Comments on the $22,000 Baby Bill

It was with sympathy that I read Sarah Wildman's comments on the glories of the individual insurance market. At its inception (this go-around) the emphasis of the latest push towards comprehensive health care reform focused on abuses within the commercial insurance industry in what presents as just one of the flaws inherent in the way health insurance is funded here in the US.

As the rhetoric heated up, emphasis has been distracted by the buzz-words of obfuscation; phrases like "single-payer", and "public option" have been tossed around in the press with gay abandon, as those "honestly-desperately" attempting to wrap their heads around an amazingly complex issue parrot those phrases back as loudly as possible, perhaps with intent to demonstrate how really astute they are in a climate in which no one actually has a clue.

Over the span of my career I've made a lot of money explaining to hospital administrators and their CFO's how anesthesia departments are funded by multiple layers of reimbursement eligibility. I have spent countless hours explaining to groups of clinically brilliant anesthesiologist providers how to divest their nurse-anesthesia component from their corporate structure to take advantage of "loopholes" built into the system to accommodate special cases of provider deployment.

Here in America it is imminently possible that an entire industry may be eliminated from the national stage. We must however be mindful of the effect of removing an established gateway to 17% of our GDP, in an already slipping economy; can we afford to add another 3.5% to an already inflated unemployment statistic? Or do we need to amputate this arm of our economy, the cancer being advanced beyond repair? Can the system be saved?

Most definitely, YES, the system can be saved. What is right and good about the system, is mostly intact. What is broken about the system is decidedly Not how health care is provided to those of us who need it; we have the services to go around. What is broken is how those services get paid for.

There is nothing to be gained by throwing out a fundamentally sound design; using greed as the carrot that attracts the best and the brightest into health care, Machiavellian as it may be, results in the best and the brightest going into medicine, and has done so since the fifties.

Central to the current round of chat is the simple requirement to KNOW THE SYSTEM. For the purposes of health care funding, that means an obligation to study the system as it presents. It is really not so very difficult to understand what Medicare was supposed to do when it was introduced, what America was promised it would do by those who championed Medicare in the first place.

If the strain put on the system by those well-meaning congressmen and women has nearly broken the bank, they meant well. Effectively avoiding the inconvenience of actually Learning the System, it was decided that DRG payments would be set below cost-reimbursement levels that had been paid since the inception of the program. It was deemed "OK" for hospitals and doctors to simply pass those costs on to the rest of society that had really good insurance. When Medicare "cheating" the provider by paying less than cost was made OK by the federal government, the concept of a private-sector health care coverage option that was allowed to do the same spawned the HMO. As the number of HMO and PPO patients grew, the number of patients who still paid retail dwindled.

There were mumblings that doctors made too much money anyway, and this would bring them their collective come-uppance. Quite honestly, many professional providers in my field saw the trend as backlash against our making so much money. Making a lot of money can be popular in a lot of circles, but legislators who made less than we do had a chip on their shoulder about forcing the revenue that doctors make, down out of the nether regions. Fortunately or otherwise, they were in position to push the point, telling everyone to tighten the belt, bite the bullet, and otherwise take the position.

From the insider's perspective, it is my considered expert opinion that we do Not need to "throw out the baby with the bath." I contend that neither need we pass a giant package of legislation designed to confuse health care financing even more, without addressing what is really wrong at the system's root directory.

This is ultimately the story of health care finance in America, and what made it the envy of the planet back in the 50's and 60's, when it worked. Health care in the thirties and forties was out of reach of the emerging middle class, available only to the wealthy. The AMA and the AHA expanded health care access to that middle class, funding it entirely in the private sector. In a rather garish display of classic capitalist economics, America built the infrastructure we know today as Blue Cross and Blue Shield; I apologize for confirming the suspicions of conspiracy theorists from the radical left, that the health insurance industry was designed by doctors and hospitals for their own benefit.

Basing health care access on a booming post-war industrial base was actually a brilliant stroke.
The growing middle class was afforded health care coverage through the growing industrial base leftover from the war effort. Everybody had a job, everybody was going to college on the GI bill, everybody was buying a house... everybody had health insurance for their whole families.

Bridging the gaps between retirement and death, and between the unfortunate, the unemployed and the health care access mainstream were inevitable; these two groups fell through the coverage cracks, neither being gainfully employed. The promises of government-paid participation in health care financing were sound, based on solid theory; what happened to those programs, and the effects on the system of "cost-cuttting" measures designed to save our health care system from bankruptcy, have driven us exactly to that point: bankruptcy.

As opposed to socialized systems anywhere, our system paid “retail”, the cost of keeping the doors open, plus the salaries of some very well-paid providers. So long as everyone has access to such a system, which we all did, there were enough providers and services to go around. No one waited, no one was turned away. If your bill was more than you could afford, you made a phone call and it was written off. No one was sued over past-due balances. Every mother wanted her daughter to meet and marry a nice doctor, to provide for her and the children.

So in the American way, we paid more into the system than our Euro cousins did, and we have more mammography machines, more CAT-scan machines, more surgeons and other specialists than our Euro cousins as well. All that went wrong with the system was that the retail pricing went through the roof, the result of misplaced economic “good intentions”. Otherwise, there was a reason that doctors moved here from everywhere on the planet; our system was good enough to attract the Best-of-the-Best.

With everybody covered, the cost per patient was very close to the actual price being charged patients for services. Well, almost... those who were retired, too old to work but not yet dead, had no coverage. Oh, and those unfortunates who couldn't hold a job, had no coverage either. So the actual retail price for medical care services reflected actual costs per patient, plus about 15% in "clandestine cost-shifting" to those patients who did have coverage.

