Understanding the Health Care Debate

Any serious discussion of health care reform must begin with serious data. The often pronounced number of the uninsured being at 47 million in the United States just doesn’t measure up in any serious way. When you start with the Census Bureau’s latest statistics from their Current Population Survey of 2007, we find that 45.7 million people were without health insurance. A small correction, but hold on for the rest. Of that 45.7 million, 18 million have incomes over $50,000 a year and presumably can afford a policy providing at the least, catastrophic protection. $50,000 is 226% above the Health and Human Service’s 2009 poverty guidelines for a family of four. For those individuals or families with incomes of at least $50,000 who chooses to buy health insurance may at best be considered underinsured, however, that is a theoretical argument.

This author does not presume to put forth the notion that we don’t have an enormous problem with health care costs and access in our nation. Moving forward, another estimated 12.6 million uninsured are illegal aliens. Of the 15.1 million uninsured remaining, 8.1 million are under the age of 18. Their parents, whose incomes don’t exceed 200% of the Federal Poverty Level, are eligible to gain coverage for their children through Medicaid or SCHIP but have simply not signed up. The remaining 7 million uninsured citizens in the United States more accurately define the crisis portion of our nation’s health care woes.

Next we need a brief review of the major programs and legislation available for a citizen to either gain health insurance or receive medical care from hospitals or clinics. Private insurance companies insure most of our citizens in the United States. Large firms, government employees, and small business often present choices for health insurance through the private system. The exploding costs of medical coverage are putting the squeeze on everyone involved, however, and fewer small businesses are offering coverage, while larger firms are cutting back on their contributions towards employee premiums.

Medicare is a federally mandated entitlement program created in 1965 during Lyndon B Johnson’s Administration. It insures citizens age 65 and older and is partly financed by payroll taxes imposed by the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act of 1954. Medicare consists of 3 major parts to deal with the care of its members. Part A deals with hospital insurance, Part B details medical insurance, and Part D covers prescription drugs. An employee’s contribution of 1.45% with a company match of the same on all compensation only partly funds this government entitlement. Part B of Medicare has a base monthly premium cost of $96.40. This is often deducted from an individual’s social security check with the Federal government acting as facilitator. Part D contains a complex set of cost criteria depending on the prescriptions needed, the income of its participants, and the duration of the prescriptions.

Medicaid was also created in 1965 and seeks to insure low income families and people with certain disabilities in the United States. Medicaid is jointly funded by the federal government and each of the 50 states. States are free to have their own programs to meet the standards of this legislation. This program holds many different titles such as Medi-Cal, MassHealth, and TennCare; California’s, Massachusetts’s’, and Tennessee’s programs for compliance with this federal mandate.

The State Children’s Health Insurance Program or SCHIP was enacted in 1997 by co-sponsors Senator Ted Kennedy (D) Massachusetts and Senator Orin Hatch (R) Utah, with influence from First Lady, Hillary Clinton. The intent of this legislation was to insure children whose family’s earned too much to qualify for Medicaid, but were considered modest indeed. After recent amendments to this legislation, people making up to 200% of the federal poverty level or $40,100 are now eligible to insure their children under SCHIP.

The Emergency Medical Treatment and Active Labor Act was passed by Congress in 1986 as part of the Consolidated Omnibus Budget Reconciliation Act or COBRA. It requires hospitals and ambulance services to provide care to anyone needing emergency treatment regardless of citizenship, legal status or capacity to pay. It is thought that nearly half of all uninsured that use services in emergency rooms do not pay for the services delivered. These huge costs are written off as charity by most hospitals while many others are closing their doors when there is already a shortage of emergency care facilities. COBRA is also where the legislation was born that allows us to continue our health care coverage for up to 18 months when leaving a place of employment. There is often a sticker shock on the price of this coverage though, as the participant needs to foot the entire premium, minus employer contributions.

The problems associated with the exploding costs of health care in the United States are many. First and most importantly, costs are forcing people to choose between cheaper insurance plans that could place a family in jeopardy with the advent of a disastrous illness, while other families are choosing not to insure at all. The worst position is not a choice at all, but for the estimated 7 million uninsured in the United States that simply can’t afford insurance because of their circumstances are the most vulnerable among us. These are the folks that have simply fallen between the cracks in the richest nation on Earth.

A few of the main reasons for the high and rising cost of health insurance in the US are listed below:

  • A. Inefficient administrative costs dealing with a myriad of compliance                        issues and paper health records
  • B. Malpractice insurance expenses incurred by health care professionals
  • C. Fraud and government – bureaucratic waste/overregulation by government entities
  • D. Inadequate size of insurance risk pools
  • E. Unhealthy habits of health care participants

A. We have antiquated and clunky mechanisms for the administrative of our current system of health care. From billing matters to referrals by your Doctor to a specialist, our paper based system is woefully inefficient. Inefficiencies cost more time and therefore money by health care providers simply to do their business. These costs are always passed along to the final consumer of said services. While we have come a long way in standardization with the wide use of diagnostic codes such as the World Health Organization’s ICD-10, we are still plagued with an ever-increasingly broken health care system as shown above with many participants and payers. All of those participants and payers come with their own sets of standards, mandates, and forms. You may have seen a note at your doctor’s office stating that they will no longer submit various claims to your insurance company.

