Recently Barack Obama released his proposed health care plan, which bears a resemblance to several other proposals, such as Mitt Romney’s in Massachusetts, Arnold Schwarzenegger’s in California, and a number of others. Such proposals have a number of common themes: mandating insurance coverage, provided through private insurers and monitored through a government bureaucracy; taxes or penalties on businesses who do not provide coverage for their employees; often a tax on physicians and hospitals; tight regulation of insurance premiums; removal of preexisting condition restrictions; financial assistance for the poor in paying for coverage; cost “efficiencies” brought about by an increased emphasis on preventive medicine, information technology (electronic medical records), and a hoped-for reduction in premiums due to an enlarged risk pool.
At first glance, some of these proposals appear to use the existing network of health insurance plans to extend healthcare coverage to the uninsured. They also seem designed to avoid the tar baby of government-run, single-payer healthcare, which is anathema to many Americans. But the difference between these plans and single-payer, practically speaking, is far more illusory than real.
I am on record as favoring mandatory catastrophic healthcare insurance. While generally I do not favor government mandates in such areas, I find catastrophic healthcare insurance to be analogous to mandatory auto insurance: in both cases, the uninsured pass the expenses of their misfortune onto society as a whole, either directly or indirectly. I would favor such a mandate at the state, rather than the Federal level, enforced by showing proof of health insurance at the time of driver’s license renewal. Such insurance should be major medical only, covering catastrophic illness with very large deductibles. It should be purchased by the individual, rather than provided by employers. In such a scenario, the vast risk pool, large deductible, and coverage limited to major medical events should keep premiums relatively low. There should, however, be little regulation of what such policies cover, as opposed to the micromanaged mandates common in most states today. Supplemental policies to cover other services would still be available, tailored to the needs and economic abilities of the insured.
The recent sweeping proposals of presidential candidates are far removed from such simplicity, however. They will create a massive healthcare bureaucracy which will no doubt be involved in setting specific coverage requirements (doubtless at the whim of politicians), will engender cost-shifting by price controls on insurance premiums, and will almost certainly create a very large problem of access. There is no free lunch — if insurance companies are forced to lower premiums below levels required to fund their outlays, they will invariably respond by drastically reducing reimbursements to healthcare providers and hospitals. Health care providers will by necessity no longer be able to see patients in these plans, as reimbursements drop below the cost of providing the service — which is exactly the problem which Medicaid and Medicare are encountering currently. Federal control of private insurers will breed a million mini-Medicares, with so-called “private” insurers micro-managing medicine under the harsh glare of Federal hyper-regulation.
The continued linkage of health insurance to employment perpetuates the current environment where the consumer of healthcare is insulated from its costs. Taxes on businesses — whether by mandates to purchase insurance for all employees, or penalties or taxes on those who do not — are nothing more than surrogate taxes on the general population, as businesses will pass these costs through to consumers in the form of higher prices and reduced productivity. New employment will likewise be constrained due to the high entry cost of hiring and keeping workers.
The challenges manifest in our current healthcare system are legion, and highly complex. The difficulty is not merely greedy insurance companies with high administrative costs — although many insurers exemplify these problems. The insurance giants are indeed unscrupulous and unethical — but in the proposed plans they are a convenient political straw man. The real problem is that the insurance companies are no longer accountable to their customers. The camel’s nose is not merely under the tent; the camel is inside the tent — and is eating your lunch, while leaving large camel pies on your Persian carpet.
When you purchase auto insurance, you shop for coverage using price, service, and covered benefits. When you have an accident in your SUV, you expect your insurance company to pay promptly and honestly for the damages you have incurred. If they refuse to do so, or have poor service, or very high rates, you will shop for another insurer.
In health insurance, this normal accountability relationship between the insurance company and the client is broken. Your insurance premiums are not paid by you in most cases, but by your employer — and therefore you have neither flexibility nor options for seeking out the best rates for the coverage you desire. Your coverage is also likely determined by your employer, rather than by you — with some unnecessary services thrown in by state benefit mandates.
When you need healthcare services, you do not pay the physician or hospital directly, other than a small co-pay or deductible. You receive the service, and the provider then bills the insurance company to be reimbursed. The provider is constrained by contract with the insurer, and will only be paid a fixed amount determined by that contract (which, amazingly, the insurers will often refuse to disclose to the provider). If he or she excels in their field, they are not free to make separate arrangements with you at a higher price — even if your are willing and eager to pay for such excellence. If your insurance company chooses to deny a claim and refuse payment — which they do on a regular basis — you may be entirely unaware of this fact.
Hence the insurance company is shielded from accountability to you, the consumer. Your employer also has little or no influence over the insurance companies rates or payment policies. Therefore the insurance company is essentially accountable to no one — a fact which they use to gain a huge financial advantage. It is well established that insurance companies frequently deny claims filed by physicians arbitrarily, knowing that the high volume of claims processed by a physician practice will allow them to do so without consequence: over 50% of practices will simply write off the denial of payment, even if the payment was legitimately due. Practices simply do not have the time or manpower to appeal each and every one of these endless claim denials.
We have allowed the insurance companies — and Federal payers as well — to come between the patient and the insurer. In older, simpler times, it was quite different: you paid the physician directly, and submitted your bill for his or her services to the insurance company, who in turn sent you a check. Under this system, you were fully aware of what the physician was charging, and were fully aware of how promptly and appropriately the insurance company reimbursed you for your healthcare expenses. If they denied a claim, you, their customer, would be on the phone demanding to know why, and if you were not satisfied with the answer, would ultimately change insurance carriers. The physician required far fewer employees to massage and process claims, and as a result their overhead — and fees — were lower.
When politicians — or anyone else — begin talking about “efficiencies” brought about by preventive medicine or information technology — be afraid, be very afraid. Preventive care, as I have discussed elsewhere, is a healthcare talisman, wildly shaken with chanted incantations and ritual dancing as the solution to most, if not all, of our healthcare problems. Other than in selected areas such as prenatal care, or screening for hypertension, cholesterol, or diabetes (which are already routinely done), preventive medicine largely comes down to the Big Three: weight loss, smoking cessation, and regular exercise. If you believe you can get the population at large to embrace these lifestyle changes en mass through some national healthcare policy, you have been spending entirely too much time at the bong.
The idea that large financial return may be gained by simply implementing electronic medical records is beyond naive, bordering on moronic. The entry costs of such systems are enormous, and the complexities of integrating them into healthcare are extraordinary. Keep in mind that much of the current demand for electronic medical records has been driven by the government’s extraordinary documentation requirements imposed by their own reimbursements system. The benefits of electronic medical records are substantial, but cost savings is quite simply not one of them. Any long-term cost-savings would not be seen until there is near universal utilization and standardization — a scenario which is many, many years in the future. In the short term, conversion to electronic medical records substantially increases expenses and complexity, and tends to drive costs up, not down.
The current crop of healthcare reform proposals are an intoxicating blend of wishful thinking, heavy-handed government regulation, and unfulfillable promises. The politicians are inhaling deeply on their health-care hookahs — and hoping that the sweet aroma obscures the reality that they are only blowing smoke.