Health Care Reform’s Likely Outcome: Worse Than Promised; Not as Bad as Feared

As the Senate begins their effort to pass health care reform anxiety levels are, quite naturally and rightly rising. Health care is highly personal. For those of us working within the current framework, having politicians mess with our livelihood is a stressful to say the least. That these politicians (both Democrats and Republicans) seem to care less about the substance of the reform and more about how they appeal to their electoral base does nothing to reduce that stress.

Of course, what we’re reacting to at this stage is not the final reform legislation. The House and Senate proposals foreshadow what Congress will eventually pass (if it passes anything). The actual legislation is still to come. Put another way, we know the basic outline, but the devil resides in a suburb of the details. As I pointed out in my previous post, however, the real drafting of health care reform legislation hasn’t started yet. With the Senate taking up the issue we’re seeing the end of the legislative phase in which the parameters are defined. It’s in the upcoming conference committee that will define health care reform 2009-style (or, more likely, early 2010).

Concerning that prior post, Ron Masters, a friend and frequent reader/commenter of this blog, took me to task for writing too kindly about the current House and Senate versions of health care reform. “I’m surprised that you seem to feel that either of these bills are any good,” he write. This after a litany of shortcomings concerning the current administration, the ability of government to deliver much of anything, and the foolishness of imposing taxes and creating new entitlements in the midst of the current economic mess. And he makes some fair points.

He’s not alone. I’ve heard from a lot of brokers, readers and others who are convinced the coming health care reform will be a disaster leading to ruin and damnation for the country. I disagree. Here’s why.

As any reader of this blog knows, I don’t buy into the premises of those at the extreme. Not all government programs are good, but some are. Not all taxes are bad, but some are. Change is important, but getting change right is more important. Defending the status quo just because it is the status quo is indefensible. In other words, I’m comfortable with the gray shades of reality and uncomfortable with the black-and-whites of true believers.

I’m also comfortable with the government doing stupid things now and then. No party and no administration has a monopoly on such foolishness. (Nor has any party or administration failed to achieve some truly noble accomplishments). What’s more, no administration lasts forever. Whatever health care reform passes in the next few months will be administered by a parade of future administrations and modified by Congresses yet to-be-elected. Many people have a tendency to believe whatever Congress passes and how the current administration implements it will remain unchanged forever. It won’t. Medicare was vilified as socialistic and a fast slide toward America’s ruin when it was being created. Things didn’t work out that way. The program has survived for nearly 45 years under the administrations of Presidents Johnson, Nixon, Ford, Carter, Reagan, Bush-the-first, Clinton and Bush-the-second. Yes, it is a far from perfect program and faces significant challenges. Still, it works, it’s evolved and it will continue to do so. And the country has survived.

Another reason I’m not outright opposed to health care reform is because I believe expanding access to health insurance is critically important. It is well understood that everyone in America has access to health care. But it is also well documented that people with health insurance live healthier, longer lives. A recent study by researchers at Harvard Medical School confirmed an earlier study from the 1980’s that “uninsurance is associated with mortality.” That’s an awkward way of stating a well-accepted truism: being uninsured can be hazardous to your health.

Expanding coverage, however, is expensive. The more people who have coverage the more people who will incur medical expenses. That is after all, the whole idea and a desirable outcome. It’s also an expensive outcome. In my mind, it’s a price worth paying. Especially considering the potential return on this investment.

Those with insurance are already making heavy payments to pay for care received by the uninsured according to a study by Families USA. In 2008, the study reports, nearly $43 billion of health care the uninsured received from hospitals, doctors and other providers went unpaid. This uncompensated care results in higher premiums for those with coverage. In 2008 this hidden tax increased premiums $368 for single coverage and $1,017 for family coverage. Given the recession, this amount has no doubt gone up. Increasing the number of Americans with insurance should reduce this burden.

Early identification of potential health conditions before they blossom into serious diseases can generate tremendous economic benefits, although these savings are rarely considered in a cost-benefit analysis. Every dollar invested in preventing and treating heart attacks generates $7 in increased productivity, according to a study by United BioSource Corporation.

In other words, it’s not just the reform bills being considered in Washington that are expensive. So is the status quo. Health care costs are crippling businesses, bankrupting families and state governments, enabling fraud and abuse, increasing taxes, and failing to deliver on many of its promises. Change is inevitable – and it’s coming.

Too many in Washington believe (or at least claim to believe) that reforming the health insurance industry will reduce the cost of coverage. Far from it. The bills being considered in Congress will cause premiums to increase. Until Congress tackles the underlying causes of skyrocketing medical costs, health insurance coverage will become increasingly unaffordable. The House and Senate health care reform bills do have more cost containment provisions than is generally acknowledged. Could they be stronger and more ambitious? Yes. Are obvious cost containment opportunities missing (e.g., malpractice reform?) Yes. But they’re there. And future efforts to restrain medical costs will benefit from the seeds planted in the current reform debate.

