January 4, 2014

The Mess Called ObamaCare: – Is There a Better Way?

by Hal Gershowitz

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Given all of the policy wonks, ivory-tower giants, and politicians who seem to be betting their place in history on transitioning the country from the old and inefficient healthcare status quo to an all-encompassing, government-controlled healthcare system, are we irrevocably committed to this tortuous march to ObamaCare?  We don’t think so.  Soon, the (quite predictable) problems created by ObamaCare will overwhelm the over-blown partisan rhetoric, and serious thinkers on both the left and the right will embrace a serious search for healthcare reform.

That’s because soon we will have more people than ever before covered by an assortment of so-called bronze, gold and platinum, ObamaCare-approved health insurance plans, and, simultaneously, fewer – far, far, fewer — hospitals, clinics and physicians willing to accept these new insurance plans, notwithstanding the allure of their precious-metal monikers.  Worse, those who are not enjoying substantial federal subsidies are apt to be paying substantially more in premiums, and if not in premiums than much more in higher deductibles and (this should surprise no one) higher direct and indirect taxes.

ObmaCare gold (or bronze or platinum) is turning out to be, for many, fools’ gold that fewer and fewer providers of healthcare are apt to accept. The writing is already on the wall.  The loud swooshing sound (to borrow from an old political sound bite) we will all soon be hearing will be the sound of many leading hospitals and healthcare providers exiting ObamaCare Exchange coverage.

Government reimbursements to physicians and hospitals that still accept Medicaid patients have been, and will continue to be, slashed (that’s one way of reducing costs) while, at the same time, millions more of our poor are being funneled into the very Medicaid programs that will be served by a declining number of physicians. Those poorer Americans who are being funneled into a Medicaid system in which the government reimbursements to the physicians who serve them are well below the rates charged to all other patients are relegated to a separate and unequal health care system with more limited access and worse outcomes. This is a crisis in the making.

ObamaCare, millions of people will soon learn, is not necessarily increasing access to medical care as much as it is increasing access to medical insurance. The cruel joke is that a growing number of leading healthcare facilities and physicians simply will no longer accept the coverage provided by many of these insurance companies.  Why should they?  The government (and insurers) is constantly devaluing the services they provide by systematically reducing the rates they are willing to pay for service.

While it may be impressive to see a list of a couple dozen insurance companies participating in these new insurance exchanges, we find that leading hospitals all over the country recognize only one or two plans and some won’t accept any.  For example, of the 18 leading hospitals in the United States (as determined by the Annual U.S. News and World Report Survey, we find that 70 percent accept three or less of the plans offered in their respective state’s exchanges.   Citizens in Ohio and California may, at first blush, be dazzled by the dozen insurance companies listed on the exchanges in both states, until they learn that (in Ohio) the heralded Cleveland Clinic will accept only one exchange plan, UCLA medical Center in Los Angeles will only accept two exchange plans, and the Mayo clinic in Rochester Minnesota will accept only one exchange plan.

If you ask President Obama, he’ll tell you that California proves ObamaCare is working just fine. But if you ask almost any healthcare provider in California, you are apt to get a very different reply.  A survey of the state’s top hospitals has revealed that most contract with only one or two insurance companies under Obamacare, even though the Covered California exchange has 11 companies to choose from. And one leading hospital, Loma Linda University Medical Center, has refused to participate altogether.

The majority of insurance plans being sold on the new healthcare exchanges in New York, Texas, and California, will not even offer patients access to Memorial Sloan Kettering in Manhattan or MD Anderson Cancer Center in Houston, or Cedars-Sinai in Los Angeles, one of the top research and teaching hospitals in the country.  Why? Because ObamaCare dictates numerous requirements that affect an insurers ability to control costs, let along profitability.  So insurance companies are directing their policyholders to lower cost facilities and eliminating their access to top notch and more expensive facilities.

