Essays from the Heartland - Number 2 - Universal Healthcare

Essays from the Heartland

Number 2

Universal Health Care

“Who is against universal health care?” Nobody. Being against universal health care is like being against Mom and apple pie - maybe worse, because a lot of dieters won’t eat pie of any kind, and some poeple don’t like their Moms (not me, I love pie and my Mom!). Being against good quality health care for people who need it but can’t afford it is close to being for racism. It just isn’t done.

Now change the question slightly: “Who wants to pay for everybody else’s health care?” Hmmm, not many hands go up. Darn few, in fact. Take away those who have their hands up who can’t pay, and the raised palms begin to resemble scattered weeds in a freshly mowed lawn.

The key question about universal health care is not who wants it, but how to pay for it.

Obamacare expands coverage by fiat, and proposes to pay for it by limiting both treatment and fees through federal regulations, passing costs off to the states, imposing mandatory participation, and levying more taxes. It is a Commodore Perry “damn the torpedoes” ideological approach based on the conviction that all persons should have access to the same level of health care, costs be damned. Unfortunately, Obamacare costs more, lots more, than the existing system.

Aside from cost, there are many other problems with this “solution.” First, history teaches that a highly regulated system almost invariably benefits most those with influence, those with access and money, i.e. the providers and the rich, and rarely ends by benefitting those of more modest means, i.e. Jack and Jill average patient. Many predict that the combined factors of influence, regulation and cost will ultimately result in a bifurcated health care system, with gold plated health care for the very privileged, and bargain basement healthcare for everybody else. Another problem is that there are not enough doctors to go around to meet the demand of the newly enfranchised, and medical schools cannot produce them fast enough. It takes something like 30 years to produce a new one.  That’s called a bottleneck.

And then there is the unintended consequence, something Obama and I-didn’t-read-it Pelosi didn’t count on. A simple management principle that they never learned because they have never run anything is that people trump rules, every time. That truism is the basic premise of every comedy based on military life, the most regulated existence there is outside of prison, from Red Buttons to Sergeant Bilko to Stripes. Only Obamacare is not a comedy. Obamacare relies on a set of brand new taxes to raise revenue to offset its costs. Increased taxes and tax incentives both change behavior in significant ways. The new taxes will change the behavior of those taxed. Behavior will change to avoid those taxes, and those changes in behavior will also have unintended and unforeseen consequences. For example, one of the key “enhanced revenue” measures to pay for Obamacare is the new tax levied on employers for those who do not have employer provided health insurance. A recent survey of retail and wholesale companies that offer medical insurance to their employees showed that a whopping 67% plan to change their “hiring strategy” in response to Obamacare. Exhibit A of this change in strategy is the “29er”. Obamacare mandates that everybody who works 30 hours or more per week must be covered beginning in 2014, and starts measuring hours worked in 2013. The obvious 29er strategy is to keep hours worked below the magic 30 hour threshold. That in itself will have major unforeseen consequences, even though it would be difficult for large employers to adopt en masse. However, there is already a mutation of this strategy that is quite ingenious and works for large and small employers alike: competitors have started to share employees. A burger flipper works 20 hours at Joe’s Burger Bar, then the rest of the week reports across the street to Burger King to do the same job; next week, repeat. Both employers get their 40 hours of work per week and avoid the costs of Obamacare. Pretty ingenious! Bet they didn’t think of that one at 1900 Pennsylvania Avenue! Pretty soon the managers will figure out that they can do even better by having that same employee work 25 hours at both places. The employers will get 50 hours of work, escape paying 10 hours of overtime, and will not pay health coverage. Hey, if they do this for 4 employees, they can even eliminate a 5^th job entirely! A 20% cut in labor costs, no overtime, no health insurance, wow, maybe we can all get back to a $3 hamburger. Of course, each burger flipper will have to work 10 more hours per week, make no overtime and get no health coverage. Life sucks for you, buddy. Great solution, huh? No problem, the Department of Labor or the new bureaucrat Obamacare Nazis or, more likely, both can fix that with more regulations. Great.

And so it goes. Rock, paper, scissors. Regulation, reaction, more regulation. There has to be a better way.

