One Small Cut for Health Care Costs

The ACA, or Obamacare, does nothing to reduce the cost of health care or even stem the cost increases.  It’s a numbers game to get more people with policies, even if they can’t afford to use those policies when they get sick because of high deductibles and copays.  Now I’d like to look at a few ways those costs could be reduced.

Drug prices are skyrocketing, even for generic varieties.  That’s because many countries have price controls on drugs while the US does not, so US patients are subsidizing drug development.  US patients are subsidizing something else too: advertising.  Many doctors don’t like it when patients come to their office demanding a drug they saw on TV or even self-diagnosing, and many countries don’t allow prescription drug advertising.  Advertising contributes nothing to our health, so let’s end the practice and save some money.  The second way to reduce drug costs is to end a form of price fixing.  When a patent on a popular drug expires the manufacturer can pay off (bribe) generic drug makers to delay introducing generic versions, thus continuing their profits to the detriment of patients.  This needs to stop.

You can’t reduce health care costs by increasing taxes on health care, so abolish the medical device tax permanently.  Right now that tax is only on hold.  A 2.3% tax on medical devices would cause immediate price inflation of more than that amount because of the overhead required to process it.  See my post “Just Because You Can Make It Complicated Doesn’t Mean You should” for the argument against excess overhead.

The country needs tort reform.  Medical malpractice insurance is expensive, in fact, so expensive in some specialties that doctors are leaving their practices.  In our lawsuit-happy country jury awards have become virtually unlimited so insurers have no way of estimating costs.  Doctors are human, sometimes they make mistakes and victims deserve compensation, but that compensation should be reasonable.  With tort reform victims would be entitled to full compensation for actual losses including any out-of-pocket medical expenses but “intangible losses” would be capped at some multiple of the actual loss, possibly in a range of 2-10 times.  The cap could even depend on whether the intangible loss was temporary or permanent.  With a 5x cap a person who suffered $50,000 actual loss would recover the full loss but they couldn’t get more than $250,000 for an intangible award.  This may sound unfair but the “lawsuit lottery” is equally unfair because two people with similar injuries can get very different awards depending on the composition of the jury.  Negotiated settlements are fair but mandatory arbitration is not because it deprives victims of their day in court.  When arbitration pits an individual against a company the company is likely to win.  The cap would be lifted if the harm was intentionally inflicted, in which it would also be a criminal case.  Since few people enter the medical profession to inflict harm that shouldn’t be a common occurrence.  Insurance is a business of numbers and as long as one of  those numbers is “infinity” costs can’t be controlled.

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No Bailout! You Asked For It, You got It, Deal With It.

In “The ACA: If You Can’t Fix It, Tax It” I looked at some of the problems with the Affordable Care Act, affectionately called “Obamacare”.  Recent news articles suggest that the situation is even worse than predicted earlier.  Insurance companies lobbied for Obamacare because they saw a potential revenue windfall.  It hasn’t happened, in fact, they’re losing billions of dollars!  A major health insurer has said it will exit most exchanges in 2017, and if it does, other companies  will follow.  Along with the fact that several state insurance co-ops have gone bankrupt this would mean the collapse of Obamacare.

The insurance companies have an alternative, though: a taxpayer bailout.  Give us the money or we’ll walk.  Since Congress must approve such a bailout our lawmakers hold the future of a flawed law in their hands.  Actually the term “bailout” is inaccurate because that term implies a one-time payment.  What would actually be needed is a yearly subsidy because, as long as people get sick, Obamacare won’t be profitable for a private company.  Once taxpayers have to subsidize insurance companies the country would be running a bizarre “multi-payer-with-single-payer-rules” system with executive bonuses thrown in.

So what’s happened?  Enrollment figures aren’t nearly as high as projected.  While insurers expected lots of young healthy enrollees, what they got are older sicker people with high medical expenses.  This is a direct consequence of the socialist “one-size-fits-all” plan.  Many young healthy people want to buy an inexpensive catastrophic illness coverage plan and pay for routine expenses out of pocket.  Such plans aren’t allowed under the ACA.  Many single men don’t understand why they should have to pay for maternity benefits either, since they’re biologically incapable of ever using them, and women don’t see why they should have to pay for PSA tests.  Some families simply can’t afford the combination of high premiums and sky-high deductibles.  Subsidies may lower the policy cost but not the deductibles, which can top $12,000 a year.