Right now, we’re caught up in a numbers game.  What to believe?  The government proudly announces that, so far, over two million people have “enrolled” in ObamaCare.  Does that mean they are now insured, or simply that they have finally gained access to the ObamaCare site and have registered.  Frankly, we don’t know, and neither does anyone else. Or, more germane, are most of these two million who have “enrolled” previously uninsured Americans, or simply many of the six million Americans who have had their policies cancelled since ObamaCare became effective last October.  If the two million are primarily people who “re-upped” as soon as their old policies were cancelled, which we suspect is the case, rather than newly and previously uninsured people, just what has been accomplished?  Well, we suspect many older couples that didn’t have (and didn’t need) maternity coverage and childcare coverage before (as required by ObamaCare  — need it or not –) now have it.  We’ll be surprised if those two million new enrollees about whom the government is bragging turns out to be primarily previously uninsured Americans.   We may never know.  Not even Edward Snowden would be able to wrangle that information from the Administration.

We’ll also wager that the preponderance of previously uninsured who may be among the new enrollees will be individuals who were previously uninsured because they were uninsurable.  If that is true, premiums in 2015 that will be based on actual experience in 2014 will soar.  And, under ObamaCare’s Community Rating System, this will primarily hit the young and healthy who burden the system the least, but who will be impacted the most.  That’s because no one can have his or her premiums adjusted because of health.

So, what to do?

Let’s rethink this poorly conceived, poorly legislated mess called ObamaCare.  Let’s try something logical. Let’s address the real problem; the 15% of Americans who were (and largely are) uninsured.  Let’s leave alone the roughly 85% of Americans who were insured and largely happy with their insurance. About 256 million (of the 306 million residents of the United States) had health insurance before OamaCare. The remaining 50 million are the uninsured, of which about 43 million are citizens or permanent legal residents.

So, let’s reinstitute actuarial underwriting of medical insurance.  Lets let rates reflect the experience of reasonably broad classes of people.  Young and healthy Americans would pay less because they are less of a burden, and older and sicker Americans would pay somewhat more because they cost more to cover.  Government premium subsidies, perhaps in the form of vouchers or refundable tax credits, would be provided on an as-needed basis to cushion the cost of premiums wherever necessary. A substantial federal subsidy program would be required to provide for the treatment of catastrophic illness (as defined by cost of treatment as a percentage of income) as well as serious federal assistance for those living at some multiple of the Federal Poverty Line.

How would we pay for this?

Let’s end the preferential tax treatment for employer-provider group coverage.  It is outrageously unfair to those who must buy individual policies with after-tax dollars. We believe the savings that companies would realize by not providing health insurance would quickly be reflected in higher wages to their employees, which, in turn, could be used to purchase the coverage that best suits their individual needs.  Ending the tax preference would also go along way toward providing the funding for whatever federal subsidies might be needed for the poor.  In 2011 alone, the exclusion of employer-sponsored health insurance premiums and medical benefits cost the US Treasury $268 billion, by far the largest drain from federal tax revenue.

Moreover, the employer-provided tax exclusion disproportionately subsidizes those with higher incomes. Americans who buy their own coverage are faced with a tax penalty when purchasing coverage. They must purchase insurance with income that has already been taxed at marginal rates as high as 50 percent. Thus, the tax break for employer-sponsored insurance, means that consumers who seek to choose their own health insurance plan must often pay twice as much for less coverage.

A survey by economists Michael Morrisey and John Cawley found that 91 percent of health economists agree that the money that employers use to purchase health insurance comes out of workers’ wages. In other words, if employers were not providing health benefits to workers, that same $9,000 should go to workers in the form of higher cash wages, much of which would be available fund healthcare coverage that meets their individual needs.

Let’s let insurance companies compete for those tax vouchers or tax subsidies on a national basis. Let every insurance company compete anywhere in the United States.  End near monopolies that exist in some states by letting all companies capable of competing compete.

Hospitals should be reimbursed for any uncompensated emergency room care. The total cost of uncompensated care is estimated to be about $56 billion, most of which is already covered by various taxes (estimated to be about $46 billion) already imposed on American taxpayers.  Thus, the incremental additional tax necessary to cover those who still wind up burdening emergency rooms with uncompensated treatment would be nominal.

