The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Health Care Reform Status Quo a Bad Plan

Posted by Alan on July 25, 2009

One thing everyone can agree on: there is no perfect health care reform legislation. Every idea has flaws. Every proposal presents problems. This is the reality, but it should not be an excuse for doing nothing. Because the status quo is flawed and problematic, too. And the longer it takes to address the fundamental problems of the current system, the worse the cure will be.

This is a point President Barack Obama made in his press conference on July 22nd. Calling the status quo a “back-breaking alternative plan” he positioned the situation accurately. What’s being debated in Washington is not just the risks and benefits of change, but the cost of doing nothing.

Steven Pearlstein made the same point in his Washington Post business column. “Among the range of options for health-care reform, there’s one that is sure to raise your taxes, increase your out-of-pocket medical expenses, swell the federal deficit, leave more Americans without insurance and guarantee that wages will remain stagnant,” he writes. “That’s the option of doing nothing ….”

It is becoming increasingly difficult to argue for the status quo, yet that’s what the “no reform” advocates are doing. They ignore the financial reality that, unless changes are made, the current system will increase government deficits and shackle business expansion. Eventually changes will be made. The longer the tough decisions concerning what changes to make are put off, the more onerous the eventual changes are likely to be – single payer anyone?

This is not to say that proposals currently on the table are better than the current system. Some would definitely make matters worse. What it argues for is giving those seeking comprehensive and responsible reform to do their work. As Mr. Pearlstein points out, the broad outlines of reform are swirling around Washington: shifting reimbursement from fee-for-service to quality, requiring carriers to sell and consumers to buy coverage, preventive care, and accelerating the adoption of medical technology. I’d add to the list the likelihood that calls for a public plan will morph into acceptance of health insurance co-operatives, owned by its members. This is the direction in which I hope the health care reform debate will move. But what matters is keeping it moving.

Because the status quo is an alternative that may be reassuring to some now, but is likely to result in far worse reforms i the future.


12 Responses to “Health Care Reform Status Quo a Bad Plan”

  1. besthealthcarerates said

    Maybe I am missing something? But everyone talks about reducing healthcare costs and then looks at the insurance industry as a way to fix that problem? Isn’t the problem healthcare costs?…the $3500 per night hospital bed,the $100 for an Advil that you never had or the the hospital double billing? It seems to me that when people are able to negotiate their medical bills down by 50% – 80% there is something wrong with the medical billing business!

    medical insurance plans

    • Nosedoc said

      I don’t think the hospitals would argue that this is a crazy billing system. What they would say, however, is that they need to make up for their losses on uncompensated care and under-compensated care (Medicaid) through the paying patients, and that they need to bill high to be able to then discount these rates in their negotiations with the private insurers. And, yes, this is highly unfair to the under-insured or insured patients who are not destitute. This is a big part of what’s wrong with the system.

  2. David said

    I am former executive with a national group insurance company who has held positions in Underwriting, Marketing and Product Management. I have firsthand knowledge of Commercial HMO, Medicare HMO, small group (50-200 employees) and large group (200+), including multi-site national accounts. Here’s what I believe is needed in any “reform” legislation.

    1. Tax health insurance premiums paid by employers as any other compensation. The current exemption was a reaction to Federal Government wage and price controls and did not evolve in a free market. The current tax treatment masks the true cost health insurance leading to distorted behavior at the consumer level.
    2. Mandate that every resident of the US be covered by a health insurance plan whether employer provided, through a union or individually purchased. The controversies over “pre-existing conditions” and individual underwriting are resolved if everyone, from birth, has coverage. There are no “free riders.” The political process can decide at what level of poverty premiums should be subsidized by taxpayers.
    3. Establish a minimum benefits plan. The Devil will truly be in these details, but without a minimum plan the issue of the underinsured will remain. Except for the poorest among us the plan should call for cost sharing for all but preventive care and the treatment of chronic disease. The focus should be on protection against catastrophic expenses, the kind that bankrupt families, rather than day to day expenses. The degree of personal responsibility (that is, how much you must pay yourself) could be established as a function of family income much as today’s medical expense deduction is.
    4. Establish premiums using a “community rating by class” methodology (CRC). This provides for some recognition that medical expenses, in fact, vary by age, sex and geographic local. In addition, at the individual insured level, allow for “good health” discounts from the CRC premiums for those who meet certain standards shown to be consistent with lowered medical costs such as not smoking, maintaining an appropriate weight and following preventive care regimens.
    5. Provide for risk adjustment pools among participating insurers. This protects any single insurer from attracting more than the “normal” number of catastrophic cases. Participating insurance companies would pay into this “re-insurance” pool which would be required to be self supporting (no government subsidy).
    6. Abolish all State mandated benefits. There must be a single, national plan available to all. With the other provisions listed this will ensure that insurance is portable, freeing American labor to move to better opportunities without fear of losing insurance.
    7. There is no need for a “Public Option” if these rules are implemented, but if we must have one it must be self supporting (no government subsidy) and adhere to the same rules as private plans. Furthermore, any fee schedule “negotiated” by a Federal plan must be available to any participating insurance company as well.

  3. Nosedoc said

    Why yes, as a matter of fact we do. We are paid to provide care, and the vast majority of us take very seriously our fiduciary responsibilities toward our patients to provide care in an appropriate manner. I take pride in the fact that I only use the fiber-optic scope or have a hearing test performed when the clinical circumstances dictate, and I am in favor of strong utilization oversight as part of the health care reform package to track the frequency of self-referred tests, so that the outliers can be audited for a review of documented indications.

