Philadelphia Reflections

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

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Obamacare: Examination and Response
An appraisal of the Affordable Care Act and-- with some guesswork-- its tricky politics. Then, a way to capture major new revenue, even paying down existing Medicare debt, without raising premiums or harming quality care. Then, an offering of reforms even more basic, but more incremental. Finally, the briefest of statements about the basic premise.

Welcome to Welfare

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Percent of Their Hospital Cost Reimbursed: Medicaid 70%, Medicare 106%, Private Insurance 150%, Uninsured 400% (?) {bottom quote}
Hospital Cost Shifting

There's lots more; in politics there always is. The Pew Foundation, which now includes public opinion polling in its tasks, has pointed out 80% of the public does not share the polarization now so blatantly agitating the political class. Hence, some commentators have questioned the prevailing opinion of gerrymandering as the main source of it. These observers point to a worldwide decline in party affiliation; "independence" of party affiliation is claimed by nearly half of American voters when asked. Perhaps we have things backward, and gerrymandering is merely one effort, along with growing dependence on financial contributions by wealthy donors, to rescue party power. Television (and especially the Internet) prompts the voter to hang back before making decisions, hoping to decide something without pressure from party leaders. The growing tendency to vote straight party ballots is not taken by a few commentators as evidence of true voter wishes, but rather as evidence of the futility of resisting a two-party system. Some sophisticated observers feel straight ballots result from plurality ("first past the post") counting of votes, but this (unfortunate) trend seems more likely to be stimulated by (too) early voting by mail.

Since a two-party system favors moderate candidates over extremist ones, it may not be a bad system, but rather a good system adjusting to circumstances. A hidden cause of the present crisis in health care financing comes from the Medicaid programs, run by the states, but mostly (and inadequately) financed by federal taxes. A two-party system disciplines the nominating process by raising doubts about the ability of extremists to win the general election. Consequently, the final two candidates are often so similar the chance of a loser bolting the process, becomes small. In a proportional voting process, splinter parties cannot be silenced in the primaries, because political deals take place after the election when the public has become irrelevant to the voting outcome. Threats of public disaffection are therefore disregarded. This hidden feature went unrecognized at the Constitutional Convention, as indeed was the whole party apparatus. But it has to be counted as one of our greatest strengths, placing a much higher value on unity than dogma. If you follow this reasoning, you would have to conclude the present level of divisiveness will not persist. Because each generation has to learn its own lessons, it may recur, but it will not persist.

Nursing homes were not originally included in the 1965 legislation, but most states receive strong pressure to pay for elderly indigents in nursing homes, stranded by running out of savings. Perhaps it would be a good thing to include nursing home coverage in a reform bill, but nursing homes bear too much resemblance to work-houses to generate much demand to be in one. In variable degree, the circumvention has grown up of paying for nursing homes with money intended for hospitals but necessarily underpaying the hospitals. The hospitals make up the deficit by overcharging for outpatient services, as everybody will recognize who has been charged for the same service, both as an inpatient and an outpatient. By prevailing estimates, the Medicaid programs only pay hospitals about 70% of their actual costs. Hospitals escape insolvency to a minor degree by raising reimbursement demands on Medicare (to about 106% of costs) and more appreciably through private insurance (to something approaching 150% of costs). Teaching hospitals have some opportunity to raid funds intended for indirect research overhead, for resident stipends, and for disproportionate shares of an indigent, "self-pay" patients. Various accounting tricks account for the rest. For example, the transfer of schools of nursing from hospitals to universities has emboldened universities to seek the equivalent of traditional hospital reimbursement schemes, merely and mostly triggering new arenas for dispute, because the hospitals had hoped to profit from the transfer. Since Medicare somewhat overpays hospitals for its own patients, in recognition of the underpayment by states for indigents, current jargon blames the "government programs" for underfunding hospitals. A better summary of the situation is: Medicaid under-reimbursement is the largest source of hospital financing problems, but other problems are less resistant to change. That's pretty significant, in view of the Obamacare plan to put millions of uninsured into Medicaid, some of whom never asked to be insured at all, and most of whom have no previous experience with "welfare", so they need to start reading some books by Charles Dickens.

Governor Christie of New Jersey

The outcome of all this is nursing homes are in effect supported by Blue Cross and other private insurers of younger people, raising premiums to employer groups and individuals by something estimated like $900-1500 a year per subscriber. That's because Medicare is busy subsidizing Medicaid's hospital patients, the main source of hospital deficits. Because this juggling lacks straight-forwardness, results are inefficient; only about 42% of hospitals actually break even. As might be expected, knowledgeable employer Human Resources departments and hospital administrations know about and object to this system. They are cooperating with Obamacare more than might be otherwise expected, probably in the hope this cost-shifting can be adjusted more in their favor when it is less in the public eye. Mandating all employers to participate would, of course, increase the base of people sharing this exaction, but would ultimately link corporation treasuries to government deficits. The dream of the service unions would be to use this excuse to mandate the unionization of hospital employees. Governor Christie of New Jersey quickly saw a way to split the Union movement into public and private compartments through this. "Every time they get a raise, you get a tax increase," he told the unions of the private sector.

The participation of physicians in the Obamacare effort is riven by their own politics. For surgeons, the premiums for Malpractice insurance can sometimes run to $200,000 a year. An appalling proportion of obstetricians have been sued by their patients, to the point where women have no doctor to deliver their babies in certain parts of the country. For doctors in this high-risk category, relief from the plaintiff lawyers is the most pressing of all problems. On the other hand, many physician specialties have almost no malpractice risk and are much more exercised about the SGR reimbursement freeze, which has been in effect since the administration of Lyndon Johnson and has been severely undermined by inflation ever since then. With physician ranks divided by two different priorities, the way is open to promise both and reward neither.

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The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. {bottom quote}
Tenth Amendment

Urban-rural differences remain important in health care. Senators Baucus, Grassley and Snowe come from sparsely settled states. Former Senator Daschle is from South Dakota; there are perhaps twenty states potentially in this category. With a sparse population, it is difficult to develop sufficient insurance business for the law of large numbers to establish actuarial safety; these states need to combine into regional areas to reduce the competitive size of their loss reserves. On the other hand, populous states like New York, California, etc. are often adamantly opposed to regional groupings, for opposite reasons. These population disparities create differing attitudes about modifying the 1945 McCarran Ferguson Act, which limits federal insurance regulation and enables state regulation, thereby making it difficult for small states to agree to interstate health insurance sales and portability. The fact that large employers have already achieved this freedom through ERISA also makes them unwilling to see the problem or waste political capital achieving it for others. And thereby diminishes the power of low-population states to resist national healthcare insurance, which is their natural position.

And finally, Obamacare raises some questions about judicial remedies. Certain Op-Ed commentators have raised a question of the constitutionality of federal mandates or pre-emptions of state laws, depending on how they are phrased. The U.S. Constitution was only narrowly ratified in 1789, in large part because the states were fearful of the federal government getting bigger and more powerful than necessary. In response to this strong feeling, the Tenth Amendment reinforces in no ambiguous words, that anything not specifically assigned to the national government is to be in the province of the state or local governments. If ever there was original intent, it was that one.


Never Enough: America's Limitless Welfare State amazon

Originally published: Tuesday, June 24, 2014; most-recently modified: Friday, June 07, 2019