Obama’s Health Insurance Plan Is No Panacea

President Obama continues to push for his plan to introduce a public health insurance option. In remarks at a town hall meeting in Annandale, VA last week, the President said that a public plan option is needed to keep the health insurance market competitive. “This public option is important because if the private insurance companies have to compete, it will keep them honest and help keep prices down.” Really? Have government health insurance plans such as Medicare/Medicaid really kept prices down, or have low Medicare and Medicaid reimbursements to physicians and hospitals just shifted costs to the private sector? Government health insurance plans provided in other nations have in fact created additional costs -- rationing, long wait times for treatment, a reduction in quality of care, and higher taxes.

While US healthcare is among the best in the world, its costs are out of this world. However, the Obama plan does not directly address the cost issue. Indeed, the major focus of the Obama plan is not on how to keep costs down, but rather on how to provide coverage for those who can’t afford it now – the focus is on availability and affordability, not cost.

Need for a Fix

There is no dispute that the current health insurance system is broken and needs fixing. Over 46 million individuals are estimated to be uninsured, and those uninsured are more likely to be male, adults 25-34, children, or individuals employed by small enterprises. Those who are sick or unable to obtain any affordable coverage also account for a large pool of the uninsured. In addition, since non-elderly health insurance is largely employment-based, the growing number of unemployed account for an increasing share of the uninsured.

A few days ago, the NY Times ran an article suggesting that a House oversight subcommittee found 3 big insurers guilty of the health insurance practice known as “rescission,” in which insurance companies cancel coverage for some sick policyholders rather than pay an expensive claim. Meanwhile, the same article noted that the U.S. Senate Commerce Committee found that insurers are “imposing substantial rate increases on small businesses to prompt them to drop coverage, and are employing statistically manipulated databases to lower payments to out-of-network doctors”. Can we expect introduction of a government health insurance plan to change such activity?

Health insurance in the US is in need of repair, but not just for the reasons described above. The real source of the problem is the continuous rise in the cost of providing healthcare. The high costs are partly due to unnecessary tests performed by physicians to avoid malpractice lawsuits. High healthcare costs are also due to the lack of coverage for preventive care that might eliminate the need for later more expensive care, as well as a population that is aging and becoming more obese. To really fix the problem, we need to address these other issues.

Public versus Private

If a government-run health insurer tries to compete with private firms, the likely outcome will be that private insurers will try to shift their worst risks onto the government, raising the costs for everyone.

Also, many jobs will be lost in the private sector as the result of mandated universal healthcare. Small employers already facing hardship in a soft economy might simply avoid hiring full time workers, unless part-timers or contract workers are included in the mandate. Taxing the benefits provided by employers will raise the costs of providing such coverage, motivating employers to cut workers or let the government provide such coverage. In many ways, the government plan will simply crowd out the private sector and raise the costs of doing business.

The government insurance program is intended to pay health-care providers at “comparable” rates to the market, with premiums paid largely by employers. But what about the growing ranks of unemployed, and what about the cost of any government plan to the taxpayers? The deficit is already in the trillions, and much more red ink will flow from introduction of a government health insurance plan.

Notably, Sen. Kennedy has proposed a plan that would assess fees on companies that don’t offer insurance. Sen. Kennedy and Sen. Chris Dodd said this revised plan would cost $611.4 billion over 10 years, down from an estimate of $1 trillion for a previous draft of legislation being considered. As noted in a Bloomberg News story last week…

“The revised plan also decreases subsidies for those with access to health-care coverage through their employer, even if employees consider that insurance to be unaffordable. The IRS would impose penalties on those who don’t have health insurance, though individuals with incomes below 150% of the federal poverty level would be exempt. Insurers would be required to cover all applicants, and couldn’t limit coverage for those with pre-existing conditions.”

No matter what the ultimate form of any new government plan, it will create additional costs rather than reduce existing health care costs at a time when the economy is already weak and deficits are huge. It will create new bureaucracy and force private insurers and employers to shift costs to the taxpayers. We need a fix for healthcare, but let’s first fix the cost.

Disclosure: No positions

Comments

[aflitzy:]

Really well written - thanks for posting

Jul 06 08:29 AM

[Donald Johnson:]

ObamaCare will increase the cost of health insurance to enrollees for several reasons.