The US health care system is not all wonderful and does need change. It leaves a lot of people out. It’s a mess. A little due diligence reviewing articles over the last decade will provide you with inexhaustible reading to put you to sleep at night, documenting all the limitations and problems with the US health care system. However, quality is not one of them. US health care is still the solution of choice for people around the world who can afford the best. They come here, not “there.” The problems with the US healthcare system boil down to two things: cost and access. These are the two things that virtually everybody can agree on. Another point of nearly universal agreement is that patients, the health care consumers, want to preserve their doctor-patient relationship. Patients don’t want either some distant government bureaucrat or an impersonal insurance company functionary determining what their treatment can be from a menu of approved treatments and formularies. Patients want their doctors to work this out in consultation with them.

While there is definitely a need for government intervention to unravel this Gordian knot, before turning it into a government-run health care system we should contemplate the fact that government itself created a lot of these problems with all of its regulated programs such as Medicare and Medicaid. How much time does the average doctor spend just filling out forms rather than treating patients? I am not suggesting that these are bad programs or that they should be dismantled. Not at all. To the contrary, overall access to medical care is much better than the situation prevailing before these programs were enacted. That doesn’t mean more of the same is the right solution for the problems that they helped create. A government run health care system is the model that Obamacare emulates, but they are not so wonderful. Love the European model? So how come so many Europeans have lousy teeth? Love the Canadian model? So how come so many Canadians try to come to the United States for treatment because their number hasn’t come up for the treatment they need? How come Canada was losing doctors emigrating to the United States where they could practice medicine without the government telling them whom they could treat and when and how much they could charge? Government can make things better, not with the suffocating hug of bureaucracy but by enacting the right incentives to point the free market in the right direction.

There is another rule of management applicable to regulation of health care: the KISS principle. For 99% of Washingtonians who have never run anything and 100% of the Supreme Court (believe me, they have never taught the KISS principle at either Harvard or Yale Law School), that means Keep It Simple, Stupid. Observe an application. Lee Kuan Yew, the first Prime Minister of Singapore, faced a thorny problem of too many cars in too little space. Pollution, congestion, all those bad things. As far as I know, Singapore does not have a Department of Transportation with overlapping authority with several other agencies, each of which has reams of regulations and legions of bureaucrats to write, interpret, research and enforce them in order to solve the problem of traffic congestion. Instead, Singapore enacted two measures; 1) they limited the number of cars in the country, and before you can get a license plate for a new car, you have to turn in the old car and its license plate; and, 2) to drive in certain parts of the city at certain times, you have to have a special plate allowing you to do so, and a certain number of those are reserved for taxis. Problem solved. You don’t see any junkers spewing black smoke into the environment in Singapore. Traffic jams are minimal. No new bureaucracy. Their equivalent of the Department of Motor Vehicles just issues license plates the same old way, and the police continue enforcing the traffic laws. A smaller percentage of the population can own cars, which created a groundswell for reliable, safe and clean public transportation. Meanwhile, they let the market sort out who has cars and who can drive them downtown during rush hour.

A few simple rules, and let the magic of the free market work it out. Oh, but health care is different, it’s much more complicated. Baloney. The hidden hand of the free market has solved much more difficult distribution problems than this. The free market always functions better than a command-and-control regulated economy. That’s not just Adam Smith’s theory, it was pretty conclusively proved in the 50 year competition between the Communist Block and the Western Democracies following World War II. What a laboratory. Ravaged Europe divided down the middle between the capitalist West and the socialist paradise of the East, Taiwan-South-Korea-Singapore-Japan vs. China and North Korea, Chile before and after Allende and Pinochet, the comparisons go on but the result is always the same: the performance of a free market destroys state-directed rivals. Want wonderful medical care? Go to Russia. Right.

There are (were?) other solutions in the works right here in the US. Drs. Fisher and McClellan, and Mr. Shortell have written glowingly about Accountable Care Organizations. There are something on the order of 320 “ACO’s” operating in the US on the principle that the health provider can keep savings he/she/it generates only if he/she/it can demonstrate resulting improvements in the quality of the health care provided. There is another management principle applicable here, “If you can’t measure it, you can’t manage it.” Insurance company records are used to track, and document the medical results of the innovations in less expensive health care techniques, such as home health care monitoring and use of smart phones instead of doctor office visits. ACOs are loudly criticized by others as a loony leftist boondoggle. I don’t know the merits, that’s not the point. It’s an interesting idea actually being tested in real markets to incent health care savings without a new bureaucracy while preventing erosion of the quality of health care service.