    I don’t believe it is fair to compare medical practices to health insurance corporations, however. Most physician practices are small private businesses that do not have corporate shareholders or boards of directors to answer to. For-profit entities like Wellpoint do, and go to great lengths to deny coverage for necessary diagnostic studies and procedures to their subscribers whenever possible. The corporate higher-ups have routinely taken home five to ten million dollars annually in salary, bonus, and stock options. A more reasonable business model needs to be devised in which the administrators are appropriately incentivized to do their jobs along with the health professionals. Capitation hasn’t worked as a reimbursement strategy in large part because physicians couldn’t allow the business-side of practice take priority over the care-giving aspects (and appropriately so), so many medical groups folded under this pay structure.
    P.S. – Sorry, forgot to tell you great post!

  4. Rick said

    Nosedoc, I just thought of something else. Don’t you and other doctors work for profit?

    • Rick said

      Without profit medical practices would not have the funds to properly imploy the necessary equipment to provide the excellent care they do. I feel our present health care is the best in the world and I hope we keep it that way.

      My departure from you is the fact you feel the profit motive is only appropriate for your profession and not my business. I’m sure there are similiar complaints about certain doctors or hospitals as your complaints about Wellpoint. However if you have a valid complaint don’t you feel it would be easier to achieve satisfactory results from Wellpoint rather than a government plan? If Wellpoint is as bad as you say, its competitors will eat it for lunch. With only a government plan, that plan will eat you for lunch.

      • Nosedoc said

        Let’s get something straight here. I am a free-market capitalist, and I am against the idea of a government-run health plan as this is the back-door approach to the Canadian Health System, which doesn’t work. But don’t turn Wellpoint and the rest of the insurance club into the “Good Guys” here, because there aren’t any. Profit is a wonderful incentive in a properly functioning free market system. The problem as I perceive it is that our country has largely been divided up into a large set of regional monopolies by a number of insurers, like Wellpoint, Humana and Anthem, in which these companies may individually control 60% or more of the market share of a region. This lack of competition in the marketplace has been partly responsible for the increase in insurance premiums and the lack of value that Americans have been getting for their insurance dollar. Defensive medicine, excessive self-referral, fraud, inappropriate (i.e., wrong) care and other factors account for the rest. By the way, it was our own government that allowed the free market to degrade in this way, allowing numerous takeovers and mergers to take place over the last quarter century. If there were more competition in the market, then these large insurers would not be raking in 20% profits in spite of 30% administrative expenses (at least these are the numbers I have been quoted). This sort of breakdown in the free market system has not occurred in the health care provider market. Anti-trust violations are simply not tolerated, as we have not been nearly as generous with PAC money compared with the insurance industry. Cost inefficiencies in the provider market are in other areas.

        I believe that if the existing health insurance companies can be rehabilitated so that there is adequate competition in the market and with subscribers and providers no longer being exploited I am all for it. The alternative, as I see it, is to treat a dominant insurer/regional monopoly as a de facto public utility, with all the government oversight and constraints that go along with it. I see some reason for optimism, as all parties affected by health care reform appear to be at the table and involved in the discussion.

        • Rick said

          This will be my last comment Doc. As I mentioned before our firm sells for-profit, mutual (owned by policyholders) and non profit insurance companies. Selfishly I wish you were correct that there is not that much competition in our business, but that is utterly incorrect! In addition as mentioned before the employer/people now can choose from whatever form of insurance carrier they desire. If the companies you mentioned are so bad why do the employers not change plans? How about giving me some names and our guys will try to take Wellpoint’s business.

          Regarding the 20% profit for large insurer’s Wellpoint’s was as follows: Profit % year ending 2008 was 4.36%. Expenses BEFORE TAXES 15.79%.

  5. Rick said

    Nosedoc, I own an independent insurance agency and group health represents approx 20% of our revenue. Non-profit and self insured plans account for approx 70% of the health insurance market. There are also many mutual insurance companies marketing health insurance. Most people do not realize mutual companies are owned by their policyholders. People are free to purchase coverage from profit or non-profit insurance firms and I feel they should remain free to do so.

    The idea of insurance is to cover the major loss and not for maintenance. Eventually the market will force employers to purchase this type of coverage and the policyholders will ration the care themselves rather than some government bureaucrat doing it for them. Therefore I’m one of those individuals that feels the country will be better served by the free market.

    • Nosedoc said

      It’s easy to lose sight of the fact that so many self-insurance plans are administered through the larger corporations, which merely hire out their provider networks–it gives the illusion of the corporations having a larger market share than they really do.

      As for the the path of health care reform, I agree that the free market needs to be preserved in all areas in which it functions well, which is most. The government really needs to serve as rule maker and compliance officer to ensure that abuses within the system are minimized.

      • Rick said

        Most insurer’s are non-profit or mutual (owned by policyholders) and excluding the self insured plans the non-profits & mutual’s dominate the market. Don’t you feel people should have the option to purchase from either profit or non-profit?

        Actually our firm places business with non-profits, mutual and profit. We find because of the profit motive those for profit companies are more nimble and many times more competitive than the non-profits.

        Having hundred’s of competitors attempting to take my business on a daily basis I find the free market a superior regulator regarding service, price and innovation than government bureaucrats.

  6. Nosedoc said

    I think there is uniform agreement that significant reforms are needed, and soon. The need for a public health insurance option is a major area of debate. One question is “Can our insurance industry be rehabilitated?” In my opinion, the whole idea that most of our third party payers are for-profit is ridiculous. How can corporate profits and the maintenance of good public health care policy be anything but mutually-exclusive? Another question is, “Would the public health insurance option drive the private insurers out of business, putting the U.S. in a Canada-like system with all of its flaws in taking care of people who are truly sick?”–a.k.a., the back-door to single payer conspiracy theory. I’d really like to know the long-term goals being discussed behind closed doors, and who the parties are that are involved in these discussions, along with the special interests receiving the most favored status.

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