Medicare was introduced to cover patients in the retired-but-not-yet-dead gap, the first and most important to fill, obviously to everyone. Medicare was originally accepted by the medical community and health care financing economists, because of its "cost-reimbursement" payment methodology. So long as Medicare paid its fair share of costs, which it did admirably, the cost-shifting of the costs of providing elderly medical care could end, actually bringing down the cost of retail health care services. And it did.

Having worked so well with the "elderly gap", would not Medicaid work equally efficiently in closing the "underemployed/unemployed" gap? Giving it passing scrutiny and a lot of altruistic praise, the Medicaid program came into effect without even perfunctory intent to pay the costs of providing services to the poor. Unfortunately, Medicare cut its payments below the cost-reimbursement threshold in a misguided attempt to "cut costs", just like Medicaid was doing... HMO's and PPO's took justification from Medicare's lead, paying providers below the level of cost-reimbursement.

The theory, I suppose, was that providers would stop taking so much money out of the total reimbursement package, and start clipping coupons as middle-class wage earners. In practice however, the trend away from paying retail simply resulted in rather dramatic cost-shifting to those few patients who still DO pay retail, now a dwindling base of commercial insurance subscribers with inordinate means, and the now Ultra-unfortunate who must pay retail with no means by which to do so, driving them all into bankruptcy.

So health care is now accessible only by the wealthy, once again. No one with less than $250K annual income has any business trying to afford commercial insurance premiums. Disposable income of $1,100 per month for the obstetric care rider alone, would suggest a total monthly premium of $2,000. Were one to opt for a zero-deductible, zero-copayment policy that covered everything including pre-existing conditions, the price would be closer to $3,500 monthy. It has been estimated that the cost of current-retail coverage is about $40,000 annually. If you're not 65, and you don't raise your children in the ghetto, nor do you make a quarter-million per year, you can't afford health care in the US.

Commercial insurance companies base profits on what remains after payout of all covered claims, from the whole of those premiums collected in the fiscal year. This is so because we allow it to be so; back in the day it worked just fine, so obviously the system knows how best to police itself. The abuse of this formula is obvious, by denying claims, the corporate bottom-line pleases the stockholders intent on receiving a dividend check this year.

Fixing this won't require an act of congress. Each state has an insurance commission, each one holding a mandate to regulate the insurance industry in such a way as to ensure the public welfare on behalf of We, the People. The mandate for each can be altered, effectively altering corporate policy in each state. Let's make corporate profits a set percentage of total payout, changing the incentive structure to promote commercial insurance company "inclusions" of services, rather than "exclusions". When profits are tied to how much money in claims the companies can pay on our behalf, rather than how much money is withheld because of non-covered conditions, those particular abuses will disappear from the discussion table.

It wouldn't hurt to deny access to the legal system for any provider wishing to collect past-due amounts from patients who have incurred catastrophic health care balances. However, if the congress can effect a very-few select changes, the system can be effectively overhauled from within, and actually provide growth in the health care sector of GDP, thereby stimulating the general economy out of this Depression.

Simply put, to eliminate the cost-shifting to commercial insurance customers and the unfortunate uninsured, each program or policy must be brought to ground on the issue of paying the actual cost of providing services for each patient covered. This economic physics behind this single commitment will effect a nearly-immediate reduction in hospital and physician "retail rates" to levels that will raise eyebrows. I have made some thumbnail estimates on the order of 5- or 6-to-1.

OK, so when even middle-class families can afford health insurance at $500 per month, there will be those who are unable to access the system because of the deductibles and co-payments that for so long "hid" rising costs of retail, and subsequent insurance rates. I strongly recommend the elimination of co-payments and deductibles in any public option, as well as for state constituencies convinced of the possibilities of a more level playing field represented by eliminating the financial impediments to going to the doctor for those in the lower economic strata.

Not only will access to the system be augmented maximally, but the actual cost of health care per patient can be more accurately assessed by those in responsibility, those in position of oversight at the federal and state levels.

Moreover, an increase in access to the system will make the system grow. Recognize, however, that the "system" consists mainly of a very large body of our neighbors, many of whom have gone to school to become skilled health care providers. Recognize also that growth in health care, as a sector of GDP, translates to growth in this workforce; for a not-for-profit facility, this is almost a no-brainer. Nearly every dollar spent pays salaries of hospital employees in a not-for-profit hospital.

From a micro-ecomomics perspective, a growth in the health care sector from 17% to 25% of GDP would mean an increase in health care jobs, including professional providers, of nearly 50%. Such growth could only serve to stimulate the economy at-large, perhaps taking us out of a near-Depression. Such growth could only serve to reduce unemployment dramatically, as those searching for career-changes will find an open-admissions policy in higher-education programs serving the health care industry.

What more could we as a constituency want from our insurance commission? What more could we want from our federal government? What would make it easier for us to pay for health insurance on the front end, for those who cannot yet afford it, in such a way as to put the ball in the court of the public sector?

In fact, we can do just that, by authorizing a federal income tax credit for the purpose of purchasing a commercial health insurance policy at retail pricing. Insurance companies, it is already assumed, will be required to reimburse premiums collected above the cost of providing services, creating a truly market-regulated insurance pricing policy. The dramatic stimulus to health care as an industry, will find its way to the general economy in very short order, generating the kind of economic growth that John Maynard Keynes predicted, the kind of economic growth that Ronald Reagan's detractors dubbed "Voodoo Economics" for its uncanny ability to pay for itself given sufficient time and the Great Capitalist Machine at its unfettered finest.

My gut tells me that growth in the sector will generate sufficient growth in the general economy to generate a big enough income tax increase to pay for it. Let's not throw out the baby with the bath. Let's do this the American Way, taking the best of what our economic system has to offer, and putting it to work For us, for We, the People.

Update, August 8, 2009... Follow Sarah Wildman's story as she testifies before Congress!