A friend of mine knew that I was a panelist of the Minnesota GOP Health Care Alliance. He asked me a lot of probing questions about the new health care law known by its nickname "Obama Care." I told him that his questions required a long answer and promised to write. Joe was a Thiladomide victim. His right arm is shrunk and barely functional. His disability affected his children. He and his children have pre-existing conditions. I suggest that you first read an earlier post on this blog titled "Insurance - What it is and What it is Not." Here is the direct link.
NOTE: Original letter written in 2010. I updated it.
Dear Joe (not his real name),
Health care is a complicated subject. I have not wrapped my mind around the whole problem. What follows is a summary of my current state of knowledge and understanding about the subject and its place within the broader economic picture. This is a long read, but I have a lot to say, even in summary.
First of all, the collective citizenry of our nation needs to answer some tough fundamental questions:
- Is health care a right, a privilege, a service, a part of employer compensation, something else, or a combination of the above?
- For whom?
- Within what limits?
- Who owns the problem?
- Who pays?
- What are the consequences?
Size-up of the situation
I am concerned about:
- The staggering deficits the USA already has on its books,
- The balance of payments deficit, especially with Communist China and Japan,
- The impact of unprecedented additional entitlements in the works,
- The ability of foreign nations to buy our country’s assets with our own money (including shareholder ownership of our defense industry companies),
- The deterioration and technological obsolescence of our military equipment,
- Our vulnerability to cyber warfare,
- The potential loss of the scientists and engineers that make our country the best military force on this planet,
- Continuing high unemployment for another two years with stagflation for another 15 years,
- The effect of monetary inflation upon our economy,
- The growing shift of mental disposition of our adult population from interdependent minds (We will take care of each other) to dependent minds (You take care of me),
- The steady erosion of our civil liberties and personal freedoms,
- A shift in government philosophy from a limited Federal Constitutional Republic focused on States Rights toward unlimited Federal Government focused on socialism with no States Rights,
- A decline in religious beliefs along with a rising level of intolerance,
- A decline in the balance of power within government, and
- An unwillingness to collaborate.
The Economic Consequences
Inflation has steadily sapped our economic strength and continues to do so. For example I could buy a 1-1/4 pound loaf of bread for 34 cents in 1965. Yesterday, I bought the same thing for $3.29 ON SALE. I found wheat bread priced as high as $4.25 per loaf. In 1965, the Gulf Coast spot price for a gallon of gasoline before taxes was 18.5 cents. It now hovers around $3.60 per gallon.
Congress raises the debt ceiling and the Federal Reserve (FED) buys the debt as lender of last resort. This almost guarantees a National Debt of over 16.5 trillion dollars by the end of the fiscal year, and a $21 to $24 trillion dollar balance within two years. We also have about $115 trillion already obligated in future entitlements. 48 cents of every dollar the US Government spends is borrowed. This economic madness has to stop. It will not stop so long as we try to solve the wrong problem with the wrong remedies, throw good money after bad, and wreck our economy in the process.
The audit of the Federal Reserve (FED) by the Government Accounting Office (GAO) revealed that the FED loaned $10 trillion dollars interest-free to several European banks allegedly to keep them solvent. Another $4 to $6 trillion is in international circulation to support international trade. Communist China is now trading with its partners in Yuan, not US dollars. Russia is selling its oil to China for Yuan, not US dollars. Iran is selling its oil for gold bullion, not US dollars. That $4 - 6 trillion is going to come home to roost. Given that it is fiat money (not backed by anything valuable), they only can spend it in the USA because no one else wants it. Foreigners are buying our capital stock (e.g.: farm land, mineral leases, common stock in US corporations) with it. US investors, unsure of our government's domestic policy, are unwilling to invest. Foreign capital is investing in USA.
The current health care reform bill will make matters worse, not better. It could be “the last straw on the camel’s back” that sinks our economy into a dreaded “W curve” recession similar to the mid-1930s. It is a bill nobody wants that is not even equally unfair to all. Congress also plans nothing to curb the root causes of health care costs.
The Root Causes of Health Care Costs
- Tort law,
- Statute of frauds,
- The Waxman-Hatch Act,
- A 10 to15-year FDA approval process for a single prescription drug,
- Patent law protection limits. and
- Frivolous lawsuits for prescription drug outcomes and medical malpractice.
Tort Law and Prescription Drugs
Tort lawyers are compensated with a percentage of the award, not for the work they do. They love class actions. Lawyers have received as much as $70,000 per hour per lawyer for their tort law services in class action suits. The legal system does not punish the people that perpetrate a drug company tort violation. Instead, it punishes the customers and shareholders of their employer. A corporate copyright protects for 50 to 100 years. An individual copyright protects for life plus 50 years. A drug patent protects for 18 years before a generic drug company can use the disclosed recipe to manufacture and sell the drug at 95 percent off its protected price. Prescription drug companies have only about 5 to seven years to recover the $1 billion investment to develop, test, and bring to market a single successful prescription drug. It takes them that long to obtain FDA approval once patent protection begins. For every successful drug, 9 are duds. Therefore the prescription drug investment hovers around $10 billion. Revenue to pay for this investment begins to flow 10 to 15 years out.
