The Obamacare Health Care Gold Rush is Bankrupting America
Our health care system is going to implode under its own weight. National Health Expenditures are approaching 20 percent of gross domestic product — a figure that is expected to about double over the next half century. Obamacare didn’t start the process, but it’s expediting the job started when Kaiser Shipyards requested permission during World War II to offer health coverage as a fringe benefit. This was further exacerbated in 1965 by the poorly-designed entitlement programs Medicare and Medicaid that are now draining the Treasury.
Just look at the evidence. Health care is unaffordable for most Americans. To have any hope of affording even minor medical procedures, Americans rely on health insurance or public coverage to pay much of the cost. About 88 percent of medical bills are paid for by an entity other than the patient. As a result, health insurance has also become unaffordable. The average employer plan costs American families $17,545 per year. A Bronze plan from the exchange for the average middle-age family costs $12,000 per year with combined annual deductibles of $8,000 to $13,000. Provider networks are so narrow that any major procedure is surely to result in out-of-network charges that can be astronomical.
Arguably, the greatest problem our health care system faces is high costs that are rising at more than double the rate of consumer inflation. The price of newer drugs are rising so high politicians like Hillary Clinton are calling for caps on copays. Of course, that will do nothing to lower the cost; it will merely facilitate further price increases. A New York Times article questioned why a new drug marketed to treat women with low libido comes with a monthly price tag of $800 — even though the pill hardly works better than a placebo. The reasoning behind charging so much? Because the drug maker Valeant Pharmaceuticals assumed health plans would have little choice but to cough up nearly $10,000 per year for women whose doctors prescribed it. Of course, women themselves would never pay $800 per month for a drug whose clinical trials showed it was only correlated one additional sexual encounter per month in the women taking it. Some of the newest cholesterol drugs cost from $1,500 to $2,000 per month. The latest drugs for rheumatoid arthritis cost even more. New treatments for Hepatitis C cost $60,000 to $90,000 for a course of treatment. Now do you understand why health insurance is so expensive?
This is not just a drug problem; believe it or not drugs are actually the best bargain in American health care today. Rather, the more egregious examples reflect a growing trend by health care industry stakeholders to jack up revenue any way they can. The strategic plan in the health care industry is to extract as much revenue as possible from third-party payers, because most consumers are both unwilling — and unable — to pay those exorbitant amounts unless the costs are hidden from them and they are forced to pay for them indirectly. It’s a health care Gold Rush and employers and insurers are the claims being mined. But it’s ultimately consumers who pay the price, since consumers accept lower wages in return for employee health benefits, pay higher premiums for insurance and pay higher taxes to cover the cost of public programs.
Over the years Americans began to balk and forgo health coverage. Some of this was because they were unwilling to pay exorbitant prices; nearly one-third of the uninsured in 2010 had household incomes above $50,000. Just over half of those had incomes of more than $75,000. An additional one-third of the uninsured likely decided they didn’t have sufficient incomes to afford health coverage and pay their living expenses.
To combat the growing tendency of moderate-income Americans to starve the health care beast, Obamacare requires all legal U.S. residents to maintain health coverage. The Affordable Care Act (ACA) also forces firms with more than 50 workers to provide expensive coverage or pay a fine. The natural response by employers facing costly mandates is to contract out as many tasks as possible and avoid growing beyond 49 workers. To thwart that strategy, Obama’s National Labor Relations Board (NLRB) has essentially ruled a contractor is a joint employer of the workers it subcontracts. This will badly damage the franchise model of business ownership, since small businesses will be responsible for spending $2,000 to $3,000 apiece on many in their workers. This isn’t for health coverage; it’s the penalty for failing to provide health coverage. An actual employee health plan would cost much more. Thus employers will face these costs without the expectation that workers will willingly accept wages because these are employer penalties, not employee benefits. An entrepreneur near Fort Worth, Texas explained to a New York Times reporter that her Fantastic Sams franchise locations are nearing the 49 worker limit. She would open an additional location or two but complying with Obamacare would wipe out her profits. She may have no choice. Under a strict interpretation of the NLRB regulations a franchise could be forced to provide coverage because its parent company has indirect control over thousands of employees.
Obamacare did not reform health care system; it merely transformed it to subsidize favored constituents. Hospitals have been encouraged to vertically integrate by acquiring physicians’ practices. This allows hospitals to capture doctors’ power to order expensive treatments and to charge higher facility fees due to physicians’ hospital affiliation. Hospitals have also been allowed to consolidate into regional health care system monopolies and oligopolies that can demand higher prices than a marketplace populated with competing hospitals. To pay for all this price gouging, employers are being forced to offer benefits that many workers themselves cannot afford or absorb in lower take home pay.
When Obamacare was passed six years ago I predicted that we are destined to revisit the perverse law in the future. Many of my most dire predictions are coming true in spades. The exchange system created by the ACA compels healthy people to overpay so those who would otherwise face higher premiums get a bargain. It’s no surprise that healthy people are heading for the exits and just paying the Obamacare penalty. Obamacare is a bad deal for most people by design. As a result, exchange plans are descending into an adverse selection death spiral where premiums skyrocket after sick people sign up in droves and healthy ones leave due to high costs.