First, if the plan subsidizes health insurance for the 6 to 8 million uninsured American citizens who aren't eligible for existing programs and can't afford basic catastrophic plans, the plan will cost billions. This cohort tends to be uneducated, unemployable and, most important, chronically ill. They would need a lot of attention when they first got their coverage and would cost more to insure over time than most people.

Second, if Obama's public option health plan, which I call the Government HMO (GHMO), is enacted, it would initially lower premiums in an effort to drive private insurers out of the markets. After private insurers are gone, Congress would mandate that the plan offer more benefits, raise premiums and taxes on non participating employers and the rest of us and ease initial limits on access. We'd be in an expensive, low access single-payer plan, which is Obama's objective.

Third, if Congress goes the Wal-Mart employer mandated coverage, it will mandate all kinds of benefits at the behest of lobbyists and campaign contributors and raise premiums and taxes.

The literature is beginning to show what I've been saying for years. Most expensive preventive care is covered by insurers because the states mandate that coverage at the behest of providers who support politicians' election campaigns with contributions. Only a small part of preventive care cuts costs for the long term, and very little if any cuts costs for the long term.

Because preventive care contributors have the attention of members of Congress and presidential candidates, it's like ethanol, basically an expensive scam.

I've been writing and blogging on health care and health insurance businesses and economics for years at businessword.com.

It is amazing that people who claim to be health insurance experts continue to say there are 46 to 50 million uninsured. That's a number inflated by the government officials who believe in health care reform and publish it to help providers turn a small problem into a crisis. Their gambit worked and will give politicians and some providers' trade associations much more power, but it will cost everyone under 65 trillions.

Jul 06 09:51 AM

[secmaven:]

Want to cut health care costs? Just send all taxpayers a supply of Vitamin D3 that provides 1000 IU per day. Check out LEF.org website for the medical benefits of this simple and cost effective solution to the dismal state of health in this country.

Jul 06 01:35 PM

[YoYoMama:]

One of the better articles on the state of health care in the U.S. and a good summary of pros/cons on Obama care.

I appreciate that the author has pointed out three key issues: 1) corruption amongst insurance companies (paragraph 4), 2) the problem of lack of preventative care coverage (paragraph 5), and 3) malpractice "CYA" on the part of doctors (paragraph 5).

The final issue that requires attention in bringing down the costs of health care is tort reform, which Obama refuses to entertain. What a lawyer! Plaintiffs attorneys have the current administration in their back pocket. As long as that holds true there is little hope that the administration will consider any proposals that seriously cut our health care costs.

Jul 06 03:57 PM

[YoYoMama:]

You are dead wrong about preventative care. LAB TESTS even for the most basic of checkups for preventive care are NOT COVERED by most plans anymore.

So, sure, the insurance company will pay on the $100 doctor bill. But the $1,000 lab bill to determine if you have high cholesterol or other potential diseases as part of your yearly exam? SORRY. Not covered.

So preventative care is rendered COMPLETELY useless for most policy holders. Most persons can barely afford their premiums, much less shell money out of pocket for lab tests that could provide the doctor a blueprint for a treatment plan to prevent serious illness, or even save a life.

It wasn't more than 5 years ago I can remember that such lab tests WERE covered by insurance.

So tell me again how preventative care is unimportant, and not an integral part of any health care reform agenda?

Lack of preventative care coverage is just another example of the continuing downward spiral of our health care system. As health care costs continue to skyrocket, we continue to pay more in premiums (because after all, the insurance companies are in business to make money), and we continue to receive less and less.

On Jul 06 09:51 AM Donald Johnson wrote:

>Only a small
> part of preventive care cuts costs for the long term, and very little
> if any cuts costs for the long term.
>
> Because preventive care contributors have the attention of members
> of Congress and presidential candidates, it's like ethanol, basically
> an expensive scam.
>
> I've been writing and blogging on health care and health insurance
> businesses and economics for years at businessword.com.<;br/>
>

Jul 06 07:06 PM

[derryl:]

In an article titled "Health Care Myths" a couple months ago, Vancouver economic think tank the Fraser Institute listed 'preventive medicine' as a big myth. Taking care of yourself is preventive medicine. Getting expensive tests for god knows what imagined ailment is a waste of medical resources.

$1000 lab tests? Do you take your car to the mechanic and have him dismantle and examine it 'just to be sure' at a cost of $3000 a pop? This is a huge waste of money and a major windfall to the 'preventive medicine' industry. If you want tests pay for them yourself. Nobody is stopping you from wasting your own money.

