or individuals to band together to form so-called “association health plans” that would increase their purchasing power and lower their premium costs.
Health-Care Costs Drivers – Federal Tax Policy
While government insurance industry regulation has unintentionally and indirectly led to higher insurance costs and lower customer service, Federal tax policy with regard to health-care insurance premiums has also unintentionally and indirectly exacerbated the health-care costs crisis and has increased the numbers of the uninsured. Because of the preferential Federal tax treatment for employer-provided insurance over that for individual-purchased insurance, employer-provided insurance costs less than individual-purchased insurance and results in most individuals obtaining health-care insurance through their employer. Though relatively less costly than individual-purchased plans, employer-provided health-care insurance still comes at the expense of higher wages. As previously discussed, as health-care costs have skyrocketed, an increasing share of compensation has been allotted to the health-care benefit and actual take-home wages have significantly decreased. To some degree, those employees then feel obligated and entitled to make the most of that benefit, which increases utilization and therefore costs.
The tax favored status of employer-provided insurance also, to a great extent, makes health-care insurance dependent on employment. Those persons who don’t receive health-care coverage as an employee benefit must purchase their own insurance without the equivalent tax advantage of employer-provided coverage. Further, those individuals do not have the ability to negotiate as part of a larger group (association health plans) to obtain lower rates. As a result of these 2 factors, individual purchased insurance costs significantly more than employer provided coverage. Not infrequently, many of those individuals cannot afford or decide not to buy health-care insurance. As a result, they too end up in the uninsured count.
For those with employer-provided insurance, loss of employment results in loss of health-care coverage and many of those persons subsequently, albeit often transiently, join the ranks of the uninsured. Although that loss can be delayed because of COBRA benefits, the cost of COBRA insurance often is prohibitively high. Further once COBRA has expired, purchasing insurance as an individual typically is even more expensive.
Health-Care Costs Drivers – Malpractice Litigation Expenses
Complete analysis of health-care cost drivers requires examination of medical malpractice issues. A New England Journal study reviewed 1254 random medical malpractice litigation cases and found 40% involved no injury or any medical errors. That same study found for claims awarded, 54% of the award went to administrative costs including lawyer and expert witness fees. In another analysis of medical malpractice costs, the CBO estimated that 2009 direct medical malpractice expenses, e.g. malpractice premiums, awards, and trial costs, amounted to only 2% of all health-care expenditure or $35 billion. However, that number does not include the estimates of the cost of practicing defensive medicine. Those estimates range from 190 to 239 billion dollars annually. In the same report, the CBO estimated that a package of tort reform, including a cap on non-economic damages, would decrease federal health-care outlays by $54 billion over 10 years. Government health-care expenditure now approaches nearly 60%of all health-care expenditure and therefore, presumably, tort reform would result in a similar magnitude of saving for the 40% of the total health-care expenditure spent in the private sector.
Medical malpractice litigation expenses also have ramifications with regard to patient access to specialist care. Senator John Cornyn of Texas in a 2009 discussion described the malpractice experience in his state. By 2001 because of tort lawyer friendly state laws, Texas had lost all but 4 insurers who wrote medical malpractice policies and premiums for those policies had doubled. From 2001 to 2003, 99 of 254 counties had lost at least 1 high risk specialist. Twenty-six counties lost obstetricians, including 6 counties that had lost all their obstetricians. Five counties lost all their thoracic surgeons. Because of this crisis, in 2003 Texas enacted tort reform, including a $750,000 cap on non-economic damages and raising the standards for medical expert witnesses. Once reform was enacted, the results were dramatic. Malpractice premiums fell by an average of 27%. From 2004 to 2008, physicians including specialists flowed back into the state. One hundred and twenty-five counties added high risk specialists, including 52 counties that added obstetricians – 10 that had none prior to the malpractice reform.