Tort Law and Malpractice
Most States do not require any peer review to weed out frivolous lawsuits before they can be filed. Runaway Juries award huge damage awards based upon outcomes, not malpractice. The insurance company has to pay for the insured medical practitioner who is convicted of medical malpractice. That increases the insurance premiums for every practitioner within that risk pool. That cost has to be passed onto the patients served by medical practitioners within that risk pool.
Tort Law Observation
Politicians are not about to address tort law reform because the trial lawyers finance a huge part of their election campaigns. They can afford to do so because they receive obscene compensation for the work they do. Also, most politicians are also lawyers by professional training. They protect their own. They may need these relationships when they leave office.
Medical Service Delivery
If a doctor accepts a Medicare or Medicaid patient, the maximum fee the doctor can charge for service is the amount allowed on the Medicare schedule, even if the patient is not eligible for medical reimbursement under Medicare or Medicaid rules. The Medicare reimbursement schedule is already below the doctor’s full-absorption cost. it was reduced by another 29 percent across the board in 2010.
It takes a medical doctor at least 7 years of formal training and at least $250,000 to pay for that training before they are allowed to practice medicine. Then they have to buy equipment, instruments, hire technical staff, affiliate with a hospital or clinic, and incur the liabilities and risk of running a business. A big portion of their cost is malpractice insurance. For example, about 50 percent of an anesthesiologist’s fee is malpractice insurance premiums. About 65 percent of a neurosurgeon’s fee is malpractice insurance premiums. The premiums are that high because of the frivolous lawsuits that go to trial, with runaway juries awarding damages for outcomes instead of malpractice. There are reasons why lawyers are nicknamed “ambulance chasers.”
Welfare recipients use hospital emergency and urgent care services for unreimbursed free health maintenance services that are not emergencies. Why, you ask? State Law and/or unfunded Federal mandates require it. The people who have insurance pay a higher cost for hospital patient care to cover the costs of the free care. Emergency care and urgent care are the most expensive forms of health care delivery. It is severely abused.
Impact on State Finances
States have enough unfunded mandates from the Federal Government to make financial solvency almost impossible in today’s economy. At least fifteen States sued the US Government claiming that the new health care bill is unconstitutional. Unfortunately, the new health care bill survived its most severe Constitutional challenge. Also, another $500 billion was stripped from Medicare to finance Medicaid. Who absorbs that cut? Also, the States will have to absorb the mother of all unfunded mandates unless they opt out of the new health care plan, nicknamed “ObamaCare.” To date, 34 States plan to do so. Many States will have no other choice but to opt out, to avoid bankruptcy.
The wrong incentives
The Insurance Provider Perspective
Health Maintenance Organizations (HMOs) were supposed to promote wellness. They actually used their economic power over health care providers to reduce healthcare costs for their corporate clients.
Insurers compete for the corporate business. They do so by evaluating their risk based upon the health risk properties of the employees they would insure. Any known chronic health problem they find is excluded from the bid as a “pre-existing condition.” They even call obesity a pre-existing condition (which it is not). Insurers can adjust their premiums for a given company based upon the prior year’s claims experience. This practice minimizes the insurer’s long-term risk. This practice also gives insurers a bargaining chip to bid successfully on corporate clients with lower claims experience.
A true pre-existing condition is not a risk; it is a certainty. Insurers do not insure certainty. They sell policies that cover pools of insurable risk. Not all risks are insurable risks. Health maintenance is not an insurable risk. It lowers the likelihood of an insurable claim.
Hospice care and life-support for terminally ill patients are financial sinkholes for insurers. That motivates them to encourage an early death, not prolonged life. ObamaCare rations health care. The old just get "comfort care." The defective unborn get mandatory abortions.
The Employer Perspective
Employers try to avoid paying for certainty. Large employers control healthcare costs through self-insurance backed by a high-deductable underwriter. Existing law encourages them to discriminate against older applicants and applicants with pre-existing conditions. Existing law encourages employers to keep their median age of employees as young as possible. Everyone who pays insurance bills or manages claims knows that older employees consume more health care. Ergo, businesses are motivated financially to limit employee access to health care coverage through contract employees, part-time employees, and outsourcing.
The Employee Perspective
If an employee or covered family member develops a chronic condition, the employee is stuck. If the employee changes jobs or loses their job, the chronic condition becomes a pre-existing condition. Once COBRA coverage expires, unemployed families lose healthcare coverage at a time when they could least afford to lose it. The US Government makes matters even worse. Company-paid health care costs are a tax-deductable expense for the corporation. The health care recipient pays for health care insurance and most if not all health maintenance with after-tax dollars. That is blatantly unfair.
