By Francis M. Miller
There’s a pernicious tendency in politics that the arsonists who start the fire later return to the scene offering to solve the problem. That’s what’s happening now with the Republicans and health care.
Let me first state that I do not necessarily agree with President Barack Obama and the Democratic Party’s set of solutions to deal with the health care crisis. I believe they are laying railroad track to create a system that will be inflationary. It threatens to destroy our economy and we must alter course and devise a hybrid free market solution.
You cannot solve a problem until you understand the root causes of the problem. That is why your doctor does a history and physical before he gives you painkillers.
In the case of health care, we have to go back to 1965 when Medicare was enacted. Before 1965, Blue Cross essentially had a natural monopoly in the health insurance market and costs and risks were spread across a large pool. But, the elderly and poor were not being taken care of so Congress enacted Medicare, and then Medicaid.
By 1974, the twin effects of Medicare fee-for-service payments and new medical technology were causing health care costs to rise faster than the economy at large.
The Republicans, with President Richard Nixon as commander-in-chief, enacted ERISA, which allowed large corporations and labor unions to bail out of the system and self-insure. The net result was the migration of millions of healthy people out of the risk pool. From this point on, health insurance premiums for individuals and small groups began to rise faster than underlying medical trends.
Not to be deterred from monkey-wrenching the health care system toward total failure, the Republicans, this time under President Ronald Reagan, did it again in 1985. Bedeviled by rising health care costs, they passed the OMNIBUS Reconciliation Act, which instituted fixed-fee schedules and ushered in the era of managed care and cost-shifting.
A discussion of the destructive nature of fixed-fee schedules would fill Albert Einstein’s blackboard, but suffice it to say that fixing fees overpays certain providers, underpays others and in general destroys the competitive nature of the market. Price is destroyed as a signal of quality and puts the system on a slippery slope.
The move to managed care resulted in new PPOs and HMOs that shift costs to the consumer and have an incentive to deny care. They have failed to manage health care costs as evidenced by their high premiums and low consumer satisfaction.
Studies by the Colorado Division of Insurance have shown that PPO and HMO premiums for restricted network products are actually higher than those for old fashioned indemnity plans. But they are far more profitable for insurance companies because they extract 40 percent discounts out of the hides of providers and demand the patient pay higher copays and deductibles. This type of system is far more regressive than the socialist European systems because these costs are shifted to the bills of sick patients.
The twin effects of ERISA and OMNRA in 1985 have been devastating to the health insurance market. Healthy groups have left the risk pool in droves and costs have been shifted.
The result is that premiums for individuals and small business have skyrocketed. They are increasing at three to four times the cost of underlying medical costs. And, the effects of subsidies to Medicare and Medicaid are continuing to fuel inflation in underlying medical costs. Insurance premiums are so high that healthy individuals and small businesses are bailing out of the system, creating what is called an adverse risk spiral.
I find it interesting that the whole notion of mandates was started in Republican think-tanks. It was derived by the belief that people who didn’t buy health insurance were free riders and shifting their costs to the rest of us.
It was convenient to overlook the fact that health care bills for individuals are higher than average, and that insurers and government payers get 40 percent discounts.
When you run the numbers, my estimate is that billed charges to the uninsured are actually 60 percent higher than average. And average charges are far too high anyway because of all the tinkering with the system.
It is because of this cognitive dissonance that I predict Mitt Romney will be defeated in November. For whatever compelling skills he has in turning around troubled companies using mezzanine financing and outsourcing jobs, the fact is his mind is a blank slate when it comes to what is needed to reform health care. He gave the Democrats the keys to the White House when he concocted his socialistic scheme in Massachusetts. Now, they are going to break into his gun cabinet and use his ammunition against him.
When you have a problem of inflation in a market, you do not solve it by using crude public policy weapons that inflict trauma by blunt force. Allowing large groups to self-insure without putting individuals and small groups on a level playing field, fixing fee schedules to control prices or imposing mandates are the tools of a blacksmith, not a surgeon.
Since the Republicans began their molesting of the health care system between 1985 and 2010, health care costs doubled as a percentage of GDP, rising from 8 percent of GDP to 16 percent. All the while, health outcomes fell.
Obamacare will not solve our health care problems. At best it will cause health care as a percentage of GDP to settle in at 20 percent. If the countries of the EuroZone are spending only 10 percent, we have put ourselves at a great competitive disadvantage. And, if Pacific Rim countries are running half that, we are simply screwed. The economic multiplier effects are devastating.
We have put people who are too narrow and specialized in charge of architecting solutions to our problems. The attorney-politicians who craft solutions to economic problems are almost always a day-late and dollar-short.
We have generals we groom in war colleges to fight our wars. Yet, we turn our economic problems over to a confederacy of dunces and wonder why the problem does not get solved. We need a new way to architect complex systems in the 21st century. A cave man with his club and blunt force just creates trauma.
Francis M. Miller is the past president of the Colorado Business Coalition for Health and the vice chairman of the Colorado Health Data Commission. He founded the first consumer cooperative for health care called the Alliance and is the current president of Health Smart Co-op.