The Passed Health-Care Bill – Why It Will Make the Health-Care Situation Worse and Not Better
Irrefutably, health-care cost growth is fiscally unsustainable. Medicare has an estimated $89 trillion unfunded liability. Medicaid costs continue to sky rocket, driving most of the state budgets into significant deficit. Estimates of annual health-care fraud range from a low of $60 billion to nearly $200 billion, and, as a percentage, are higher for the government programs than for the private insurance industry. Currently, federal and state government pay for nearly 60% of all health-care expenditures. Only a tremendous leap of faith or naiveté could allow a person to believe that the solution to the health-care fiscal crisis could possibly come from turning the other 40% of health-care over to the federal government.
Predictably, the recently passed government health-care “reform” fails to address any of the significant underlying cost drivers, but rather contributes further to them. As argued above, the third party payer system that shields the consumer of health-care services from the cost of the services is the critical underlying driver of our unsustainable health-care cost growth. The recently passed “health-care reform” fails to address this principal root cause. Instead, the new bill adds an estimated 32 million more people, e.g. uninsured and those with pre-existing conditions, into the same faulty 3rd party payer system, exacerbating the current health-care cost crisis.
Similarly, the new bill does not address governmental regulation that has restricted health-care insurance industry competition. Rather, adding additional regulation and mandates will drive smaller insurance companies out of the business leaving just the few large players who will reap the benefits of federal government guaranteed, albeit regulated, profits. While such a model may be necessary for utilities because of the gross inefficiency and expense of duplicated infrastructure in that industry, such a model is inappropriate for the health-care insurance industry and restricts the salutary competitive market forces that result in higher customer service and lower costs.
Further, the bill includes no tort reform. And lastly, the bill does not recognize or address the significant contribution to the numbers of the uninsured as well as the increased health-care service expenditure that results from the Federal tax policy that effectively promotes employer-provided health-care insurance over individual-purchased insurance.
In the final analysis, since this “health-care reform” does not address any of the critical underlying drivers of health-care cost growth, government takeover of health-care can only control costs by taking away the individual’s ability to make their own health-care decisions and severely rationing health-care services. As it turns out, the passed health-care “reform” legislation creates a presidentially appointed Independent Payment Advisory Board (IPAB) empowered to create regulations, without Congressional approval, to slow Medicare spending i.e. rationing. Given that the demand for health-care services exceeds supply of those resources, rationing must and does occur. In our current system, utilization and rationing of health-care is by no means ideal. Nonetheless, we can do better, on the grounds of both efficiency and morality, than simply turn that process over to federal bureaucrats.
The Passed Health-Care Bill – Will Increase the Federal Fiscal Deficit
Supporters of the passed health-care bill proudly highlight the CBO report that estimated the passed bill will result in a $181 billion reduction over the first 10 years. Sounds good but, Congressman Paul Ryan at President Obama’s health-care summit pointed out the CBO scoring of the bill was based on unreasonable assumptions and as such is grossly misleading. These assumptions included a budget that pays for 6 years of the new health-care program spending with 10 years of new program tax collections. Further, that estimate includes $52 billion dollars already assigned to Social Security (a program also rapidly approaching insolvency) to now also be assigned (yes, the same $52 billion) to this new medical entitlement. Similarly, $78 billion of premiums for the CLASS long term care supplemental insurance program (a new Federal subsidy created in this bill) were also double assigned. Most egregiously, the CBO was instructed to assume $500 billion of “Medicare savings” would be shifted into this new entitlement. Yes, the same Medicare program that currently has an estimated $89 trillion dollar unfunded liability. Congressman Ryan further pointed out the Medicare’s Chief Actuary predicted that diverting $500 billion from Medicare would result in 20% of providers dropping Medicare patients and also result in millions of seniors losing their Medicare Advantage coverage.
Recalculating the CBO estimate without these unreasonable assumptions, Congressman Ryan concluded this new entitlement would expand the deficit by $460 billion dollars over 10 years, not reduce the deficit by $131 billion as claimed in the CBO report. Further, over the 2nd ten years, the program would further expand the deficit an additional $1.4 trillion.
