Wednesday, July 2, 2008

McCainCare and ObamaMed: The Future of Health Care in America?



Saying I'm a skeptic of the promises and grand visions of politicians is understating my position. Realizing even the most sincere politician is limited by his constituents and the governmental structure intended to provide proper checks and balances is the basis of my disbelief. Moreover, many politicians lack sincerity making the structure of government a moot point compared to their willingness to appease the voting public by tailoring their communications to the opinion polls (I think Bill Clinton wins the title for this tactic). Therefore, it should not surprise you that I am as much cynical as I am critical of both their stated plans for reforming health care in America.

Let start with the problems:

1) Health care is expensive.
2) Health insurance is not affordable to all Americans
3) Health insurance in not available to all Americans
4) When received, the quality of care is often substandard
5) Proper preventative treatment is often not covered by health insurance plans
6) Pre-existing conditions are often not covered by health insurance plans
7) Prescription medications are expensive

I'm sure we could add more to this list, but I think this covers the basics. My employer (a Fotune 100 company) pays the majority of my health care costs; in fact, it is arguably one of the best health care plans available. Despite the relatively good health care coverage, my costs (copays, coinsurance, deductibles) have increased over the last several years as has the cost incurred by my employer. My plight pales in comparison to the many Americans that have poor or no health insurance. It is unfortunate and counter-productive when a person is in the position of choosing his health over other necessities: food, housing. No wonder both Presidential candidates are compelled to promise drastic changes in the health care system in our country.

ObamaMed
Obama's proposed health care reforms can be found here. It sounds great - health care choices for everyone, equal access, portability, choice, lower costs, and just about every other euphoric change of which you can think. He proposes a public health care plan in addition to the ability to chose a private health care plan. The government would pay the cost of the coverage for those who can't afford it (yet to be defined who is able to afford it) and everyone else can pay for their own health plans (still). Companies would either have to make significant contributions (not defined) to their employees' health plans or pay a payroll tax (not specified) to support the government plan. If a company cannot afford (also undefined) to pay the tax or the cost of employee health care then it would be exempt.

McCainCare

McCain's plan, available here, is very similar to Obama's (or vice versa). However, in McCain's plan there is no government health plan, only subsidies for families in the form of tax credits deposited with insurance companies. In addition, McCain encourages the use of Health Spending Accounts (HSA) to give individuals visibility of their health care costs and options. Portability, guaranteed access, lower costs, and reforms are also rampant buzzwords in the McCain plan.

What's the Right Choice?

Neither.

Don't get me wrong, there are some nice ideas in both plans and they certainly sound good, but read through the plans and absorb what they are really saying. Did you catch it? Nothing.

That's right. Neither candidate is making any substantial changes to the systems that exist today. You are told there will be government assistance to pay the cost of heath care if you can't afford it, but you're not told what the threshold is. Obama says children will be required to have health care, but at who's expense? Do you really think that means the government (hence taxpayers) will be paying for it in all cases, or does that mean you will be required to carry health insurance for your children regardless of who pays for it - even it that means you pay for it directly.

Both candidates talk about portability, guaranteed access, and coverage for pre-existing conditions but have you really thought about the implications? Health insurance companies exist to make money; even non-profits and the government plans must be soluble (will someone please tell that to Congress, by the way). Insurance companies set premiums based upon the expected cost of medical care for the insured. In simple terms, the sum of the insurance premiums over the duration the premium is held, or up to a maximum lifetime medical coverage cost, must exceed the expected medical costs or the insurance company is insolvent. Therefore, if insurance companies are required to provide portability their economies of scale go down, i.e. they may be insuring someone that no longer belongs to the same medical group or is out of their area of coverage = higher costs. Guaranteed access and pre-existing condition coverage means insurance companies must provide coverage to people with expected medical costs in excess of their expected premium revenue = higher costs.

Similarly, both candidates talk about making prescription drugs cheaper by opening access to foreign suppliers and products and decreasing the time to market for generic drugs. Yet there is no discussion about improving the cost and cycle time of the FDA drug approval process; thus, domestic drugs and drug research would become uncompetitive and likely wither into obsolescence.

