Archive for June, 2009
MR. PRESIDENT, NONPROFIT DOES NOT MEAN NO PROFITS
During his extended TV appearance on ABC news last week, President Obama defended his idea for a public health insurance plan. He said one of the reasons it will be competitive with private insurers is that, as a nonprofit government sponsored enterprise (GSE), it will offer lower premiums, since it won’t have to earn any profits.
His statement echoed a widespread misconception that nonprofit health insurers, hospitals, and co-op health plans are somehow a better deal for consumers because, without shareholders, they don’t need to earn profits. It is true that for-profit businesses strive to earn something we call profits, but it is equally true that nonprofit businesses work just as diligently to earn equivalent surpluses. Both are the excess of revenues over expenses.
What’s the difference between a profit and a surplus? Just this: the former is taxable and the latter is not. Either way, profits/surpluses are a necessary requirement for any operating enterprise if it is to be a self-sufficient, unsubsidized economic entity. That’s because profits/surpluses are necessary for repaying debt, building reserves against potential losses, buying new plant and equipment, and expanding to meet increased demand.
PRESIDENT OBAMA TO AMERICA’S EMPLOYEES: YOU’RE FIRED!
A key feature of President Obama’s proposed public health insurance plan is the employer pay-or-play mandate that would require America’s companies either to provide employee health insurance or to pay a penalty tax or fee to the government. The purpose is to prevent employers from dropping their health insurance and dumping their employees on the public plan. It won’t work. Companies survive by selling things for more than the cost of making them. Producing and selling things require paying employees. Long ago, an employee’s pay was whatever he took home at the end of the week. Later, employee compensation expanded to include various so-called “fringe” benefits, most notably health insurance.
WE INTERRUPT THIS COMMERCIAL FOR A BRIEF MESSAGE FROM PRESIDENT OBAMA
Wednesday night (6/24/09) ABC News ran a special commercials marathon with frequent and brief interruptions by Charlie Gibson, Diane Sawyer, and others to ask President Obama about his health care reform plans. The commercials were more informative.
But a few points leaked out that did illuminate, however dimly, the President’s plans to reform our universally-acknowledged mess of a health care system. Among the more interesting was the pledge that his public health insurance plan would operate on a level playing field in competing against private insurers while presenting a better deal to America’s self-employed and uninsured. Among his points were these:
- As a nonprofit organization, the public plan will offer lower premiums because it won’t have to earn profits.
- The public plan will not be subsidized by the government, but will float on its own bottom with its own premiums and expenses.
- Any government subsidies will be for individuals—not the public plan—to help them buy insurance, whether they choose the public plan or private insurers.
Ending the Diabetes Epidemic with a BAGLE
No, I didn’t misspell bagel, and yes, its anagram can help end the largely preventable epidemic of Type-II diabetes that was recently reported to afflict twenty-three million Americans—a rapidly growing group that is consuming a huge amount of our health care dollars. BAGLE is my acronym for a health insurance pricing system that would set insurance premiums according to each individual’s Behavior, Age, Gender, Location, and Employment/Extracurricular characteristics—but not medical condition or genetic makeup. It’s the Behavior part that deals with the diabetes problem, because preventing and/or controlling it is most often a behavioral problem.
The causes of Type-II diabetes are unknown but strongly correlated with obesity. I hasten to add, however, that there are also many people who have developed the condition despite their healthy lifestyles.
ONLY MARKETS WILL SAVE HEALTH CARE
You may have picked up on the recent media blitz relating President Obama’s meeting with a coalition of health industry leaders pledging to voluntarily cut $2 trillion of health care spending over 10 years. Don’t take it seriously. It won’t happen.
In fact, nothing currently proposed by the Democrats, the Republicans, or the health industry will effectively restrain the medical inflation that has outstripped the CPI for the past 40+ years. The cause lies embedded within the genetic code of our employer- and government-dominated health insurance system. No amount of tinkering around its edges will fix it.
The fundamental problem is an unrecognized market failure, namely that there is no naturally-arising market mechanism that will allow everyone to purchase the health insurance they require to afford the full range of life-sustaining medical services. Instead, we have a failed employer-based insurance system that has locked millions out of insurance coverage. Rather than simply correcting the market failure, our governments (state and federal) have given us laws and programs to treat symptoms rather than the disease. That’s why we have Medicare, Medicaid, SCHIP, TRICARE, HIPAA, COBRA, ERISA, RBRVS, CPOM, AWP (etc., etc., etc.). Each such attempt to lop off the monster’s head has resulted in the hydra-like emergence of yet more and bigger problems.
DO THE UNINSURED NEED GOVERNMENT INSURANCE?
The most contentious issue in the current congressional health reform debate seems to be whether the government should offer a public health insurance plan for the uninsured. It’s a bad idea that will only further destabilize our already unsustainable health care system. Here’s why.
If a public plan’s premiums are set at sufficient levels to allow the plan to be financially self-sustaining, it will be too expensive for most uninsured people to afford. That’s because (1) adverse selection (the tendency of sick people to sign up for individual insurance coverage in greater numbers than healthy ones) will drive rates to unaffordable levels, and (2) the government’s tendency to require unnecessary benefits will drive premiums even higher. The most commonly promoted way to avoid this is by applying direct government subsidies. The resulting below-market premiums will then make government insurance affordable. But it will also make private insurance uncompetitive, creating a rush to the government plan by not just the sick uninsured, but by small employers, people with individual insurance, and even large employers eyeing an opportunity to get out from under their increasingly unaffordable self-insurance programs.
While some critics may applaud this move toward a single-payer system, the fundamental problem remains that such a public program will only worsen out-of-control medical cost inflation—short of outright government rationing of expensive care as done in Canada and Great Britain. The arguments that increased prevention and electronic medical records will lower costs are myths (see my earlier posting “Will Prevention and EMR Save Money?”). Industry insiders have long known that prevention virtually always costs more than it saves, and the adoption of computer technology takes decades to yield savings.
The hard reality is that increased top-down government intervention in American medical care has thus far failed to deliver universally available, affordable care. Exhibit A: Medicare will be bankrupt in eight years. Exhibit B: Medicaid has become a black hole for state and federal budgets. A public health insurer will just as assuredly fail to perform, whether run by the feds or outsourced.
There is an alternative, but it lies in root-and-branch reform of the American insurance system to enable the combination of regulated markets and social safety nets to meet the health care needs of all Americans. Do stay tuned.
WILL PREVENTION AND EMR SAVE MONEY?
If there’s one thing that both sides of the congressional aisle seem to agree on, it is that health reform based on increased medical prevention and the adoption of electronic medical records(EMR) will save us all a lot of money. Unfortunately, they won’t do any such thing.
The enduring prevention myth emerged during the 1960s and became an anchor tenet of the government’s major push into HMOs in the 1970s. It followed the common-sense notion that preventing a disease is a lot cheaper than paying the horrendous costs of treating it later. However, in reviewing the extensive four-decade literature on the subject, the journal Health Affairs recently conceded:
Hundreds of studies have shown that prevention usually adds to medical costs instead of reducing them. Medications for hypertension and elevated cholesterol, diet and exercise to prevent diabetes, and screening and early treatment for cancer all add more to medical costs than they save.