This more accurate estimate, disturbing as it is, in all likelihood, reflects a best case scenario. The Federal government health-care cost estimates have been notoriously inaccurate. Two such examples: 1. in its first year, 1987, Medicaid was expected to cost $238 million but wound up costing over $ 1 billion. (In fiscal 2009, Medicaid cost $251 billion.) 2. In 1965, the CBO estimated that Medicare costs would be $12 billion in 1990. Turns out the “reality” number was $90 billion – off by more than a factor of 7.
The Passed Health-Care Bill – Will Contribute Further to an Unprecedented Economic Decline
Considering the unsustainable and untenable fiscal state of the federal government, the brutal unemployment levels, and the increasing citizenry dependence on government subsidy, we find ourselves in the midst of an historic and unprecedented economic downturn. Unless we implement rational and thoughtful policy to reverse these conditions, moving further down this same economic road can only lead to catastrophic economic collapse. The CBO in multiple reports describes the federal fiscal trajectory as unsustainable, primarily secondary to entitlement health-care deficit spending. Federal debt held by the public jumped from 41% of GDP in 2008 to 60% in 2009 and is projected to climb to 100% of GDP by 2029 and 468% of GDP by 2060. Although, for specific economic conditions, deficit spending can be helpful to the economy, ongoing debt growth beyond growth of the economy is inherently unstable. Without systemic reform, health-care spending deficit growth likely will exceed the above dire projection as economic growth rates fall further and further behind. In the long term, deficit spending represents shifting future consumption to present consumption, with less present investment i.e. savings, and therefore lower output of goods and services in the future. Further, progressive disparity between debt growth and that of economic growth will reach a point where investors will be unwilling to buy debt, leading to a significant risk of accelerating inflation, and subsequent economic calamity.
The Federal deficit worsens as more individuals lose their jobs with tax revenues falling and unemployment benefits rising. In this flagging economy, unemployment hovers around 10% with 4.2 million jobs lost in 2009. At the time of this writing, 460,000 more persons applied for first-time jobless benefits for the week ending April 3. In February, the Bureau of Labor and Statistics estimated the underemployment rate (includes those working part-time looking for full-time work, those unemployed looking for work, and those unemployed who have stopped trying to find work) at17%. A recent Gallup poll found the underemployment rate closer to 20%. For workers under the age of 25, unemployment stands at 20%. (A new Federal policy to eliminate unpaid internships, a tried and true mechanism for young adults to obtain valuable job skills, will further darken the employment picture for young job seekers.) Even more disturbing, the “long-term” jobless rate” – out of work for more than 27 weeks – in February 2009 was 25% of all the unemployed and by this past February had increased to 44% of the unemployed. Undoubtedly ongoing extension of jobless benefits contributes to the long-term jobless rate as it discourages the unemployed from seeking a new job.
As unemployment persists or deteriorates further, the number of citizens depending on the government climbs and the number of tax paying citizens falls. 60.8 million persons now depend on government for housing, health-care, and subsistence. The Index of Dependence on Government, a measure of citizenry dependence that considers government (taxpayer) subsidies for housing, education, health and welfare, farm and agriculture, and retirement has increased 31% since 2001. 36% of tax filers paid no income tax in 2008 and many of those actually received payments in the form of tax credits – $70 billion. In 2009, that number likely will have increased substantially because of further economic and employment decline and new Obama administration tax credits. The expansion of the number of citizens dependent on government and the ensuing contraction of tax paying citizens threatens the very foundation of our democratic republican system of government.
From a self-centered standpoint, as taxpayers, we understand that as unemployment persists or grows and citizenry dependence on government grows, we and future taxpayers will personally assume increasing excessive tax liability. Such confiscation of our wealth and redistribution of that wealth undoubtedly is unjust. Yet we must also recognize the terrible injustice of past and ongoing faulty and misguided government policies that hurt the economy, increase unemployment, and encourage dependence on government. These terrible policies, in the end, take away the individual’s unalienable right and bestowed human dignity to support one’s self and family and to make one’s own life decisions; and instead replace that right and dignity with “socially just” government provision of a meager and joyless “equal” existence.
