Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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Reflections on Impending Obamacare
Reform was surely needed to remove distortions imposed on medical care by its financing. The next big questions are what the Affordable Care Act really reforms; and, whether the result will be affordable for the whole nation. Here are some proposals, just in case.

Introduction, continued

Almost three years after the President presented 2500 pages of the proposed health law to Congress for approval, the commentary is hampered because important rules are still unissued. If the program eventually works well, criticism and proposed alternatives may well be set aside. But if enough voters become upset during the early stages of implementation, there will be no escape from the review of other options. To some people alternatives of any sort would seem premature, but here they grow from a preliminary perception that this enormous program has wandered from identifying the basic problem, and thus failed to concentrate on a coherent remedy for solving it.

At its root, the Affordable Care Act is, quite rightly, an insurance reform. Reform of a system is considered to be failing because healthcare costs were rising alarmingly and many citizens had no insurance to buffer them from it. The bulk of citizens did have insurance, and their indifference to cost was considered a cause of the escalation. It was therefore elected to make health insurance universally mandatory and uniform, with government subsidies for those who could not afford it. A unified system would eliminate enough inefficiency to pay for itself, and while some individuals would see higher costs, average lifetime health costs would decline overall, as the peaks and valleys of lifetime costs level out. Governmental control of the insurance system would thereby put it in a position to ignore the nationwide indifference to costs, while its evident power to ration would make rationing unnecessary. More than this was, of course, promised during political campaigns, and more were probably secretly hoped for. But this short summary intends to make the best case for what was offered and will be accepted as the basis for analysis in this paper. If less than the best case makes an appearance, it will be noticed.

Insurance reform is expected to change something, so it seems fair to criticize the Affordable Care Act for accepting three major questionable aspects of the old system, as well as two innovations of its own. Much of this critique will focus on the new problems making the old problems worse, possibly bringing other old problems to the surface, as well. Criticism without offering a substitute is useless, so this paper re-examines Health Savings Accounts in this new environment and finds it actually makes that alternative more attractive. Combined with a repeal of the present tax preference for employer-controlled coverage, these two reforms might be sufficient alternative, with a more gradual beginning. However, the reader is asked to consider the far more ambitious proposal for lifetime, individually owned health policies, universally mandated if you please, with the potential for internally generated investment income to pay for substantial parts of its cost. And the reader is asked to look beyond insurance reform as the way to reduce medical costs without rationing, with the example of moving the center of medical care (physician offices) away from the acute care hospital campus, toward the concentrations of most illness (retirement villages). This latter would largely consist of removing obstacles to where the system seemingly wants to go, anyway. Several other non-insurance reforms are presented in sketchy form, with the urging that most of their seemingly insurance-related features are merely a reflection of present predominant payment routing through insurance, a feature now found in almost anything medical. When they rise to a level embedded in law, they may, of course, require legislative attention to reverse them.

The difficulties it should first correct are distortions of medical care imposed by existing insurance-like financing, searching for a way to conduct a pre-payment system. High costs and failure to include everyone are important issues. But they were only two of many distortions emerging from an employer-based, tax-preferenced, prepayment system. It had been awkwardly forced into an ill-suited term-insurance format long before the present Administration took office. The national clamor of dissatisfaction did not originate out of a united voice of the uninsured population demanding more free coverage, nor was individual cost constraints a central problem for the insured public; rather, clamor mostly originated with third-parties imagining that soaring aggregate costs could be constrained by cost-shifting them, and actuaries endorsing the delusion. Fundamental sources of unrest are to be found in limitations of one-year term insurance itself when applied to a pre-payment process for lifetime expenses -- further complicated by accidentally employer-basing it. Both of these distortions were seriously amplified by uneven bestowal of tax preference, also by accident. The number of small claims is too large to support the claims-processing cost. The size of the premium pool is too small to permit so much free care to be hidden within it because the average premium must not preclude the middle class from affording it. The cost of young and old dependents is rising, the cost of the employee who pays the bill is shrinking, but they are mostly the same people at different ages. The result was unaffordable delivery cost throughout a century of progressively vanishing disease. The health beneficiaries of this process were the patients, with longevity increased by three decades. The financial beneficiaries are also easy to identify. Just count the growing number of non-professionals who are making a living serving it.

On top of all this, a host of new problems are now predictable from additionally striving for universal insurance coverage. In the long history of insurance, there are no precedents to follow, for eliminating market-set prices as a benchmark for insurance reimbursement. The relevant test of whether insurance reform is successful in the end, rests on whether these and other distortions can be improved, ultimately leading to better, less expensive medical care for everyone who needs it, as distinguished from insurance for everyone, payment from no one. Three historic flaws in the existing system might be about to become four. Ominously, present indications are that Obamacare will not only raise aggregate costs appreciably but that at least half of the formerly uninsured population will discover Medicaid coverage was not their idea of an improvement. Unless Medicaid can be significantly and rapidly improved, four problems will become five. The great bulk of problems to be addressed have scarcely been comprehended by non-medical people. For example, no attempt has been made to reconcile more expensive care with more "affordable" care, which would appear to be its opposite. Very likely, medical care difficulties will continue to rankle, no matter how universally Obamacare manages to extend some sort of insurance coverage at a community rate. This time around, the public must insist on a more informed appraisal of the many consequences, of which political consequences are the least important.

------------------------------------------------------------------------------------------ That might sound fair, but it certainly contained political dynamite. Americans prefer individual insurance policies to generational transfers because they distrust the promises of politicians. Americans would surely prefer to own their own policies and take them to their next job if they could. It's not clear that individual health insurance policies are impossible, but they would be difficult to achieve unless they were greatly simplified. One of the great advantages of the Health Savings Account approach is that it would make individual policies a feasible option. It is thus worth a moment to consider the difficulties of employer-basing any kind of health insurance, before going on to the difficulties of present forms of health insurance, regardless of where it is based.

Originally published: Friday, June 14, 2013; most-recently modified: Wednesday, May 22, 2019