All business decisions involve risk.  In this case the insurers bet the wrong way by making a politically expedient but economically bad choice.  Should the taxpayers be put on the hook for multi-year bailouts of for-profit companies?  Should our tax dollars fund executive bonuses?  Is Obamacare “too big to fail”? If you agree that the answers are “NO” tell your senators and representatives “no bailout, not now, not ever”.

If the law is that bad, fix it or flush it.

ACA: If You Can’t Fix It, Tax It.

The “you have to pass it to find out what’s in it” remark signals a government out of control, as does the fact that the president has amended the law numerous times with no authority to do so.  Let’s look at some of the problems that have arisen while seeing what’s in it.

A “side-effect” of the ACA is the demise of employer-based health insurance plans among small businesses, as well as loss of spousal coverage at larger businesses.  This was probably intended as employer health benefits weren’t taxable while ACA plans are bought with after-tax dollars.  Tax-free benefits have annoyed big spending government officials for years.  Small employers may even give their employees raises to help compensate for the loss of a benefit, but those raises are taxable and may result in the employees becoming ineligible for a subsidy.  This is a de facto tax increase.  The employer mandate will impose a large burden on larger companies with it’s “one-size-fits-all” plan requirements, and their only alternative is, of course, to pay a tax.  Individuals who choose not to be insured will again, pay a tax.  Another tax increase is the medical device tax that hits every provider, and thus every patient who seeks health care.  There are also tax increases on “high income” individuals and a tax on “Cadillac” insurance plans.  So, besides tax increases, what else is wrong with the ACA?

The subsidies, like EITC, can serve as a disincentive to work.  Anyone can look at the eligibility requirements and figure out that if they make too much money health insurance will become a larger burden on their finances and the net result will be negative.  For small employers the ACA provides a disincentive to hire full-time workers.

The word “Affordable” is a misnomer.  The ACA does nothing to control the cost of medical care.  It imposes taxes.  It gives us a thousand new IRS agents in an already bloated agency but not one new doctor to meet an increased patient load.  It fails to include tort reform that might lower doctors’ insurance.  It does nothing to negotiate lower drug costs.  It does not reduce the overhead associated with medical administration and billing that consumes up to one-third of health care costs.  The replacement of group plans offered by small businesses with individual plans will raise costs as individuals have no bargaining power with insurers, providers, or drug companies.

Whether or not premiums are more affordable depends on who you are and where you live.  While some have found lower premiums many more have experienced sticker shock when their old but adequate (for them) plans were canceled and they had to shop on the exchanges.  Unreasonably high deductibles that can range up to $10,000 or more have hit almost everyone.  With high deductibles and co-pays, reasonably healthy people will pay all their health care expenses while the insurance company pockets the premiums and pays nothing.  Is this what they call “wealth redistribution”?  Actually it’s form of rationing as people avoid going to the doctor.

The ACA failed to address monopoly situations as has occurred in NH where a single insurer had imposed a narrow network that excluded many doctors and hospitals.  That situation is relieved in 2015 but a good law wouldn’t have allowed it to happen.  Many people had to switch doctors and travel further for care for no good reason.

Finally there are the many misleading statements that accompanied the ACA, like “you can keep your plan”, “you can keep your doctor”, “costs will be reduced” and even “no new taxes on people making less than $250K a year”.  The cost burden falls mainly on the middle class who make less than that figure but more than what would qualify them for a subsidy.  The ACA also contains a marriage penalty that can be a disincentive to marriage.

Liberals have raised taxes, increased the size of government, discouraged small business health benefits, and established disincentives to work, hire, or marry in order to insure a small percentage of the population that was uninsured.  How is this moving forward?

Before ending let’s look at two things that are right with the ACA.  You can’t be denied coverage for pre-existing conditions.  That was a win for the people because many people are born with medical conditions they have no control over.  Your policy can’t be canceled for being sick.  That’s another win.  Denying policy renewal because a claim was submitted is and will continue to be common in both the home and auto insurance businesses, however.

I won’t suggest a replacement because, in spite of liberal remarks that conservatives have criticized the ACA while offering no alternatives, there are several proposed alternatives that avoid putting the government in charge of your health care.

The best health care plan is not a mandate, it’s the one that works best for you.