The passed health-care “reform” not only expands the broken government health-care entitlement system but, in an attempt to pay for the new program, foolishly enacts new taxes on the struggling economy. Among others, the bill imposes a new 3.8% tax on investment income on individual filers with incomes >$200,000 or joint filers with combined incomes >$250,000 (Yet another example of discrimination against the institution of marriage). The writers of this new tax say the rich can afford to pay more, but in fact, this tax hurts everyone. Discouraging investment further impedes the economy. And less investment in the markets means less growth and value of our stock markets in which all working households have a stake. A recent dynamic analysis done by the Heritage Foundation estimates this tax alone will:
- Result in an average of 115,000 lost job opportunities per year
- Reduce productivity by an average 0.01 percentage points per year
- Cause a loss of $1.37 in gross domestic product (GDP) for every dollar of additional revenue collected
- Reduce household disposable income by $17.3 billion per year
- Reduce the stock of household real net wealth by an average $267 billion per year
The passed health-care reform bill also levies new taxes on medical device manufacturers and pharmaceutical companies – the same previously discussed industry that has created unprecedented medical care and technologic advances. Increased taxation of these companies will result in less investment back into the business, less growth of the business, and less hiring. Medtronic, a medical device manufacturer, estimated that the new tax would spur layoffs of 1000 workers.
The new law also eliminates a corporate tax subsidy in the 2003 Medicare prescription drug benefit program that encourages companies to provide drug benefits to their retirees. That subsidy costs taxpayers $665 per covered retiree but the same drug benefit provided by Medicare would cost taxpayers $1,209. The tax treatment change in the new bill will cost companies that provide the retirement drug benefit, $233 per covered retiree. As a result, most companies will eliminate their retiree drug benefit programs, sending those persons into the Medicare program, adding further to overall Medicare expenditure, i.e. Federal deficit. You would have thought this is a no brainer – $665 per retiree taxpayer burden ($233 per retiree additional corporate tax break) vs. $1209 per retiree taxpayer burden. Further because of the resultant change for corporations’ anticipated retiree health-care costs liability, this tax change has triggered a rash of corporate downward earnings revisions including – AT&T, $1billion; Deere & Co., $150million; 3M, $90million – with obvious implications for stock valuation and the markets. (When these companies announced their earnings restatement, Commerce Secretary Locke derided that action as “premature and irresponsible”. Democrat Representative Waxman of California vowed to call these CEOs in for Congressional hearings because those earning restatements conflicted with “independent analyses, which show the new law will expand coverage and bring down costs.” It turns out that the companies were following SEC accounting rules, and we haven’t heard anything further about Congressional hearings.)
The new law also imposes new mandates on businesses of greater than 50 employees. These employers who do not offer “government approved” health plan or pay at least 60% of the employee’s health-care premium will pay a $2000 tax for every employee beyond the first 30 employees. Further, hires from low or moderate income households, who qualify for federal health-care premium subsidy and who choose to accept that subsidy, will now generate a $3000 employer-paid tax per hire. Beyond the usual economic and employment implications of the increased cost of doing business these misconceived mandates will:
- Encourage businesses to stay below or get below 50 employees – hardly a pro-employment policy.
- Discourage employers from hiring individuals from households that economically qualify for federal health-care premium subsidy.
- Encourage businesses to opt out of providing health-care by paying the $2000/employee tax and shifting the cost of their health-care to the federal government and thereby greatly exacerbating the disastrous federal entitlement fiscal situation – This financial inducement in truth is a disguised and devious mechanism leading to a single-payer (and highly rationed) health-care system.