This cannot go on forever. The longer we wait to reform health care, the more painful it will be. Numerous pilot projects and experiments have found medical providers will respond with competition if given the appropriate incentives. But consumers must play their part. When consumers control more of their own health care dollars, medical providers will have no alternative but compete for those dollars on the basis of price, quality and other amenities.
Why should this woman in Ft. Worth choose the health insurance on her employees’ children? She has no special training and probably doesn’t even know these kids names or what medical care they require. This is idiotic.
Everyone would agree that people who purchase Individual Medical (IM) should be able to deduct their premiums from their taxes. The problem is that if we create this fairness it will SPLINTER the employee-based plans and they will go the way of the dodo bird. Reform creates market disruption. Should we stay or should we go?
So, we have dueling reform plans from the Republicans. One group would let everybody deduct their premiums and the second would offer refundable tax credits. Both of these reforms will end employer-based health insurance but the tax credit proposal will create faster market disruption and a new day in America begins more rapidity.
Market disruption is coming fast. The question is do you want to drag out the long slow death of employer-based health insurance with a tax deduction or should we jump in with both feet with refundable age-based tax credits?
You’re right Devon, “This cannot go on forever.”
Carful Devon with articals like this people will start to think you know what you’re talking about. 😄 The only problem I have with what you wrote is healthy people are forgoing and paying the penalty. That is not happening. The premiums are so high healthy people are forgoing ACA compliant plans. Mostof the population who do not qualify for Tax Credits are exempt. But great job on the artical👍
“Dennis Triplett, chairman of UMB Healthcare Services, said he’s disappointed in new rules that make it impossible for health savings accounts to be offered on the public exchanges.”
Tax-free HSAs are done on the exchange and Roy was right.
The Obama Administration is really politically motivated.
This sounds like a good argument on why health care cannot be sustained in a capital market.
Publicly held companies will continue to grow their profit at the expense of the patient to satisfy share-holders regardless of the medical outcome.
Medicare for all would solve this issue.
Most hospitals are nonprofit. I’ve worked in a nonprofit hospital and it (like all nonprofit organizations) has a profit motive. Any organization that fails to earn a profit will go out of business and have its market share taken away by competitors who earn excess profits. A nonprofit organization just didn’t have to worry about shareholders. I was talking to a physician entrepreneur the other day and he made an off-the-cuff remark that in a for-profit company, excess profits accrue to the shareholders. In a nonprofit company, excess profits accrue to upper management. So the problem you allude to does not go away.
My solution is to harness the profit motive in positive ways. Realign the incentives away from gouge the other stakeholders taking all they’re worth to one where providers and suppliers compete for patients’ business.
In a given region, I wonder about how much difference there actually is in the cost base per licensed bed among community hospitals. The revenue that a hospital can generate from its cost base and infrastructure will be a function of occupancy rate, case mix, payer mix and commercial insurance reimbursement rates. The last factor is usually based more on market power than care quality. Teaching hospitals have significant additional costs related mainly to their medical education and research missions. In theory, research costs could be covered mainly by a combination of NIH and other grants, philanthropy, and perhaps profits from ancillary activities like the cafeteria, gift shop and parking garage. Medical education should probably be fully paid for by a combination of student tuition and government payments.
With respect to competing for patients, even with much better price transparency, defining and measuring quality in healthcare remains a huge challenge. Doctors appear hugely critical of every initiative from government or private insurers but I don’t see any credible alternatives coming from them. Instead, their message that keeps coming through boils down to leave us alone to practice medicine the way we think is best and pay our fees promptly and without question and, by the way, we don’t want competition from NP’s PA’s and retail clinics staffed by NP’s either.
If I were a patient with multiple co-morbidities that needed a lot of hospital based care, I would probably be seen by numerous doctors none of whom know what the others are doing and none of whom know or even care about what anything costs. That doesn’t exactly inspire confidence among patients. Higher priced hospitals may or may not deliver better care but I don’t know how the patient is supposed to be able to tell if there are no reliable quality metrics available to help him or her make a judgment.
Your comment shows you use imposed morality to coerce everyone to accept one ‘right’ solution which is bankrupting America (sic!). Just like plastic surgeon earns money and people pay them – it furthers the science and medical care towards better future. The same would apply to traditional care (and even fighting cancer) as paying insurance is far from being alien to average Joe – it would be the same. This is market. Go look at this to understand where the economy stands now: http://independenttrader.org/trader21-lecture-presented-at-fx-cuffs.html
I don’t think you understand healthcare and its economics very well. First off, plastic surgeons earn money from the patients they treat. It has nothing to do with furthering research, or as you put it furthering the science. Research is typically performed in research facilities – universities and their medical facilities. Offering Medicare as an insurance choice would not only offer a good quality, lower choice insurance, it would also strengthen the Medicare system as it would allow younger, healthier persons to participate (you know, folks with less healthcare needs). We would be a lot better off without the excessive surgery performed – especially spine surgery and total joint replacement. We would be better off with better use of conservative treatments – physical therapy, for example. There are a lot of ways to reduce the cost of healthcare in this country, but it will reduce corporate income. Once we started to apply usual business principles to healthcare, it all started to unravel. People, patients do not respond in standard ways like business products do.
