Sunday, November 3, 2013

It's Not a Website... It's a Health Plan

My birthday is in January; so I find myself reviewing my new health insurance options during the open enrollment period for those covered by Medicare.  (Yes, that’s right.  I will be 65.) 

Last week, I attended a seminar by a local insurer.  The presenter covered all the options – Medicare Parts A and B, Medicare Advantage, etc. – concisely and congenially.  It was well worth my time having come away from the various government and AARP websites totally confused.  Obamacare will cause premiums to rise.  Aetna CEO Mark Bertolini says it will cost his customers about $1 Billion per year.  But, I am not complaining.

Regular readers know that I believe that government should not intervene in private enterprise.  So, why am I looking forward to Medicare?

Well, my premiums will go down 80% after I sign up.  Moreover, I have grappled with the free market for private individual insurance and I’m familiar with its flaws.  An insurer has turned me down because my blood pressure is below normal.  My doctor says I am too healthy.  However, there was no medically qualified person at the insurer to whom I could make my case.  Just a faceless bureaucracy following a set of guidelines.

Still, I got a chuckle when NBC broke the news about people having their policies cancelled because Obamacare requires insurers to offer only those policies that meet new standards.  The news story featured a middle-aged guy whose premium went up 400% in order to meet those standards, which include coverage for, among other things, maternity. 

Hey, I could afford to chuckle.  I have Medicare!

The hodgepodge of regulations that technocrats will shape from this onerous 2500+ page law will undoubtedly cause us more grief, just as the website has in the first few weeks of implementation. 

By now, we shouldn’t be surprised that the government would spend $375 Million of the taxpayers money to build a website that doesn’t work.  So what if that’s more than double what Apple invested to develop the iPhone?  Remember those $600 toilet seats on Navy submarines?

What’s the big deal?

The big deal is that the law doesn’t do what its headline says it will do – make healthcare affordable.  The President has talked about “bending the cost curve”, whatever that means.  But, mandating that young folks who can’t afford health insurance buy it or be penalized doesn’t bend the cost curve.  It just adds people who don’t go to the doctor to the insurance pool with the intent of lowering the average premium. 

The real driver of healthcare cost is the fee for service (FFS) payment system.  From an economist’s perspective, if you provide a financial incentive for doctors to perform medical procedures, they will perform more procedures – especially when there is a bottomless pit of money at the other end of the claims process.

It gets worse.  The best defense against a medical malpractice suit is to follow (or perhaps “over-follow”) published protocols on each patient.  You guessed it.  More billable procedures.

However, there’s hope.  The Affordable Care Act authorizes the creation of Accountable Care Organizations (ACO’s) and healthcare providers are beginning to experiment with this model.  Payment would be based on the quality of care provided rather than the amount of procedures performed.  The financial incentives and disincentives are being studied with results that are, to date, inconclusive.

The Center for American Progress suggests other alternatives such as Bundled Payments, wherein providers would receive a single payment for each patient based upon medical history.  Patient centered medical homes would restructure primary care to focus on preventive medicine, patient education and coordination among healthcare providers.  It would encourage preventive care rather than excessive treatments.

Again, these alternatives to FFS are great ideas as yet untested.  But, they represent potential free market solution within the government’s framework.

All of this confusion and complexity could easily lead one to buy into the liberal Democrat idea of Medicare for all.  Medicare works well for seniors (and, if you don’t believe me, see what happens if you try to take it away).  Why not extend coverage to every American?

Well, you have to ask how we’ll pay for it.  By many estimates, the Medicare Trust Fund will go broke before Baby Boomers go on to their great reward.  Clearly, the current 2.7% payroll tax is insufficient to extend coverage to the population at large.

No doubt, there are many who would propose raising taxes to close the gap.  And, certainly the half of the population that receives subsidized health insurance would sign up for that.  That includes me – I’m on Medicare!  So, it would be easy to tax the other half, wouldn’t it? 

Wait a minute!  That includes me, too!