Which brings us, I suppose, to the key question: are the House and Senate health care reform bills good? No, not really. They’re too heavy handed, using an axe when a scalpel is required. As noted, their cost containment provisions are weaker than the American people deserve. The bills reflect a misunderstanding of how health insurance works and about what drives premiums. The costs for the program are no doubt understated (few initiatives of this magnitude, whether attempted by government or business, come in under budget).

If either the House or Senate bills were the final legislation I’d be more concerned than I am now (and, for the record, I am concerned). But neither HR 3962 nor Senate Majority Leader Harry Reid’s proposal are going to be enacted, not as currently written. I believe the conference committee will need to make significant changes in order to get the votes needed for passage – if that’s even possible.

There are plenty of substantive problems with these health care reform proposals. To make matters worse, their backers and opponents are knowingly overpromising or attempting to frighten the public. Democrats claim their reforms will reduce overall health care costs, lower premiums and reduce the deficit. Wrong on all counts. Republicans claim it will destroy American businesses, annihilate Medicare, create death panels and bankrupt the country. Just as wrong.

We’ve seen this script before concerning Medicare, Iraq, and a host of other issues. Partisans on one side over promise, their opponents dredge up scenarios of doom. That both sides are equally guilty makes it no more acceptable or welcome. But it is what it is.

The main point of my previous post, and of this one, is that if reform passes, it will not be as bad as feared nor as good as promised. It will be refined sooner (by regulation) and later (by future legislation). The fight for a better health care system will continue. Only the status quo will have changed. The need to improve on it will remain.

The Hidden Tax: How Much is It? Does it Matter?

Governor Arnold Schwarzenegger did a masterful job when introducing his health care reform package in moving the debate from health insurance lingo to terms “regular” folks could understand. One example concerns the term “cost shifting” which describes what happens when the uninsured receive medical care for which they cannot pay: the cost of those services are shifted to those who can pay — those with insurance. The term may be descriptive, but as political coinage, it carries little weight.

In introducing his health care reform plan Governor Schwarzenegger described the same phenomena as a “hidden tax.” Everyone understands a tax. No one likes them. And hidden taxes sounds vaguely sinister.  Most significantly, it allows the Republican Governor to position himself as a tax cutter at the same time he calls for imposing some very tax-like “fees” on businesses, hospitals and doctors.

But how real is this hidden tax on which the Governor depends so heavily? According to a recent column by the Sacramento Bee’s Dan Walters, the Governor relied on a study conducted by the New America Foundation which claims premiums in California are 10 percent higher than they would be if everyone is insured. This is real money: approximately $1,200 per year for a typical family. What this means is that the fees the Governor would oppose can be viewed merely as a means of recapturing some of this hidden tax for the noble purpose of subsidizing premiums for low- and mid-income Californians and lowering overall premiums for everyone.

However, a new study by researchers at Stanford University’s Hoover Institution takes serious issue with the methodology used by he New America Foundation. According to Walters, the folks at Stanford peg the Hidden Tax at less than 2.8 percent of premiums. Let’s assume 2.5% and it works out to about $300 per year for that typical family.

Academics can — and given the politics of the issue, will — debate the size of the Hidden Tax for months to come.  And those in the business community who oppose the fees the Governor would impose on them will use the controversy to position those fees as unfair. That’s politics as usual.

Yet all of this strikes me as a distraction. While a better understanding of the financial impact of California’s current health care system is important, it’s not the only justification to push for changes. The need for action is better justified because it’s the right thing to do.

Anthony Wright has a similar take on this in a May 29th posting on the Health Access California blog. And Senator Barack Obama captured the essence of the need for reform in introducing his own health care reform proposal on May 29th. “We are not a country that rewards hard work and perseverance with bankruptcies and foreclosures,” he said. “We are not a country that allows major challenges to go unsolved and unaddressed while our people suffer needlessly. In the richest nation on Earth, it is simply not right that the skyrocketing profits of the drug and insurance industries are paid for by the skyrocketing premiums that come from the pockets of the American people. This is not who we are. And this is not who we have to be.”

Leaving aside the rhetoric over profits, Obama captures the justification for reform.  Whether the Hidden Tax is two percent or 10 percent is less important than that we as a state and a country can do better to protect the health and financial security of our people.

That’s why the health care debate is so important. And that’s why it’s so important we get it right. Lawmakers need to take the time to thoroughly understand the consequences of their actions and to find a balanced, responsible approach to meaningful reform. Eliminating the Hidden Tax is a part of the puzzle, but only a part.  Creating a health care system which is accessible, affordable and fair should be our goal. It’s closer to who we are and who we can be.