Thoughts on Health Care

With the passage of the historic health care bill, and with all the rhetoric, both for and against, I have taken some time to see the good and the bad in this bill. There is a lot to like and there is a lot to dislike. Some of the provisions that govern insurance industry are good, and needed to be done. However, the vast government oversight, and the resulting costs could prove to be quite disasterous.

Insurance Industry Governance
The main thrusts of this bill concern regulation of health insurance and some of these provisions are good. First, insurance companies cannot cancel health insurance of someone simply because they get sick. This is simply unconscionable and needed to be corrected. In addition, lifetime caps will eliminated. As an aside, life insurance companies need the same thing imposed on them. Life insurance policies should not be canceled for people who are terminally ill. Children will not be denied insurance due to pre-existing conditions. While this is good, it comes at a price. Uninsured children will be able to stay on their parents plan until they are 26. Uninsured adults with pre-existing conditions will be able to purchase insurance. Ultimately, insurance companies will not be able to deny health insurance to those with pre-existing conditions. There are many other provisions as well. However, one must be aware that many of these provisions do add to an insurance industry's cost, and these costs will be passed on to the consumer.

Cost Containment
Supporters of the health care bill point out that the bill will reduce the deficit by $138 billion over the next 10 years. Let me say upfront that I utterly reject this figure and the methodology that produced it. I do not blame the Congressional Budget Office (CBO) that put out this figure. The people at the CBO do good work, but their output is only as good as their input. And the input was simply awful. This is a classic case of garbage in, garbage out. What are touted by supporters as "savings" are in fact, taking excess monies from one program (such as Social Security which has $52 billion in higher tax revenues counted as offsets on the health care bill) to count as "savings" for this bill. When you strip out the total cost of these offsets and gimmicks, the bill is actually projected to increase the deficit by $460 billion in the first 10 years and by $1.4 trillion in the second 10 years. And this figure does not include the "doc fix" (the restoration of Medicare cuts), which costs $371 billion. This made the "score" look bad, so it was removed from the health care bill and added to a different piece of legislation.

This bill also assumes approximately $500 billion in Medicare cuts over the next 10 years. What is going to be cut? Over the next 10 years, the population of those 65 and over will soar as the Baby Boomer generation ages, and the demand for health care services will soar along with it. How can you cut so much money from a program that will demand so much more in services? How can you cut so much money from a program that is already running a $38 trillion (yes, trillion!) unfunded liability deficit? This makes no sense and I do not expect these cuts to materialize.

What about this bill's ability to provide affordable health care? Throughout his 2008 presidential campaign, Barack Obama promised to put forth a plan that would save the average American family $2,500/year in health insurance costs? Where in this bill are those savings? Provisions such as the elimination of pre-existing conditions and lifetime caps are costly to insurance companies and they will not absorb the costs. These costs will be passed to policyholders. Businesses with 50 or more employees that do not offer health insurance will incur stiff fines. There are many restaurants that fall into this category that will face fines of up to $2,000 per employee. Either way, this is costly. Starting in 2014, insurance companies will have to pay a fee (actually, a tax) to the government, based on market share. The same thing will be applied to major pharmaceutical companies. This will add to the cost of insurance premiums and add to the cost of prescription drugs. There are no provisions in this bill that aim to rein in insurance costs, no provisions in this bill for tort reform. In short, I see no cost containment of any kind in this bill.

Overall Cost Effect
If you add back the $600 billion in gimmicks described above, the $500 billion in Medicare cuts that I do not see materializing and the $371 billion "doc fix", this bill will actually add closer to $1.3 trillion to the deficit. When you add this to the $1 trillion/year budget deficits the government is already projected to run, it becomes easy to see a black hole. So do I trust the government's numbers? Well, when Medicare was originally passed in 1965, the program was projected to spend $9 billion in 1990 for hospital reimbursements. How much did the government actually spend that year on hospital reimbursements? Sixty-six billion dollars! The government's actuaries were a little off. So, why should I trust the government's numbers this time? As we are entering a time when demand for health care will explode, it is hard to believe that costs will be well contained. Especially from an organization that runs a bankrupt Social Security program, bankrupt Medicare and Medicaid programs, a money bleeding post office, and whose Freddie Mac and Fannie Mae programs were Ground Zero for the financial crisis we just endured and are still paying for.

All this extra cost has a price. Yields on some high grade corporate debt is now lower than yields on Treasury securities. This may indicate that investors no longer look at Treasury securities as AAA rated securities, no matter what Moody's and S&P say. As an aside, Moody's and S&P are whores to the companies and governments they rate anyway, so if the US government loses its AAA rating, the government will simply buy it. Savvy investors will know better. What this means is that the cost of borrowing will ratchet up higher just through poor credit quality. This will likely lead to a weaker dollar and even higher interest rates. And our leaders think we need to spend lots and lots of money on a new entitlement program? I do not get it. God help us if short-term interest rates go to 5%.

Supply of Healthcare Providers
This bill supporters claim this new bill will add 32 million people to the health insurance rolls in this country. That is great that we can make the healthcare system more accessible to all these people. But, what about the supply of healthcare workers to meet all this new demand? Medicare's actuary projects that approximately 20 percent of all Medicare beneficiaries will either go out of business or stop seeing new Medicare patients. Of course, we have all heard anecdotal stories of doctors who will quit practicing medicine if this bill passes. Meanwhile, will medical schools crank out enough doctors to meet the increased demand? Maybe. Not a reassuring answer, but that's the best answer available right now. Will they crank out enough quality doctors to increase the quality of overall care in the system? Not likely. I do not blame the doctors for this. Many doctors are already working long days, seeing patients in a cattle call type of fashion. It is the best they can do. This situation will not be relieved by the new bill. It will be made worse. Doctors will need to be more highly compensated for their extra time. Once again, this will add to the overall cost of healthcare.

Summary
Healthcare reform (or more accurately, health insurance reform) is something most Americans desire. Freedom to choose their own doctors (which this plan provides), freedom to choose your own plans (which this bill does not provide). But one with massive government involvement is something we as a people do not want. Opinion polls about this healthcare bill consistently showed that about 70% of the population was against it. This bill will provide layers of bureaucracy, permanently higher taxes, astronomical debts that our children, grandchildren and generations of our families will inherit just from this bill alone. Simply put, this was a bad bill, and health insurance reform could have been accomplished much more simply and inexpensively.