Another less “scientific” measure is something that almost every business was beginning to adopt in response to rising health care costs before Obamacare was adopted: increased co-pays and deductibles. The idea here is simple: the group insurance system had forcibly divorced patients from the cost of their own health care. Instead of the patient making choices as to how to spend his or her health care dollar, the incentives were to use up your health plan deductible and then go for everything possible that the health care provider offered as a possible treatment because “the insurance company will pay for it.” Why not? I have paid my premium and my deductible, and I want to get better. You have probably seen or heard television or radio ads by dentists and chiropractors urging people to come see them in December before their annual limit expires - it’s the same thing, unbridled costs because there is no disincentive to the consumer. By increasing the co-pays, employers were trying to incent their employees be engaged in their own health care decisions and to make choices based on individual costs and benefits that directly affected them. Yes, there are problems with this approach, not the least of which that it does not address the need for increased access to health care by the unemployed. But tell me: would you rather pay 10-20% more for your prescriptions and have the choice of whether to go with a generic, or be ordered to take the generic and pay a $3,900 payroll tax to Uncle Sam? Be able to make an appointment with a doctor of your choosing and pay $25 for the visit, or wait several (more?) months for a no-cost appointment with a doctor assigned to you?

These two examples are potential partial solutions do not require a bureaucracy. They didn’t even require government intervention. They do not require taxes that bankrupt the economy. I am sure there are many more ideas in play whose effectiveness can only be proved by the real test of the free market.

And here is an interesting question to ponder. We are told again and again that the US spends more on just about everything, including healthcare, than other industrialized countries. In fact, the United States in 2006 spent almost 16% of its GDP (Gross Domestic Product) on health care. That’s 16% of the largest economy in the world. France spent only about 11%, Canada 10% and the UK, Australia and Sweden all hovered between 8% and 9%. So how come Obamacare,  which is supposed to make things all better by making us just like them, is costing us still more money?

This may be at least partially explained because Obamacare is not health insurance. Its health care coverage. We have been conditioned to think of health coverage as insurance because that is the way it has been handled for years, and Obamacare involves “insurance pools” and “insurance exchanges” and in theory still relies on private insurance companies. However, the essential nature of insurance is a true pooling of risk: we all pay something into the pot, but only those who actually get sick draw down benefits. Some do not get sick, and their contributions go to cover the large health costs of the unfortunates who do really get sick. Fundamental to all of this is that some health problems are not covered, and everybody must pay. Non-coverage makes the overall plan affordable, and everybody pays to pool the risk of what is covered. These are the “exclusions” in the health insurance policy, and the “donut hole” in Medicare, and they are there for one simple reason: covering everything is way too expensive. Obamacare removes all kinds of limits on what is covered, including such things as pre-existing conditions. There is no risk in coverage of a pre-existing condition: it is a certainty. It’s pre-existing. Government run health plans today, as exemplified by those offered in state universities and in states such as California, cover virtually everything, including “procedures” that private health plans virtually all excluded as “personal choice.” Oh my, think of that! Yes, that procedure is medically available, but we are not going to pay for it because the condition that is to be addressed is not life threatening. If you want to have it done, pay for it yourself. What Obamacare purports to deliver is more coverage of conditions for more people. With most people covered for most things, the insurance risk based on health conditions moves closer and closer to zero. Where is the risk? With no risk, everything is covered, so costs must go up. What is left for spreading the risk is timing: do you get sick now or later, as either way you are covered.