An individual’s personal medical records should also be transferred to electronic means. This will promote care with fewer costs. Electronic medical records can be made available more cheaply and quickly to other health care professionals that you are referred to for continued care. Prescription medicine can benefit from an electronic system as well. An individual’s complete medical picture may be formulated with greater accuracy as triggers in electronic medical record systems can quickly alert physicians of contradictory medical procedures or prescriptions.

A system such as that would also be capable of recognizing patterns or trends in a person’s health, suggesting proper directions for care with less guesswork involved. Less guesswork equates to fewer expensive tests designed to see if you have this disease or that condition. These encrypted records can be made available online for consumers to review at anytime they desire. The consumer of health services may elect to allow their data to be collected, without their personally identifiable criteria, by The Health and Human Services department of our federal government. The HHS department can gain benefit from a cross section of our society engaging in such a data collection. This data can be used to better gauge the true state of our citizens health care needs by analyzing trends and suggesting programs to foster the health and ultimately wealth of our nation’s citizens.

B. Malpractice insurance is purchased by doctors and health care professionals to defend against lawsuits for mistakes they may or may not have contributed to. Even frivolous lawsuits are incredibly expensive to defend against as counsel needs to be sought in such matters. Many have suggested reforming our states’ tort laws such as putting caps on punitive damages. Limited tort options already exist for car insurance and that has reduced the exposure of auto insurance companies and therefore premiums to consumers.

C. A certain degree of fraud and bureaucratic waste are inherent in every government program or government regulated industry. The overregulated programs are much more likely to have high levels of waste and abuse, however. While it’s reasonable that any federal dollar spent be regulated, controlled, and held accountable, the more dollars spent by our Federal government equate to an ever-increasing cost to satisfy such mandates. This, in short, is government bureaucracy; often referred to as the fourth branch of our republic. The bureaucracy consists largely of the tens of thousands of unelected government employees responsible for running the day-to-day affairs of our massive Federal government and its programs. The further away that funding dollars for a particular program come from, the less individual accountability exists. Think about this as it relates directly to our health care problem. When was the last time that an insured person went to their Doctor and negotiated the charge for a particular procedure that was sought? When was the last time that when being referred to a third-party for blood work or an x-ray, you asked your Doctor what they charged for the procedure? Finally, if you had done this recently, did you follow up with a query about a potentially cheaper solution by a competitor? Competition in the health care industry is not alive and well and therefore we are paying too much for everything. Multiple providers for such services are only the first requirement for competition. We have to connect the consumer with the costs associated with his or her care to improve competition in the spirit of free markets.

D. Insurance risk pools are how the insurance industry spreads the cost of providing care to a group of people. Large corporations are able to command lower premiums for their employees because of the large number of employees being insured. With a greater cross section of our population, the healthy are likely to outnumber the unhealthy and therefore the ultimate costs by the insurance company would be less risky. Conversely, a group of 20 construction workers employed by a small business would be a much riskier venture by an insurance company; hence the higher rates to that group. A health care model that increases the number of participants in a risk pool would undoubtedly lower premiums.

E. Americans are unhealthy. While it is a good that we have so many choices of what and where to eat as well as so many stimulating television programs that keep us glued to the couch, it has come with great health care costs. America’s weight problem alone contributes to numerous other maladies that all cost money to treat. Our health care system in general is often thought of as reactive rather than proactive in design. When we get sick, we go to Doctor. The Doctor is encouraged to send us through his or her network of co-providers to adequately resolve our malady. Everyone makes money along the way until the consumer eventually wins by getting well. The latter is the hope, of course. The United States needs to shift to a model of preventive care where the medical industry is rewarded by aiding a healthy population rather the fixing an unhealthy citizenry. There is a massive shortage of Doctors in the United States so there would still be plenty of coin on the table to spread around in a prevention based model.

One possible solution to respond to the problems would be a proposal by The Hamilton Project. The Hamilton Project details sound solutions for evolving beyond traditional employer-sponsored health insurance. The main tenants of their proposal include:

  • A. State established “insurance exchanges”
  • B. Shift employers traditional role as sponsor to facilitator of coverage
  • C. Reform of the tax laws to more fairly handle the needs of our needy

A. A state insurance exchange can be thought of as a stock exchange on Wall Street. Although the insurance exchange would not exist to make money, it would serve to bring together the major players in health care; insurance companies, regulators, and consumers. A series of state determined minimums could be established as the ground rules and those insurance carriers wanting participation can sign on to compete with their various products. Care must be taken not to create any new regulation, enlarging the already oversized bureaucracy and costs. A simple mandate that ERISA approved health plans would also meet exchange minimums should be enough.