Insurance of any kind is always and everywhere a very bad bargain. Smart and rich people forgo it entirely wherever possible.
Can you imagine that any pioneers, whether Columbus, the Wright Bros, Steve Jobs or any Mars astronaut would ever carry insurance? Of course not: these are the very people who would SELL any insurance policy they inherited in order to finance their ventures. And these are the people whom no insurance carrier would insure.
Insurance is born of insecurity, religion and superstition. Check out Matthew 6:34 for good advice.
It’s funny you mention Columbus in your anti-insurance rant as insurance first started to finance shipping.
Insurance is an amazing financial instrument that allows for commerce to exist. Without it, nothing of consequence could be built.
Now health insurance, as currently constituted isn’t really insurance. Insurance is designed to pay for unexpected risk, not routine maintenance.
Rich people may not need it, but smart people that are not rich sure do need it, or end up bankrupt if you have a serious health problem. Try paying you doctor bill by telling them not to worry about tomorrow.
Devon, the workers in non-health industries do indeed get lower wages when they or their employers buy health insurance.
But the workers in health industries get higher wages when insurance is mandatory, and there are millions of such workers.
For that reason, I think that America’s high costs can go on for a longer time than you project.
Devon certainly has the right goal in this piece — namely, to get medical providers to compete on quality plus price, like the rest of economy.
There have been many aims at that goal in recent years.
The strategy of ‘managed care’ in the 1990’s was to make hospitals compete on price so as to be included in the insurance company’s network.
I think this had some success, based on my limited reading. Health costs did stop growing so fast for a while in the 1990’s.
But the biggest hospitals and clinics seem to have escaped the need to compete on price. How they did it would make a fascinating albeit depressing book.
The current trend toward high deductible health plans should in theory force hospitals to compete on price.
It is happening very slowly, in my opinion, because many of the persons who have high deductible plans also have no significant savings. They are not in control of any real cash.
My final observation is that there in fact are some areas of health care with price competition. Generic drugs stand out. (My response would be to drastically shorten patent protection periods and set price ceilings on the specialty drugs.)
The problem of course is that many aspects of health care are purchased in a fog and a panic, and that may never change.
“But the biggest hospitals and clinics seem to have escaped the need to compete on price. How they did it would make a fascinating albeit depressing book?”
Bob – There are certain well known academic medical centers and large hospital systems and physician groups that are considered “must haves” for most employer plans. Those hospitals and physician groups know that. As a result, according to James Purcell, former CEO of Rhode Island Blue Cross and Blue Shield, they are able to negotiate reimbursement rates that are 30% higher than competitors who lack that market power. Indeed, Partners Healthcare in southeastern MA which owns Massachusetts General Hospital and Brigham & Women’s Hospital is paid as much as 40% more than local competitors for the same work.
At the very least, I think Medicare should move to site neutral reimbursement. That is if a given service, test or procedure can be and often is performed in a doctor’s office or independent clinic, it should not be reimbursement at a higher rate just because the doctor is employed by a hospital, the clinic is owned by the hospital or the work is performed in the hospital itself on an outpatient basis. It doesn’t make any sense. Hospitals can reallocate their costs to deal with site neutral payment and satisfy themselves that they are covering their newly reallocated lower costs with the reduced payment. They may need to actually be paid more for services, tests, and procedures that really do need to be performed in a hospital setting but that is a whole separate issue.
I can see why so many employees insist on having the most expensive medical centers in their health plans.
What the heck, the employer is usually paying 80% to 100% of the premium, and it does not come out of my wage in any obvious way, so of course I want Mayo and Cleveland Clinic and Johns Hopkins in the company plan.
Americans as a whole are ‘conflicted’ about narrow networks. At some level they understand the need for cost control, but they resent when this effort hits them at the time of illness by restricting where they can go for prepaid care.
I have some friends in the single payer movement, and I tease them by saying that their plan of Medicare-for-all might turn out to be the narrowest network of all time. Many doctors and hospitals would refuse to participate in a national plan that paid Medicare and Medicaid-level fees.
Medical cartels and monopolies, look right at them without flinching. Are we going to let them such America’s finances dry? There are laws against what they do but no politician is willing to enforce them.
I will continue on my rather lonely crusade to say that health care spending is propping our economy, not holding it down.
Health spending has been the equivalent of World War II for the female half of our working class.
Megan McCardle says it well:
http://www.bloombergview.com/articles/2016-02-25/cut-health-costs-or-help-workers-you-can-t-do-both
Health care has millions of low productivity jobs. So did the WPA and god knows so did World War II. This has sopped up what would otherwide be an avalanche of unemployed.