So Obamacare hits the US health care system with a double whammy: it drastically increases what is covered at the same time it dumps millions of more covered people into the system. More covered people plus more covered procedures equals higher costs. One of Obamacare’s solutions to this problem is also the most controversial aspect of the program: mandatory participation.  For the most part, this is aimed at younger people. Typically, the older the pool of participants, the more illness there is to cover, and so the higher the insurance premiums must be for all participants. From an actuarial perspective, Obamacare’s impulse to require everybody to participate is theoretically sound as it forces younger people to participate who generally don’t need coverage immediately, and who often have made a very rational personal choice by waiting until they are older to seek coverage.  Supporters of mandatory participation accuse the young opt-outs of “gaming the system” by doing this, but that is not necessarily accurate if they would pay an appropriate premium when they do enter the healthcare market. Their premiums should be adjusted for their age and the shorter period over which their premiums can be collected and banked when they do choose to participate. It is like life insurance, the later you wait to buy the policy, the more expensive are the monthlies. The delayed participation of the younger population may force participation costs higher in the short term because a pool biased toward older people does not have the benefit of drawing on premiums from healthy younger people, but that is not the same thing as gaming the system, that is a just a timing imbalance between  income and expenses.

However, the impact of these new participants is greater than their simple numbers. Most of the newly covered are below the “poverty line” and/or unemployed, or if they are employed, are at the beginning of their careers when they make the least, and so they are functionally unable to pay their own freight. The triple whammy of their inability to pay shoots a huge hole in the actuarial justification for their inclusion. They become a burden, not an asset to the health care system. This problem also arises with respect to the costs to be passed on to the States. Does anybody seriously believe that California will be able to pay additional costs to health care? It is already bankrupt. What moron can put that in the budget as a source of funds for Obamacare?

More covered people plus a lower percentage actually contributing to the cost equals higher premiums for those who actually pay. Your “fair share” just went up.

We are told we must wait for years and then we will see the “real cost savings” resulting from Obamacare. How many times has a government program cost less over time? Uhh, let me count…Can you think of one? I can’t. The promise of lower ultimate costs depends on health cost savings to be derived from broader early treatment of illness and disease. But who guarantees that a person with coverage will actually seek early intervention treatment? There is a direct corollary between higher education and higher incomes, and we have universal free education through secondary school, but that has not stopped an alarming high school drop out rate. People simply do not always do “what is good for them.” So what’s next, mandatory annual check-ups for all the mandatory participants? And if they don’t follow the prescribed treatment, forcible treatment? Do it, it’s good for you!

What is certain is that the mandatory participation policy restricts freedom. Forcing somebody to do anything is an infringement of their freedom of choice. Obamacare forces people to participate in (read, fund) a health program on the basis of a theoretical reduction of costs for older persons’ medical care by having younger people receive preventive care. Government should not be able to force me to spend my assets in a required way “for my own good.” If we are to preserve a free society, we must be willing to let people suffer the consequences of their own bad decisions. An individual should be allowed to make and then be accountable for his or her own decisions. If the social policy is instead to protect everybody from the consequences of their bad decisions, that policy both encourages bad decisions by removing the adverse consequence to that individual and makes the rest of us shoulder the consequence by paying for it. That is not insurance. That is just bad policy. Some of us may remember Aesop’s fable of the grasshopper who fiddled all day and the ants who worked all day, and the consequences to the grasshopper when winter came. That is the way our society has been organized since the dawn of Greek civilization, and I can sleep with that. If a person chooses not to purchase health insurance and wanders into the emergency room later in life in bad health that theoretically could have been prevented or improved by earlier intervention, well, whose fault is that?

What Obamacare delivers is more coverage, more cost and fewer payers. Something has to give somewhere. The most obvious place for more money is higher taxes on those who can pay. The most inevitable place to reduce expense is restrictions on treatment, or medical service rationing. Neither is desirable. In a youth oriented society, with a higher and higher percentage of young people coming from broken homes, where parents are increasingly absent from the rearing of their own children, and where “old folks” are increasingly regarded as more of a burden than an asset, where rationing will hit hardest is pretty obvious, too: the elderly. They are the ones who cost so much to take care of and they have already lived their “useful” life. Of course, they are also the ones who paid into the system for all of their working lives. Is cutting the coverage to the ants more morally justified than denying it to the grasshopper?