Components for True Health-Care Reform
There is a better alternative, a better way. The following proposal could be written in comprehensible terms in a bill under 10 pages; as opposed to over 2000 pages of unintelligible government speak. These proposals would enhance an individual’s right of self-determination, not unjustly appropriate that right. These proposed reforms would not create yet another fiscally unsustainable entitlement or another massive impersonal and unresponsive bureaucracy. (The passed bill creates 159 new Government agencies.) While not an all encompassing solution to our health-care system’s shortcomings and not without some difficulties that would need to be worked out, the following rational and viable framework for reform would bring us a long way to more affordable and responsive health-care for all and to financial viability of health-care expenditure in the public and private sectors. I must point out that not being all encompassing is a strength of the proposal and not a deficiency. The more expansive the reform and the more the reform attempts to address and control every aspect of health-care, the more detrimental unintended consequences will occur. Experience has demonstrated time and time again that massive, “intelligent” central planning can not begin to achieve the remedial and beneficial outcome of the “invisible hand” of the free markets. Some might argue that the system requires radical and immediate reform. And although this and other reviews of our health-care system have enumerated significant deficiencies in our system, we must still remember the system remains operational and has served most of us very well. Incremental reform allows assessment of a policy intervention, including the unanticipated consequences, and then adjusting or adding further policy based on that reassessment.
Components for True Health-Care Reform: – A More Patient-Centered Utilization and Payment System
To truly reform and improve our health-care system, first and foremost, reform must restructure health-care insurance payment, shifting from the current 3rd party payer system to a more patient-centered system. There is a better alternative, a better way. First and foremost, reform must restructure health-care insurance payment, shifting from the current 3rd party payer system to a more patient-centered system. Patient-centered means not simply financial responsibility for but also financial control of utilized health-care services. Employing a combination of tax credits and tax deductions along with eliminating the federal bias for employer-provided insurance would return the funds currently being transferred to the 3rd party payers – private through wage reduction for health-care benefit and governmental through taxes – to the individual consumer to fund high deductible policies and associated health savings accounts (HSAs). Individual financial control and responsibility for health-care expenditure would not only stimulate more informed and thoughtful utilization of health-care services, but would also bring significant competitive forces to bear on providers (physicians, other practitioners, and facilities) and would result in greater accountability and transparency with regard to indications for health-care services, as well as, with regard to cost, quality, and customer satisfaction.
In such a system, individuals, just like for their automobiles and homes, would be primarily financially responsible for routine medical care. For non-maintenance health-care issues, high deductable policies in conjunction with HSAs would similarly help contain costs, improve service, and discourage waste. Finally, for more extraordinary conditions and expenses, medical services payment should be structured so that 3rd party payers progressively assume more and more of the cost, but ideally never all of the cost. Always maintaining some consumer responsibility will maintain a degree of beneficial disincentive for excessive health-care utilization. Such a system would also put more of end of life expenditure decisions into the hands of individuals and families, and their physicians; rather than, God forbid, government panels.
As mentioned above, restructuring the payment system to make health-care services utilization more patient-centered would further promote development of readily available health-care service resources regarding indications for those services as well as for cost, quality, and customer satisfaction measures for practitioners and facilities providing those services. Market forces would promote development of measures of quality as well as transparency in reporting of those measures. That transparency would not only identify higher quality medical care services and thus stimulate broader higher quality but would also promote elevated quality of those services that currently generally are inadequate – management of chronic disease. The medical societies of the various medical disciplines, who in the present system have never felt compelled to do so, would be motivated and professionally bound to formulate guidelines outlining indications for diagnostic interventions e.g. imaging, physiologic testing, etc, as well as expected outcome measures for medical and surgical therapeutic interventions. Such information would significantly inform patients in their utilization of health-care services but patients would still depend on the expertise, ethical standards, and professionalism of their physician.
Let’s look at a case example of how a more patient-centered system would work. It was previously mentioned in our current 3rd party payer system, patients not uncommonly demand specific diagnostic testing despite their physician’s opinion that the test is not necessary to appropriately care for them. In a patient-centered system, if a physician orders an expensive test such as an MRI, most patients would want to be assured by their physician that the MRI would significantly contribute to the evaluation and treatment of their condition. Likely, that person would have earlier chosen a physician recommended to them by friend or family, or based on information from an internet physician rating site. That person would further select an MRI provider on the basis of readily available transparent costs and quality measures because that MRI provider would be competing with other providers (the more, the better) for their business.
