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.

Will Obamacare Reduce the National Debt?

It looks as though the first priority for the Obama administration is the reduction of the national debt. That may not have been the President's initial priority or even his present one, and indeed it probably has been furthest from his mind. However, almost any other priority except national security is likely to be crowded out if the debt is not reduced, and the essence of reducing the national debt is either reducing the Defense Budget or reducing the Healthcare deficit, and there are signs that he would rather reduce security than the health agenda. It does not matter as much as it seems. The cumulative long-term debts of everything the government is involved in will ultimately be reflected in the national debt, and government healthcare deficits are the largest item. If the longterm growth of debt from that source is not constrained, almost everything else is in danger of being crowded out. With restraint in government healthcare costs, attention can be shifted to educational costs, or housing costs, or foreign affairs. Without it, the bond market will dominate what he must do.

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The health of the economy is the main determinant of the whole matter, not the health of the public. {bottom quote}
To state the obvious, the healthcare deficit results from expenditures running $250 billion a year greater than revenue for the program, or about half of its costs. To a degree seldom seen in the private sector, the fluctuations of revenue have almost nothing to do with healthcare, the core business of this issue. Revenue is mainly derived from a payroll tax of nearly 3%, half from employees and half from the employers. Payroll taxes go up and down with the national economy, but any connection to improved or worsened healthcare is entirely accidental. The second main revenue source would be from Medicare Part B and D premiums, whose fluctuations are likewise related to the economy rather than the core business of healthcare. From this, it can be concluded that the health of the economy is the main determinant of the whole matter, not the health of the public. Premiums are similarly related to the economy, although possibly to a smaller degree. Payroll taxes are collected on those with jobs, premiums by those who have retired. Payroll taxes are therefore more sensitive to the economy than premiums.

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Unproductive to look closely at direct costs; concentrate attention on the indirect kind. {bottom quote}
Expenditures are of two sorts: direct and indirect. Although the fiction is maintained that every expenditure is related to something which generates a charge, the direct costs are more accurately audited because their relation to the core business of healthcare is readily understood. The accounting of indirect costs is much more fanciful, with the total costs aggregated and distributed among the various departments of a hospital according to such debatable theories as the proportion of floor space occupied, and sometimes leading to bizarre instructions to hospital architects about tiny accident rooms and enormous surgical nurses lounges. For the time being, it seems fairly unproductive to look closely at direct costs and concentrate attention on the indirect kind. The item sizes are generally much greater, and the justification weaker. It is here that an auditor is likely to find padding in the remuneration of officers who make decisions about the remuneration of officers. The direct costs are much more likely to rise and fall in tandem with medical activity so that computer algorithms related to the variations of direct costs would rather easily distinguish indirect costs which might require more external guidance from auditors.

So what generates the $250 billion deficit? To a large extent, it represents fluctuation in the economy or GDP, about which nothing can be done by insurance auditors, from either the public or private sectors. It does result from an unknown amount of padding in the indirect expenses, and probably a fair amount of imaginative accounting from state Medicaid programs. Hospital administrators complain that there are many unwarranted debts from unpaid deductibles and insurance copayments. And the originators of the Affordable Care Act attribute huge losses to the unpaid bills of uninsured patients.

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We are now engaged in a very contentious stress test to see what the truth is. {bottom quote}
In the early days of congressional debate about healthcare reform, it used to be argued that mandatory health insurance would eliminate the bad debts from the uninsured, which would not only eliminate those losses, but reduce the cost of insurance carriers including Medicare by eliminating the need for the cost-shifting employed (through the indirect cost manipulations) to shift these costs of the uninsured into pseudo-costs of insurance. For obvious reasons, everyone was hesitant to be too specific. And so, it could be alleged, we are now engaged in a very contentious stress test to see what the truth is. The proponents of this theory have grown very quiet since they acquired better access to the facts, and it would be a very bold position to contend that the $250 billion dollar deficit is about to disappear. It is probably not even possible to stretch the true savings which will undoubtedly appear into something -- say, $100 billion a year -- which would make an appreciable dent in the National Debt, or international balance of payments, where there would then be a reason to call the experiment a real success. For that far more important goal, transforming the Medicare debt into an agricultural or Defense Department debt by creative accounting accomplishes very little. Reducing the deficit in the international balance of payments by reducing one of its main components, on the other hand, would be an astounding achievement in the face of almost universal skepticism. Just so it isn't done with smoke and mirrors.

Originally published: Monday, August 26, 2013; most-recently modified: Wednesday, June 05, 2019