We don’t under estimate the task of rethinking healthcare in the United States, and we don’t presume to have the expertise to counsel those to whom that task might fall. But we do believe we are headed in the wrong direction.  We are unimpressed with the constant harangue from the left that we are the only industrialized country that doesn’t offer healthcare to all of our citizens as a basic right.

Healthcare isn’t so much of a basic right that the government can uniformly and equitably confer, as it is a basic need the people have that the government can assist the people in meeting. There is a difference. We should get on with the task of sensibly addressing ways in which the country can assist the people to meet that need.

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4 responses to “The Mess Called ObamaCare: – Is There a Better Way?”

  1. Chuck Anderson says:

    Well done. Health care is as you say, at least a need, and some comprehensive approach to address this must be found. There are couple of issues I think we as a society must address. In previous writing on this subject you have cited the costs of medical care at the ‘end of life’. This is an issue we must address because with an aging society we simply cannot afford to use costly medical resources to attempt to extend life for what statistically ends up being a short time anyway. A major news item just this week brings the issue of facing death into focus. The family of a teenager, brain dead after complications of surgery, are in court battling to keep her on life support.While we understand their grief and loss, the reality is this decision will be made without consideration of who will bear the cost of such life support.
    A second issue involves reconsideration of individual and family resources. This past week I read that the so-so quarterback of the ‘missed the playoffs’ Chicago Bears (I’m a Bears fan) was signed to a 7 year contract well in excess of $100m. Over our entire culture people pay high prices for various forms of entertainment and complain bitterly about taxes for education, healthcare, and infrastructure. As a culture I believe we need to rethink the general allocation of our individual and societal resources. Think about it, do we really want to pay sports figures and celebrities tens of millions of dollars to do what they like to do anyway? Can’t we put that money to better use?

  2. Carol Frankel Cohen says:

    This morning on “Meet the Press,” Drs. and CEO’s John Noseworthy, M.D. of Mayo Clinic and Toby Cosgrove, M.D. of Cleveland Clinic, while not completely trashing the Affordable Care Act, echoed several of your sentiments as a way forward to fix America’s healthcare crisis.

    Additionally, they were both firm about the government spending much more to fund the National Institutes of Health. And they both strongly believe that taking better preventive care of ourselves by altering lifestyle habits can have a far-reaching and positive impact on the epidemic of obesity and age-related illnesses that cause more than 30 percent of today’s healthcare expense.

  3. Mark J Levick says:

    As always your analysis is both cogent and enlightening and your recommendations for fixing this fatally flawed legislation will do just that. Unfortuately Obama will not permit his signature legislative victory to be amended and will instead fund the shortfalls in projected revenues by eitherprintingmore money or raising taxes. On the other side of the political aisle Ted Cruz and his minions will accept nothing less than repeal of the ACA. Thus you gentlemen are the latest iteration of Messrs. Simpson and Bowles and will be ignored by those in power.

  4. Scott Greene says:

    Excellent article.
    I personally do not understand why the Affordable Care Act bases their tax subsidies on income and NOT on healthcare needs.
    A middle class person with a family making middle class income who needs lots of healthcare is NOT going to get it because their premiums and deductibles have doubled.
    On the other hand, a young single healthy person making less money and not needing much healthcare IS being subsidized
    So again, the young single person with no family to support who doesn’t need much healthcare is being subsidized but the person with a family to support who needs lots of healthcare is being prevented from getting it because the Affordable Care Act has doubled their premiums and deductibles.
    And the family’s only solution to lower their premiums and deductibles would be to make less money which, if they did, would cause their family to suffer.
    None of this makes any sense!
    I thought the whole point of healthcare reform was to help those who actually needed healthcare???
    It was like some crazy accountant mathematically put this whole subsidy scheme together but neglected to look at the real purpose behind why this was all being done in the first place.
    Doubling some people’s payments to insurance companies while giving subsidies so others can make their payments to those same insurance companies is NOT healthcare.
    Obamacare is actually Insurance care. It is definitely NOT healthcare.

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