Jul 06 11:11 PM

[steve graves:]

Whatever we do to the supply of health care in this country will prove inadequate until we address the demand side of the equation. Just as Americans - individuals, industries, governments - have been borrowing themselves towards oblivion for the last generation, we have also been eating, drinking and smoking ourselves to epic levels of degenerative conditions which ultimately result, for all the obvious reasons, in enormous health care costs. The health care crisis, in other words, is yet another example of Americans living beyond their means - choosing the path of instant gratification over the more disciplined path of long-term sustainability. Our bodies are the most intimate statements we make with our existence; Americans have become increasingly lazy, obese and self-indulgent over the last several decades. Our supply of health care is a capitalistic response to this development. Obviously there are inefficiencies, exploitations and excesses in our health care supply that must be addressed for the sake of both individuals and industries, but addressing them will not 'solve' the health care crisis. Ignoring the demand side of the equation is tantamount to burying our heads in the sand. It's a difficult issue, especially in a democracy where free will is revered even when it leads to costly self-destruction. But until those aspiring to reform our health care supply address the HEALTH CRISIS, especially with an aging population and a quadrupling of childhood obesity in a mere two decades, their efforts will yield surprisingly little.

The manufacturers and distributors of our food supply must be held accountable - there is no other way. If your happy meal provides three days worth of fat then it should be taxed accordingly (while healthier options are not).

At the same time our citizens must stop relying upon physicians, most of whom have little more than a Readers Digest grasp of diet and health, to keep them healthy. If you're 100 pounds overweight and suffering from a rash of 'conditions' as a result, your co-pay should reflect that situation. Wanna save money? Lose weight. And while we're at it, health club memberships should be tax deductible with a simple monitoring system in place (your card swipes a certain amount of times per month, the deduction kicks in - simple in the computer age).

I realize that to many of the free marketeers on Seeking Alpha this sort of stuff might sound a bit Orwellian - Big Brother's going to control my life! Well you know what? I wish He didn't have to! But the fact is, modern Americans are like kids in the candy store gorging themselves while their chubby little politicians make speeches and scramble to find ways to enable their irresponsible behavior. But the era of having everything we desire no matter what the cost is over, which means we now have two choices. Either we can keep whining and living on borrowed time (by borrowing more) for a little while longer, until the whole mess collapses into a pile of smoldering rubble, or we can embrace the new era of sustainability and person responsibility.

I would argue that health care reform, providing it addresses the root of the problem, might be a good place to begin.

Jul 07 09:42 AM

[YoYoMama:]

What's more expensive? The $1,000 lab test? Or the $100,000+ cancer or $200,000+ blocked artery that goes undetected?

And why is that lab tests costs so much in the first place? Insurers paid on such lab tests while the cost was held in check, so clearly preventative medicine has not always been so suspect.

The better availability of mobile health care clinics, which provide testing far below doctor office rates, is a great development. However, insurance does not cover these costs of these tests. IT SHOULD. A $1,000 lab test can be reduced to about $200, and this cost reduction should welcomed by insurers.

But NO. I guess they would rather pay for the $100,000 cancer.

And yes, completely agree, healthy lifestyle should be an integral part of health care. Americans are pathetic on this issue. As someone who exercises and maintains a healthy diet and weight, my hide is truly chapped that I subsidize with my insurance policy the unhealthy habits of others.

But healthy people still get sick. Still get cancer. Still get blocked arteries. High blood pressure. High cholesterol. Some conditions are hereditary and part of the human condition. Such a shame that healthy Americans are punished by insurers in this respect.


On Jul 06 11:11 PM derryl wrote:

> In an article titled "Health Care Myths" a couple months ago, Vancouver
> economic think tank the Fraser Institute listed 'preventive medicine'
> as a big myth. Taking care of yourself is preventive medicine.
> Getting expensive tests for god knows what imagined ailment is a
> waste of medical resources.
>
> $1000 lab tests? Do you take your car to the mechanic and have him
> dismantle and examine it 'just to be sure' at a cost of $3000 a pop?
> This is a huge waste of money and a major windfall to the 'preventive
> medicine' industry. If you want tests pay for them yourself. Nobody
> is stopping you from wasting your own money.

Jul 07 10:51 AM

[bigmoney:]

aging demographics + very high immigration + obesity culture + unlimited demand for medical care = not going to end well.

Jul 08 12:59 AM