The fundamental problem with Obamacare is not that people want to deny access to health care to other people. It is the extraordinarily high cost of universal health care and making people pay for other people’s health care. The only solutions that Obamacare uses to close the cost gap are higher taxes through the wildly unpopular mandatory participation, employer tax penalties, and federal regulations. Are those the only solutions available? No. Instead, why not address some of the structural aspects of the US health care system that contribute to its high costs, or that might produce more revenue? Why not have a serious conversation to address:

• Tort reform; unless you have been living under a rock in the desert, you are aware of the extremely high costs of medical malpractice liability insurance, and malpractice liability that is actually driving doctors to abandon practices in certain regions of then country. Most doctors try to help their patients. Their oath is first to do no harm. Should doctors and hospitals be liable for huge damage awards when they make mistakes in good faith?  The American Trial Lawyers Association is a powerful opponent of tort reform, but are you aware that less than 50% of very tort dollar actually gets to the tort victim? Instead of our current tort lawsuit system, what about a no-fault patient’s compensation system modeled after the well established and generally successful worker’s compensation system that prevails all across the country? What about immunity or capped damages for pharmaceutical companies that have their drugs approved by the FDA, require warnings to patients of risks and benefits, and monitor closely for unintended side effects, simultaneously mandating that the lion’s share of saved liability dollars got o reducing the prices of drugs to patients? Isn’t that a better solution than taxing device medical device manufacturers for successful innovations?
• Illegal immigrants; unless you have been living under the same rock, you know that there are somewhere between 10 and 12 million illegal immigrants living in our country. There have been numerous studies showing the enormous financial burden these people place on our country’s infrastructure, including our health car system, a burden for which they do not pay their “fair share” because they are underground. Addressing this issue would both reduce costs, and increase revenues by bringing them “above ground.”
• For-profit hospitals and institutions: I am all for profits, but I am uncomfortable with profits based on patient care. It seems to me profits for health care may create the wrong incentives, and results, colliding with what should be the primary objective of a hospital, the patient’s welfare.
• The shortage of medical professionals: In the 1960’s, the ABA and the AMA were both concerned about their respective professions being “socialized” – exactly what is happening today with medicine. In the era when civil rights issues were paramount, the concern regarding legal services was pretty much the same as the concern regarding health care today, that they were available only to the rich and there was inadequate access for the poor. The response of the legal profession was to create more lawyers, to accredit more law schools, to create posts such as the Public Defender’s Office, and to invent new legal service jobs, such as paralegals. I don’t know of anybody today who complains that there are not enough lawyers or that nobody has access to legal services. On the other hand, the medical profession continued, and continues today, restrictive policies with respect to the number of medical schools and the number of doctors who graduate each year. Nursing schools, physical therapy and physician assistant programs are all notoriously difficult to get into. Why do you think Aruba now has a medical school? General practitioners are a shrinking percentage of doctors as more gravitate toward specialties. Why not consider the solutions that the legal profession adopted 50 years ago? As more and more lawyers were unleashed on the country, the less “desirable” niches gradually became filled. If anything, the US now has a glut of lawyers. It costs less today to write a will or form a  corporation than it did 40 years ago – incredible, but true. Instead of regulations as to when people can receive what medical treatments from whom, a better solution would be to address structural factors to create more medical practitioners, and allow competition to reduce the costs of their services as it does for every other service offered in the US economy. Instead of mandatory participation in government run health care, why not consider tax incentives or even mandates requiring each state to produce a certain number of doctors and nurses per unit of population? Let the states figure out the best way to achieve that objective. Tap existing but unused reservoirs of trained medical personnel. While riding on a shuttle to Midway Airport in Chicago recently, I was talking with the bus driver, who was a twenty year veteran of the Navy. I was shocked to learn that the medical profession does not recognize the experience of medical corpsmen in the military services as adequate qualification for a veteran to become a nurse. Are you kidding me? Change that. Rather than family ties, change our immigration laws to give preference to those who have medical training.

“Who wants to pay for everybody else’s health care?” The answer doesn’t matter. Politics is who gets what. Despite all of the rancor about Obamacare, we do have a national consensus on four points regarding health care: 1) those who have it like the quality of their health care, 2) good health care should be more broadly available, 3) our health care should cost less, and 4) health care should be rooted in the doctor-patient relationship. Obamacare addresses only one of these, and adversely affects all the other 3. It is a lousy “solution.” However, President Obama may have done us all a favor by focusing our attention on the problems with our health care system, if only our leaders (and I use the term advisedly) would sit down and hammer out a real solution. Starting from those four points of agreement, intelligent people working together should be able to do better. Much better.

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