Finally, both candidates speak of increasing your health care plan choices, but their plans would actually reduce choice. If the government offers a health care option, why would a company also offer its employees a private plan? Either candidate's plan would have extraordinary costs which translates into higher taxes. Therefore, companies would be paying for their private health plans and paying taxes for the government health plan - they most certainly would not continue to do both. (Obama claims that companies with employee health plans won't pay additional taxes while simultaneously companies that can't afford health plans also won't pay additional taxes. What companies are left to pay the health care tax?) Additionally, the diminishment of scale economies forced upon small health insurers would make them un-viable and push the market to even greater conglomeration. As insurers struggle to remain solvent and if government mandates lower costs your treatment options, level of coverage, and freedom of choice would be summarily reduced. Medical providers under pressure to reduce costs would also face insolvency, reduced ability to invest in new technology, and greater difficulty finding practitioners as due to downward pressure on their financial incentive. These conditions would also drive further conglomeration in the medical provider market, less physician availability and corresponding longer wait times for treatment, i.e. less choice and less accessibility for everyone .

Okay Smartypants...What's the Solution?

Socialism is notoriously a reactive "solution". An effective health care plan must address the root cause of the problem, not the symptom. What are the root causes?

1) An American public that does not understand accountability

We have a victim mentality. There is a widespread belief that modern medicine can fix all our ailments and if it fails to do so it must be because we were not treated properly. While medicine has advanced it cannot cure all ails, diagnoses are not infallible, and humans (even doctors) make mistakes. Although there are many instances where insurance companies do not pay for preventative care, there are equally many instances where American's don't take responsibility for their own health by seeking treatment early, eating well, and exercising.

It is not the responsibility of government to make us exercise or eat certain foods; the government should not be a babysitter. Incidentally, asking the government to pass legislation to make us more responsible is not what I have in mind - I'm saying we need personal accountability.

2) Tort Reform (mentioned in the McCain plan)

Medical malpractice insurance premiums for medical providers are outrageous. Many providers have cut back services, formed larger practices to defray the costs, or ceased practicing altogether. Arguably, there is no greater single cost to providers than malpractice insurance. Why has this cost gone up so dramatically? See root cause #1.

Simply put, there need to be reasonable limits on awards for medical malpractice and many cases should never make it to court. The doctor amputates the wrong leg...okay...there should be some significant compensation. Your 85 year old mother dies of cancer because she never sought treatment for her symptoms until she was 5 days away from death...not the doctor's fault.

This issue speaks to the discussion above about medical insurer's costs vs. their expected revenue. If you reduce the expected costs of shelling out boat loads of money in malpractice awards then you reduce the premiums.

3) Overly complex medical billing procedures

Medical practices have large staffs devoted to medical billing. The doctor's treatments have to translated into the proper billing code, the code passed onto the insurer, the insurer processes the codes, the insurer remits payment to the medical office, and the medical office bills the patient any unpaid balance. Streamlining this process could do wonders to improve efficiency and reduce overhead.

This effort is not the responsibility of our government, it is for medical providers and insurers to figure out. Downward pressure on medical expenses would help encourage this activity (see #4).

4) Price insensitivity

The 3rd party systems for medical insurance creates an insensitivity to price by the end user (the patients). For instance, I don't care what a doctor's visit costs because I pay the same copay regardless. However, if I payed a copay as a percentage of the total cost of the visit or treatment I would be more price sensitive. Likewise, if I paid directly out of my HSA (also part of the McCain plan) I would be more price sensitive. Restoring some elasticity to the demand for medical care would encourage medical providers to become more efficient and compete on price in addition to level of care.

5) Reduce bureaucracy

Our health care and prescription drug systems are overburdened by bureaucracy that serves little purpose other than to justify the careers of thousands of government employees. This drives inefficiency and cost into our system that is unnecessary. If our politicians want to help they should do so by reducing government, not increasing it. The FDA drug approval process is costly and uncompetitive. While we can argue about its utility for preventing negative outcomes by preventing under-researched drugs from reaching the market we could certainly find ways to drastically improve the processes. In so doing we would likely find better overall outcomes compared to the existing wasteful processes.

Summary

We have a health care problem in America, but neither Presidential candidate is poised to provide a meaningful resolution. Obama's plan is a pipe dream that would drastically increase costs or reduce the level of care as a compromise to keep costs lower. McCain's plan has some good elements, but would also increase costs or reduce the level of care. Both plans increase the role of government in our health care system instead of reducing and streamlining it. Higher costs (either directly or indirectly through higher taxes), less choice, the disappearance of company sponsored health plans, and increased tax burden are all unintended consequences of the proposed plans. Only by addressing the root causes of our high health care costs and putting market forces back in control of our pricing decisions can we realize affordable health care thereby making access to health insurance moot. If health care were affordable there would be no need for tax payer subsidized health insurance.



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