The Horse Sense Blog compares the nonsense in today's news with good ol' fashioned horse sense

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Sunday, April 1, 2012

Supreme Court Decision About Obamacare Won’t Fix Cost Of Healthcare Coverage

Here’s the Nonsense:  Whatever the Supreme Court decides on Obamacare will be the right answer and lead to affordable healthcare coverage.

Here’s the Horse Sense:  The Supreme Court decision on the legality of Obamacare will have no impact on making healthcare coverage affordable.  That is an entirely different problem that no one is addressing honestly.  

Affordable healthcare coverage is an oxymoron that makes about as much sense as jumbo shrimp or postal service.  All the politicians, government bureaucrats, insurance industry experts, doctors and medical industry experts put together cannot make healthcare coverage affordable.  Their answers do little, if anything, to help bring the cost down.  The real answer is not something Americans will want to hear.

Everyone seems to think they have the answer to making healthcare coverage affordable.  President Obama and the Democrats want a single payer system that is guaranteed to fail and destroy the nation just as those types of systems are doing to many other countries that have already tried them.  They think things like preventive services will bring costs down to where everything is affordable. 

Republicans want a traditional insurance-based system and think that things like allowing insurers to sell across state lines will allow more competition and drive prices down. 

Some people on both sides of the aisle think that limiting the compensation of insurance industry CEOs will have significant impact on costs and make coverage affordable.  And there are a variety of other ideas that are just as ineffective that have been proposed, too.

The fact is that none of these things will fix the problem.  There is no way that will be acceptable to the consumer to cut costs to an affordable level.

First, we must realize that affordable coverage is a misnomer because what the public feels is affordable is far from what is possible or achievable.  Everyone says their answer will make it affordable, but no one defines what “affordable” really is.

If you ask the average American adult what an affordable or reasonable premium would be to pay for health insurance they would give you a number far below what the politicians or the insurance industry would tell you is affordable.  That is because the politicians have no idea what “affordable” is to the average American and the insurance industry knows that there is very little room for reduction in costs.

From my own personal non-scientific survey (that means I simply asked a bunch of people to see what they thought), I believe that most Americans would probably say somewhere around $100 a month for an individual and around $300 a month for a family. 

It is not possible to provide healthcare coverage for anywhere near that kind of money no matter whether the government, private industry, or anyone else provides it.

The most recent data I could find was for 2009, so we have to understand that these numbers would be a bit higher now, but using those numbers we find that the average premium for an individual was $402 per month and for a family it was $1114 per month.  That’s a lot of money but I can assure you that when the government talks about “affordable” coverage they are not thinking of cutting that cost by more than a small percentage.

People think that healthcare coverage is mostly profit to the insurers.  Now I’m not here to defend insurance companies, which the politicians have successfully bad mouthed into the most hated industry in the world, but we need to be honest about this if we want to find the truth.  So let’s not let any bias we have towards any group or industry be allowed into this discussion.  

Health insurers work on very small profit margins.  Most of the money they charge in premiums is to cover the actual cost of the medical care that they pay for on behalf of their customers, and that is very expensive.  That usually accounts for 80-85% of premiums they charge.  The balance has to cover all other costs including administration (salaries, overhead, all other business expenses) and still try to have a profit left when they’re done.  Even though most insurers have worked on those kinds of numbers for years, President Obama put through a requirement that says they must comply with those numbers.  The average profit for health insurers is small.  Recently reported numbers show the average profit to be 3.3%.  It’s the 86th most profitable industry.  According to Ezra Klein in the Washington Post it is far less profitable than others in the healthcare field.  It’s lower than “drug manufacturers (16.5 percent), health information services (9.3 percent), home health care (8.4 percent), medical labs and research (8.2 percent), medical instruments and supplies (6.8 percent), biotech firms (6.7 percent), and generic drug manufacturers (6.6 percent).”  (For more information on the industry’s profits you may want to check here, too.)

But the industry has been vilified beyond what most could withstand.  Some people would say that if the insurance company CEOs weren’t paid such high salaries that would make up the difference, but let’s look at that. UnitedHealthcare is the largest health insurer in the country.  They insure over 39 million people.  Their annual revenues in 2011 were almost $102 billion.  Their CEO gets a very high compensation package.  The amount fluctuates up and down each year but there was great criticism for a very high year in 2009 when he received $102 million in compensation.  If we paid that CEO nothing and divided his compensation package up between their members it would reduce each member’s insurance premium an average of 22 cents per month, or $2.62 per year.

As high as his compensation package is (and this is not a debate about whether or not he is overpaid), his compensation is far from having a huge impact on the premiums they pay.

The Obama administration says that healthy lifestyle programs and increasing preventive care will reduce costs to save money.  This is actually not as impactful as people think. 