Components for True Health-Care Reform: – Tort Reform
Successful reform must also incorporate tort reform including capping of non-economic reform. The previously referenced 2009 CBO Tort Reform Report estimated federal health-care expenditure would decrease by $54 billion over 10 years by enacting tort reform that included:
- A cap of $250,000 on non-economic damages e.g. pain and suffering, punitive damages, etc.
- A cap on rewards for punitive damages of $500,000 or twice the award of economic damages, whichever is greater.
- Modification of the “collateral source” rule to allow evidence of income from such sources as health and life insurance, workers’ compensation, and automobile insurance to be introduced at trials or require that such income to be subtracted from the jury award.
- A statute of limitations – one year for adults and 3 years for children – from the date of discovery of an injury.
- Replacement of joint-and-several liability with a fair-share rule, under which a defendant in a lawsuit would be liable only for the percentage of the final award that was equal to his or her share of responsibility for the injury.
Tort reform would not only decrease private and governmental health-care expenditure but would, as seen in the Texas experience decrease medical malpractice insurance premium cost and improve access to physicians, particularly specialists.
Components for True Health-Care Reform: – Health-Care Insurance Regulation Reform
Legislative components of insurance reform should include decreasing the number of mandated covered services, thus making available more affordable basic policies. Successful reform must also increase competition among insurance companies. By simplifying insurance regulation and thereby decreasing the cost and complexity of selling health-care insurance, more companies would enter the market. Insurance sales should be allowed and encouraged across state lines. More companies competing can only lead to increased customer service and decreased premium pricing. Additional legislation allowing individuals and groups to pool together and negotiate premium price would further stimulate higher customer service and lower rates.
On the other side of the insurance market, insurance companies should be allowed to fairly price risk of utilization of health-care services into their premiums. For the healthy and young, true risk assessment would directly lower premiums. Lifestyle choices and predispositions such as smoking, obesity, sedentary habits, unhealthy eating, drug and alcohol abuse, etc lead to a disproportionate amount of health-care expenditure and should be reflected in the price of the premium. Such premium setting not only fairly treats healthy people and people that have made healthy life style choices, but incentivizes others who have not made those choices to consider them. “Fair” pricing would afford many more young families and individuals the ability to obtain health-care insurance.
It is correctly argued that without “guaranteed issue” or “community rating”, insurance would be prohibitively expensive for those with pre-existing medical conditions or conditions e.g. older age, etc., likely to require medical services. Yet, allowing premiums to be fairly priced for all risk pools would encourage more insurance providers to enter that market, encourage competition, and result in the best pricing for premiums for all risk pools. Still for some or even many in the higher risk pools, insurance may be prohibitively expensive; but allowing pricing to reflect actual risk brings more transparency to that problem. Rather than burying those costs in a “community rating” pool, establishment of state-based or national high risk pools with a government subsidy program for those in need would fairly and compassionately address the issue of those with pre-existing medical conditions. Clearly, such focused government assistance is much preferable to massive takeover and bureaucratic expansion of our health-care system. (The passed bill does create a state-based health-insurance exchange for persons with pre-existing conditions. It is to be funded with $5 billion of federal money to fund the program until 2014. As it turn out, the chief actuary for the Centers for Medicare and Medicaid Services recently reported that money will run out next year or in 2012. So states that join the program would get financially saddled with yet another unfunded federal program.)
Components for True Health-Care Reform: – Federal Tax Treatment of Health-Care Premiums
Correcting the tax bias that preferentially promotes employer-provided health-care insurance over individual-purchased (owned) insurance would likely be the simplest reform to enact and yet have a most profound effect. As mentioned earlier, the CBO estimated up to 25% of absent health-care insurance is secondary to change in employment. Without the present tax bias and with the ability to form group association health plans, most individuals and families would undoubtedly buy their own insurance policy on the open market. Not only would the policy be portable and no longer tied to employment but they would choose a policy that best fits their needs and pocketbooks. This reform would have an additional huge beneficial consequence. With individuals obtaining their own health-care coverage, businesses would no longer have all the associated costs direct and indirect, e.g. administrative costs, of providing employee health insurance benefit. That decreased cost structure would make them more competitive in their local, national, or world market. Further, without the huge expense of the health-care benefit, employee take-home wages would significantly rise.