  1. "Giving money and power to government is like giving whiskey and car keys to teenage boys."
    P. J. O'Rourke

    "The best minds are not in government. If any were, business would steal them away."
    Ronald Reagan

    Mike Tucci

  2. I'm getting worn out (long story) and thought maybe I should retire early (at 62)...but I CANNOT...I can't afford the health care premiums. Whatever I would get in Social Security will go directly to insurance premiums WITH NOTHING LEFT OVER!

  3. Raul Mas As usual, John provides a lucid and impartial review of the problem plagued Affordable Care Act (ACA). IMHO it has little to do with controlling health care costs, and everything to do with income redistribution.

  4. Well done.

    Michael Mazzarino

  5. Like always, great articles
    thank you

  6. interesting perspective - this is what my company is all about - helping docs more efficiently perform the Medicare Annual Wellness Visit and helping MA Plans & ACOs document health status of each patient so their bundled payment reflects accurately their expected cost of care

    Matt Becker

  7. Christopher Smith
    Senior Consultant at Deloitte


    You seem afflicted with some hidebound attachment to accounting, when "We Are All Modern Monetary Theorists Now"

    Virginia just elected a governor who figures federal loot to expand Medicaid will just make all the pain go away. So we got THAT goin' for us. Until that loot runs out in, oh, ~3 years.

  8. Thomas V. (Vic) Cole
    Lead Systems Engineer at QinetiQ North Ameica

    In your blog you say "The Affordable Care Act authorizes the creation of Accountable Care Organizations (ACO’s) and healthcare providers are beginning to experiment with this model. Payment would be based on the quality of care provided rather than the amount of procedures performed."
    How will ACOs will be able to reduce costs? The ACA mandates coverage levels, and it is this increase in the level of coverage that the insurance companies claim is driving the current spike in costs.
    Personally, I've never understood how insurance can be the solution. I get the idea of cost leveling and transference, but insurance companies profit from carefully weghing probabilities and actuarial data. In the end, they profit or die, but health care changes not one wit. In the mean time, a significant industry has been built around the administrative process of insurance filing. Under ACA, those administrative costs will necessarily rise. I've not heard anyone in government point out that insurance (and lawyers, but that's another topic) makes health care costs increase.

  9. @Christopher. I am not a supporter of the ACA. I would rather live in a world where it didn't exist. My blog post is semi-whimsical. Since I am locked into the prevailing system, I seek the best coverage at the lowest cost just like those who are proponents of the law.

    The post is about the conflict between my behavior and my principles. Ain't it a bitch?

    @Thomas. I don't know how or if the ACOs will reduce cost. I don't think anyone knows for sure. It's all theoretical. What I expressed in my post is "There is hope." The theory is that there will be more preventive care in an ACO and that will improve medical outcomes and reduce cost. If you click the link in the post, you'll read an article about the financial incentives in the ACO model. I would theorize that ACO means less revenue than FFS. The open question is will it also reduce cost?

  10. Carl Amiaga
    Owner, Temps Unlimited, Inc

    Great article John. I intend to close my business at the end of next year and retire at 52 rather than deal with Obamacare. Someone else can pay the taxes for a while.

  11. Alison Brown
    Feminist Civic & Social Organization Leader

    Insurance costs and health care costs were already rising. They have been rising well above the rate of inflation for decades. Getting the uninsured out of the cost equation is only the beginning.
    Even in countries with good health care coverage and excellent cost control through price negotiations between providers and insurers, costs go up. New technology costs more, new medications cost more inititally, the cost of living is higher for all employees of health care providers - everything has to go up with them.

  12. Thomas V. (Vic) Cole
    Lead Systems Engineer at QinetiQ North Ameica

    @John. There is always hope, but it's important to consider where the hope is placed. When placed in the government, I'm reminded of the old saying, "You can hope in one hand and crap in the other, and see which one fills up first."

  13. Thanks, Thomas. You provided my biggest laugh of the day.

  14. John, good luck with the Medicare. I retired (USN) 20 years ago. 20 years of experience with Tricare. Not always easy to find doctors who accept it. Took a couple of weeks to find a surgeon to remove my gall bladder early this year. Thought I was coming down with the flu the other day at work; went to a doc in the box as it was around 6 pm. Found out Tricare prime requires a referral to go to Tricare approved after hours clinics (Minute Clinic, etc.) Crazy system.