Johnson and Johnson started in the mid-1990s to implement a healthy lifestyle program within their own company to reduce healthcare costs.  For employees that participate in the program to live healthier lifestyles they reduce the employee’s portion of the premium they pay by $500 per year.  They have found that those employees that participate in the program are saving the company an average of $225 per year in reduced healthcare costs.  So the company is actually subsidizing the program since they reduce the premium they charge the employee by $500 per year but the employees’ are saving the company $225 per year.  In other words, employees in the healthy lifestyle programs are costing the company $275 more per year than the employees who do not participate.

But more common than companies providing healthy lifestyle programs is the push for more preventive care.  President Obama and the Democrats want us to think that if insurers would just cover preventive services that that would reduce costs.  First, insurers already cover many preventive services, contrary to the claims of the Obama administration.  But study after study finds that the vast majority of time preventive care is more costly than not. 

Writing for the Hastings Center, Dr. Louise B. Russell reported in the Health Care Cost Monitor that, “An article in the February 14, 2008 New England Journal of Medicine presented the most recent and largest compilation of evidence. Based on 599 studies published between 2000 and 2005, the authors reported that spending more on prevention increased medical spending over 80 percent of the time.  The situation hasn’t changed since I concluded in my 1986 Brookings Institution book, Is Prevention Better than Cure?, that prevention usually added to medical spending.”

Republicans have been pushing the idea that if they allow insurers to sell across state lines that it will decrease health insurance premiums.  For those who aren’t aware, currently each state has its own insurance regulatory agency and laws that insurers must comply with to sell in that state.  And each state has to approve the rates the insurers charge for coverage in that state.  Insurers are not free to set their prices wherever they want.  They must justify their prices to each state regulatory agency before they can charge that rate.  Some believe that if insurers didn’t have to go through that with each individual state that it would reduce costs.  The fact is that while it would reduce administrative costs a little and make  life a little easier in some ways for insurers, it would be very minimal in impact.  Insurance rates are based on many factors including geographical location of the insured individual.  Healthcare costs vary widely.  Certainly it is easy to understand that it costs more to hospitalize someone in Los Angeles, Boston, or New York than it does in Fargo, Boise, or Topeka.  If the insurers were to spread the costs for care from high cost markets to customers who are located in lower cost markets that would mean that those who live in areas like Fargo, Boise and Topeka would pay far higher premiums to offset reductions in premiums charged to people in markets like New York, Boston, or Los Angeles.  It would not reduce costs, it would simply change the way they are charged to the customers.

By far the largest portion of what we pay for healthcare coverage is the actual medical costs.  The administrative costs, while still about 15-20% of the cost, are much smaller than the actual medical costs.  If the government ever succeeds in putting through a single-payer system where the government administers the program we will see a significant increase in the cost of administration of the program compared to having the private sector administer it.  The government does nothing efficiently, especially administration.  This is why the Medicaid medical programs in so many states are contracted out to private insurers.  The insurance companies can provide the same coverage far cheaper than the government can do it.  So by contracting these services out to them the government saves money compared to doing it themselves.

Nothing is going to make healthcare coverage a cost what consumers agree is “affordable.”  The idea that we can have free or inexpensive healthcare because of something the government does is wrong thinking.  Those who are trying to tell us that the government will make it affordable are either uninformed or they are liars.  My guess is they are not uninformed.

Medical costs are what drive the majority of the cost of healthcare coverage.  And as technology increases the costs go up even more.  Unless we give up some technology or are willing to say no to treatments that are needed, we are victims of rising costs due to the quality and advancement of care available in the U. S.

The only thing that will reduce the cost of healthcare coverage is to lower medical costs.  That either means that doctors, hospitals, pharmaceutical companies, labs, and other providers of healthcare would have to charge less or we have to use their services less.  We have come to a time when we have to decide what is important to us.  If we want the quality and quantity of healthcare to which we are accustomed to continue to be available to us then we have to decide if we are willing to give up other things to continue to pay for it. 

Our nation is at a crossroads.  We have to make hard decisions about what is important to us and what is not.  If we allow the government to control healthcare we will get rationing because it is the only way they can control costs.  Those of us who are baby boomers and older can forget about getting much medical care as we age.  The money will be saved for the younger people and once you are past a certain age (probably around 50 or even mid-40s) you will no longer be able to get services that today seem common.  Things like kidney dialysis or even certain prescription medications will no longer be available.  They will, instead, have a bureaucrat who is not a medical professional decide what you are allowed to have.  In many cases you will receive palliative care and no effort will be made to do any more than that.

When the Supreme Court met last week Justices Kennedy and Breyer raised the issue of what to do with the law if they threw out the individual mandate. They wondered, since the bill was 2700 pages long and they did not plan to wade through it and rule on each individual nightmare in it, whether they should strike down the entire law or let the rest of the law stand and let the chips fall where they may.  You had better hope and pray that they choose to strike down the entire law.  If they don’t, not only will healthcare costs go through the roof, but the quality and quantity of care we will be able to receive in the future will be far reduced from what we have today.

And by the way, we’ve already learned that more people will be uninsured under Obamacare than were before it was passed and the cost has already been found to have tripled what we were told and estimates are that it will go even higher.