The Morality Issue
- Physicians took the Hippocratic Oath to “do no harm.” A physician should not be forced or intimidated to perform a procedure that violates his or her fundamental religious principles or violates their professional oath.
- Taxpayers should not be forced to finance (directly or indirectly) procedures offered in public health plans that violate their religious principles.
- Insurers should not be required to cover “elective” procedures or “recreational” drugs in their policies. No taxpayer funds should be used to finance recreational drugs and beauty-enhancement cosmetic treatments that are unrelated to a person’s state of health and wellness.
- No taxpayer funds should be used to finance public subsidy of abortion, euthanasia, or assisted suicide. Physicians should not be required to perform these procedures.
However, the new health care bill essentially repealed the laws that prevented partial-birth abortion, harvesting of stem cells from human eggs fertilized in vitro, and other morality issues. It also endangered protection of physicians from being required to perform procedures and treatments on patients that violate their Hippocratic oath and their moral convictions. Politicians say that this is a lie. The language of the bill says otherwise.
The above are a sample of what is wrong with current health care policy and the proposed remedies in the health care reform bill. A complete list would be as long as the health care bill. Now I am going to shift the discussion to suggested solutions.
Ideas for Solutions
How to Reduce Health Care Costs (including Government single-payer coverage)
Health care has at least the following components:
- Public health services (e.g.: pandemic disease control),
- Health maintenance (e.g.: dental and physical exams, aerobics, vaccinations, diagnostic tests, maintenance meds),
- Chronic health issues (e.g.: birth defects, mental disorders, permanent injury, pre-existing conditions),
- Optional medical procedures (e.g.: cosmetic surgery),
- Ethical and Moral health issues (e.g.: stem cell harvesting, abortion), and
- Insurable health care risks (e.g.: emergency and urgent care, surgery, trauma care).
Each component needs its own unique solution. Certainty is not an insurable risk. A regimen of health maintenance along with a healthy lifestyle promotes wellness and reduces insurable risk. Employers should not be brokers of health care. Health care investment should be the property and responsibility of the individual or family group.
We should change the economic incentives that make health care so expensive to incentives that make health care more affordable.
FDA approval of prescription medications, treatment regimens, medical devices, etc., needs to be consistent with the processes followed by other nations. Fast Track should become the norm, not the exception. Drug companies have almost half the patent life and twice the development expense of other nations. That gives US prescription drug manufacturers more development expense to recover in half the time patent protection allows them to recover their investment. An alternative is to amend patent law for anything requiring FDA approval to start the protection countdown when FDA approves the drug for sale, not when the patent is granted. This also would require amendment or repeal of the Waxman-Hatch Act,
Attorneys should be compensated based upon the work that they do, not the size of an award. People should not be allowed to file frivolous lawsuits and should be punished if they try to do so. This implies that all legal actions must pass technical screening by independent professional peers before filing them as a legal action. The Statute of frauds should address executive compensation of publicly-held corporations and non-profit corporations. It also should address compensation of lawyers in lawsuits.
Criminal law, not tort law, should be used to try actions involving prescription drugs or medical devices. If a drug company’s management misbehaves, punish the company’s management, not the stockholders and the corporation’s customers. A physician should not be guilty of malpractice for an undesirable outcome if the physician correctly followed an established medical treatment regimen.
US Lawmakers should be enrolled in the medical plan prescribed for Government employees in the State of their jurisdiction, to ensure a separation of power. The Government should not tax income spent for health care insurance premiums, medical devices, prescription drugs, health maintenance services, or uninsured medical costs paid out of taxpayer income.
A Better Idea?
The Singapore health care program provides equivalent quality of health care as the US system at about half the cost. Every citizen or family has a personal health savings account (HSA). They contribute monthly payments into this account until it reaches a maximum level based upon their age. After that cap is reached, they do not have to pay. Health care expenses come out of that account. If they die, the account balance can be transferred to a beneficiary’s HSA account. There is also catastrophic health care insurance. I am not sure about the details, but it works for them.
If our Government wishes to care for the working poor, the impoverished, and disadvantaged, they could use a voucher program based upon need that goes into their HSA. Our Government could be an underwriter for catastrophic health care insurance for privately-insured individuals. However, Government should not be allowed to run health care programs or have a so-called “public option.” That is the first of a three-step plan to install a mandatory single-payer program for the private sector.
For your consideration,
PS: It is not much comfort to know that the bow of the ship is out of the water if the stern is sinking. Are we rearranging the deck chairs on the Titanic?
PPS: The surest way to make the new system cost more than the old is to pioneer the wrong thing. The surest way to make a project fail is to let a politician design it.