B. Instead of employers, small to medium sized businesses in particular, sponsoring health insuranceplans with their typically small risk pools and high premiums; they could act as facilitators as their employees gain access to their respective state health exchanges. The employee and his or her family may now have access to a wide array of health plan options which would be more likely to fit their unique health care needs. A younger couple may elect a high deductible cheaper policy while a single woman in her early 60’s may require a low deductible plan.

As facilitators, the employer would deduct the required premiums from their employee’s paychecks and transfer that to the health exchange, which in turn, would pay the respective insurance company direct. Employers are used to this role already when it comes to deducting taxes and other benefit elections for employees such as 401K contributions or health savings accounts.

As employees change jobs much more often in our postindustrial service economy, their healthcoverage would remain intact since their previous employer merely acted as a facilitator. If their new job participates in the insurance exchange of that state, it’s a simple administrative change for the continued collection of premiums. An individual or family without work could have premium payments deducted from state unemployment compensation or simply pay the exchange direct for continued or new coverage alike. Simple automatic deductions from a bank account or even a credit card could suffice as payment.

It was by accident that our health insurance became so rooted in our employers and bringing us a whole host of concerns for us to ponder before switching jobs or on termination:

  • 1. Can we afford to lose our health insurance as we endure the new employers waiting period for another policy?
  • 2. Can we afford the high cost of COBRA health insurance during the transition?
  • 3. Will our trusted family physician be equally accessible on my new employers sponsored health plan?
  • 4. Does my new employer even offer health insurance and if not how many months of COBRA continuation coverage can we afford?
  • 5. Will a previous ailment be considered a preexisting condition with our next provider of care and therefore disqualify me for coverage altogether?

All these concerns would be eliminated by providing this alternative to employer sponsored health insurance. Larger firms may still desire to offer their ERISA approved health benefits and that would be just fine. As previously mentioned, how we became so heavily reliant on our employers for our health insurance when we handle most other insurance needs on our own was incidental. From The Hamilton Project’s report, page #7, Box #1:

  • Wage controls imposed during World War II, which gave employers the incentive to offer, and employees to accept, uncontrolled fringe benefits, including health coverage, because benefits were not subject to controls
  • A series of tax rulings, later codified in the landmark 1954 federal tax law, which exempted such benefits from taxation, providing a major tax advantage for employer-sponsored coverage
  • A 1948 ruling by the National Labor Relations Board that health benefits were a legitimate subject of collective bargaining, further spurring the growth of employment-based coverage, especially in unionized firms.

C. Tax laws presently favor employers and upper income earners because of the lack of any cap on an employer’s contributions to health plans. Employers receive a tax deduction for contributing to an employee’s health coverage costs. Unlike other employee compensation benefits, there is no limit on this exclusion. Therefore, the greater the coverage selected, the greater the tax break from Uncle Sam. The total revenue loss realized with this tax treatment in 2006 was said to be 208.6 billion dollars alone.

The bias in the disbursement of these 208 billion dollars exists because unless your employer offers coverage you can’t even touch the lucrative tax break. In addition, as stated above, the tax break is skewed to those in higher compensated jobs. The average annual tax subsidy for covered employees was $2778 in 2006. Low wage earners, those making less than $10.43 an hour, realized a subsidy of only $2268, while on the high-end, those earning more than $23.07 an hour, realized average subsidies of $3283. In essence, those who need the help the most don’t get it while those that seemingly need less aid receive the most tax benefit.

The Hamilton Project states the Federal government should cap the present tax exclusion for employer-sponsored insurance and create a refundable, advanceable, and assignable tax credit for lower-income families. A refundable tax credit would allow low-income families who likely have no federal tax liability to receive the credit before the April 15th filing deadline each year based on an estimated 0 tax liability. The assignability part comes into play whereby an individual is then allowed to allocate their credit towards the premiums due at the health exchange.

Here’s the least you need to know. Yes, our health care system is broken. Nearly 7 million citizens cannot afford to protect themselves or their families with health insurance. Still though, we do have the best health care system in the world. People who can afford a ticket to the United States come here all the time with health care needs that their own socialized or nonexistent systems fail adequately to address. Our technological advances in medicine alone have contributed not only to the high quality service available in the United States but to the cost of these services as well. To dummy down our medicine and procedures available would be a death sentence to millions all over our great nation and the world alike. Let’s not go backwards by devising such plans that will ultimately require rationing of health care. There is no reason our life expectancy should decline as we seek merely to counsel our seniors about alternative options rather than continue to provide for their needs. Rationing will more likely prescribe an early death sentence to our seniors than the medications they need to continue their long and we hope fruitful lives.

There is no liberal panacea that will adequately insure everyone, prevent rationing, and preserve the highest quality medical care this world knows. Medicare will be out of money by 2017 and Social Security will be bankrupt by 2035. Medicare Part D, the prescription drug plan that President George W. Bush signed into law in 2006 is way over budget already. This great nation became what it is by the selfless and hard work of millions of Americans. There’s just no substitute for everyone putting their best foot forward in hopes of keeping themselves out of the inevitable cracks that plague all free and competing societies.