True Health-Care Reform: – Addressing the Uninsured
These changes – a more patient-centered utilization and payment system, health-care insurance regulation reform, medical malpractice tort reform, and federal tax treatment of health-care premiums and expenditure reform would significantly decrease the cost of health-care and health-care insurance. Making insurance affordable for more individuals and families would have a dramatic effect on lowering the number of the uninsured. Not only would many more persons have health-care insurance but they would have better and more responsive health-care.
The above proposed reform would greatly reduce, but not eliminate entirely, the numbers of the uninsured. For those who find themselves temporarily or chronically uninsured, instituting a simple federal voucher program, for those who financially qualify, to purchase private health-care could to a great extent address their lack of coverage. Likely, this would also require a government agency to help some persons navigate this more consumer involved system. But, such focused and limited government intervention is compassionate, effective, and financially viable; and is much preferable to the current 2nd (3rd or worse) rate Medicaid system which is causing massive state and federal budget overruns.
True Health-Care Reform: – Reversing the Governmental Fiscal Crisis and the Economic Downturn
Such true reform, utilizing traditional American free market principles, personal freedoms, and values that made our great land the global economic powerhouse and bastion of freedom, would not only reverse the crippling health-care cost growth threatening the financial viability of individuals, families, businesses, and state and federal governments, and would not only decrease the numbers of the uninsured and improve the quality and responsiveness of health-care system, but would also stave off the inevitable governmental fiscal meltdown that will result from the current levels of entitlement growth and resultant deficit spending. Additional policy reform that shifts government health-care entitlement programs from a 3rd party payer system to a more patient-centered system, implementing tort reform, and effectively addressing Medicare and Medicaid fraud would drastically lower government health-care expenditure. Lastly, these proposed reforms would invigorate the economy: stimulating the small and large business environment, increasing employment, increasing tax revenues, and decreasing the numbers of individual requiring government support, again decreasing governmental (taxpayer) liability.
The resultant dramatic economic and fiscal reversal would create money now (not borrowed from the future and the future well being of our posterity) for prudent government programs as well as investment in our country’s infrastructure and future, and still lessen our taxpayer burden. Most of all, a strong economy and more limited government involvement would restore to the citizens of this country our unalienable human dignity and right to work and to support ourselves and our families, to make our own decisions, and to live our lives as we see fit.
Moving Forward – A Call to Action
Though passed by an appalling political process and with complete disregard of our Constitution, though containing ineffective and even harmful policy, though disregarding the unalienable rights given to us by our Creator, the passed health-care reform bill is not the end of the debate but rather a new beginning. It is an opportunity to contrast irresponsible policy with prudent policy, to contrast misconceived policy with thoughtful policy, and to contrast policy that places government in the center with policy that places the individual in the center. Get in the fight and stay in the fight. We have learned, the hard way, the consequences of leaving it up to the career politicians. Contact your legislators and demand they exercise the privilege the voters gave them to represent us to effectively address health-care delivery and the other problem facing our state and nation. Please visit the Docs4PatientCare website to learn more about their effort to repeal PPACA and replace with viable market based reform. Join the Docs4PatientCare Alliance. Encourage your personal physician to join the Docs4PatientCare mission to repeal and replace.
Learn about the issues and talk to others about the issues. Join and financially support conservative think tanks that promote traditional American economic principles, personal freedoms, and values; and that shine the light of accountability on irresponsible or faulty government action and policy. Those organizations include The Heritage Foundation, The State Policy Network, The Commonwealth Foundationand your state’s conservative think tank (see SPN for your state’s organization).
Finally, join and support your local grass roots organizations like the PA Coalition for Responsible Government, and others, so we can take back the political process that has become corrupt and ineffective. We must work to bring up, from the grassroots level, candidates – principled persons (Republicans, Democrats, and Independents) who will actually solve problems, who will respect the Constitution of the United States, and who will honor the “consent of the governed” entrusted to them by the citizens of our counties, states, and country.