2700 Pages of Healthcare reform boiled down

The primary resources were the NYT and WSJ websites (both of which had excellent summations online), knowledgeable friends as well as listening to the debates of the past year. I did not have time to read the 2700 page bill. Comments are welcome.

Healthcare Reform
March 2010

Key highlights from the recent legislation:

Helpful (in my view):
1. We will insure 30mm plus previously uninsured people which is a worthy objective. All told, ninety three percent of Americans will have access to healthcare services as a result of the bill passed in late March.

2. The bill limits the waiting period for new employees to 90 days.

3. Children up to 26 years of age can remain on a family policy.

4. Beginning in 2018, the plan taxes Cadillac insurance plans popular with unions; those plans tend to discourage a financial connection between the patient “customer” and the doctor “supplier” (more on this later).

Less-than-helpful (again, in my view):
1. The plan uses 10 years of revenues (taxes) to pay for six years worth of benefits. This is how proponents explain the 10 year deficit reduction.

2. There is also no adjustment for the so-called “doc fix”. Historically, the government schedules planned reductions in doctor reimbursements in an effort to show restraint in controlling long run Medicare/Medicaid costs. However, given the unpopularity of those rate reductions with doctors, Congress votes every year to “fix” (cancel) the reimbursement reductions which adds substantially to our budget deficits.

3. The bill does not change behavioral incentives in my view; 3rd party payors (think insurers aetna or wellpoint) still control the flow of dollars rather than the customer/patient. With 3rd party payors, patients still won’t know or probably care about the “cost” of procedures/drugs/tests/etc.

4. An independent board will be given the awesome power to set premium rates.

5. A limited number of states will be reimbursed for the substantial costs imposed by the bill (think Louisiana Purchase or the Cornhusker Kickback among others); the vote buying process was incredibly offensive to most people.

6. The bill does nothing to reform tort litigation. Medical malpractice insurance is a major expense for most doctors. “Defensive” behavior/testing by doctors is a waste of time and resources.

7. The purchase of health insurance is mandatory and subject to fine.  If it were a “tax”, there could be “representation” problems. (side note – I actually support the idea of requiring people to buy high deductible/low cost insurance, but that requirement may not pass constitutional challenges. We need more money in the system to pay for the uninsured but enabling people to buy insurance in the ambulance on the way to the hospital [can’t refuse coverage for pre-existing conditions!!] is absurd.)

8. Congress has railed against the profiteering insurance companies since the debate began. What happened the day the bill passed the house? Health insurance stocks went up. And a lot more than that in the past year; they just picked up 30mm+ new customers.

9. We have added 30m+ people into the system with no increase in capacity; more demand and flat supply will equal upward price pressure or queuing. It’s inevitable.

10. With this bill, we have crossed the rubicon of taxing investment income for specific entitlements.

11. The capitalist-driven health care system of the USA has produced the world’s best techniques, drugs and technology; we should build on that success rather than gradually migrate to government-driven control. Generally, few people brag about the quality of healthcare for single payor systems; they advertise what they have — which is quantity (coverage).

12. The plan was passed despite bipartisan opposition; it passed with only partisan support. Prior to the House vote, a CNN poll indicated that 59% of Americans opposed this bill despite the near universal approval of traditional media. This is highly unusual.

13. The bill does not appear to encourage small business/job creation. The mandates result in additional hurdles in that regard. Unemployment, especially among minorities, is painfully high.

**

What we could have done for less money (points 1-3 are highly inter-related):

1. Disconnect your job from your health insurance; McCain was right.
a. Why? It would encourage the consumer to shop for the best deal for them — the best combination of benefits and premium price for that consumer. Most people don’t envision submitting a claim to state farm for an oil change; why push your healthcare premiums higher to cover regular, expected, maintenance items like check-ups, etc.

2. Require doctors and hospitals to post rate cards detailing the price for services/procedures; and rate cards should be available to consumers regardless of status (group versus individual).
a. Why?
i. A consistent rate card would enable new insurers to compete because they can get the same prices from suppliers as the giants Aetna and Wellpoint.
ii. It would enable consumers that are not in a large group plan to buy insurance at much lower rates (they would have access to the consistent wholesale rate card above… see 2ai above). Premiums for individual consumers will be much lower as a result. It would also be worth considering subsidies to further reduce rates to individual consumers to encourage participation.
iii. Try price shopping for an elective versus non-elective procedure. Rates for lasik eye procedures are widely available and generally trending down; not so otherwise. If medical providers had to defend their pricing with their patients rather than 3rd party insurers, the incentives would change materially in my view.

3. Promote interstate competition for insurance and relaxing minimum benefit mandates
a. Why?
i. More competition for the current large providers could save money; think of how many firms/websites you can buy auto or life insurance from . . .
ii. You have to also implement “2 above” so that new entrants have access to a consistent rate card from suppliers;
iii. Reducing benefit mandates would create lower priced plans that would encourage the uninsured to buy insurance (do I really need drug counseling coverage . . .?)

4. Limit malpractice awards to reduce malpractice insurance rates.

These four ideas would help change the incentives and mindset “not to worry about what it costs”. It’s unfortunate that the genesis of widespread healthcare coverage in this country was driven by tax avoidance/price controls around the time of WWII. Benefits such as healthcare, which had real value, were exempt from these policies and enabled companies to increase compensation while reducing tax consequences. To fix the healthcare problem, policymakers need to encourage healthcare consumers to be engaged in the financial aspects of their consumption or else . . .