Medical Economics

In late March, the U. S. Supreme Court held its hearings on the Affordable Care Act [ACA], otherwise known as Obamacare by its opponents.  At that time, polls were taken, and while a clear majority of Americans oppose the Act, a majority happens to like most of the major provisions of the law. Seventy percent of the respondents approved of the provision that forbids insurance companies from refusing to cover people with preexisting medical conditions.  A majority approves of expansion of certain Medicare coverages and the coverage of adult children of policyholders to age 26.  What a sizable majority opposes is the mandate for all Americans to obtain insurance coverage, one way or another, or to pay significant federal fines and penalties.

Exactly what will happen, however, if the Supreme Court strikes down the individual insurance mandate, but upholds the remainder of the Act?

If that occurs, and it is indeed possible, healthcare insurance costs will continue to rise, and to do so at rates as fast as regulatory authorities allow.  That won’t be because the insurance companies are greedy, but because they’ll need those increased premiums to pay the healthcare costs of their policyholders.

Why?  Because the cost-savings projected with the ACA were based on increasing the pool of those insured and because all the features everyone likes will increase costs in ways that the opponents of the Act aren’t facing.  The most notable problem that strikes me is what will happen if people who aren’t insured, and who won’t be required to purchase health insurance, come down with serious health care problems.  As the prohibition against not covering preexisting conditions kicks in, those with problems may very well be able to purchase insurance only after they get sick – and still get coverage.  Then, given the high cost of insurance, more people will opt out of health insurance, until or unless they need major medical treatment.  This could easily undermine the entire healthcare system. And most of those involved with the pending court decision have already noted that this would be a problem and that if the individual mandate is declared unconstitutional, the wider coverage and prohibition of denial of coverage for preexisting medical conditions would also have to be struck down or repealed.

As it is, there are more and more doctors who refuse to treat patients covered by Medicaid because they literally lose money on each patient, and some doctors every year who are caught “overbilling” Medicare insurance, many of whom claim to do so to cover costs. All insurance is based on spreading risk across the population and across a lifetime.  Wisely or unwisely, the ACA attempted to extend benefits by mandating extended coverage.  Without that mandate, regardless of all the rhetoric, the current economics of American medical care will require both higher insurance rates in some form and more denials of expensive medical procedures.

If the universal mandate is struck down, the only ways out of this mess, in general terms, are to:  (1) totally reform the entire health care system [which is impossible in the current climate]; (2) deny more and more care to a wider number of people [possible and likely, but politically unpalatable]; or (3) continue on the course of raising prices in some form or another [higher deductibles and co-payments, higher premiums, etc.].

Once again, we have the conflict between what the public demands and what that same public is unwilling to pay for… or wants someone else to fund.

 

 

 

14 thoughts on “Medical Economics”

  1. AMos says:

    Do you think there is a 4th possibility of the mandate being struck down, the other provisions remaining, and the rising costs and hardships forcing America to re-examine a national health policy? Admittedly a long shot, but it does seem as if much of what the government does is only in response to crisis. If the unpopular mandate is overturned but the popular provisions are unable to be repealed, could this force a crisis that causes our government to tackle this more comprehensively?

  2. I’d like to think so, but, in an election year, I fear that it will just lead to a war of rhetoric as each side uses it to whip up their respective political bases. For politicians these days, nothing tops getting re-elected. Most of those who felt otherwise have been defeated or have chosen to retire.

  3. Alan says:

    There was a relatively recent research article published concerning healthcare across the world. In the main it was focused on how other countries which have national health care conduct their health care programs. The article explored both the positives and the negatives (Of which there were plenty for both sides). These various systems were reviewed and consulted during the formation of the healthcare bill.

    Despite my innate dislike of the mandate that everyone must have healthcare, and pay for it if they want it or not, I do understand the reasoning behind the plan. I think that both the left and the right are so busy saying it’s ‘bad’, that they can’t get past their political posistions to come up with a real solution. It is those same politics which can ruin the potential of the program.

    Like many things we talk about, it’s money based. Most countries with national health care spend about 10% of their GDP on it. To varying degrees of success. England’s socialistic healthcare plan nearly collapsed when the conservatives were in power, for instance. With so much goverment involvement, and the controling factor being funding, I worry that whatever option the political parties come up with we’ll only end up suffering more for it.

  4. Nate says:

    For what it’s worth, when giving oral arguments to the Supreme Court, the government suggested tying the insurance mandate to the requirement to cover per-existing conditions so that if they strike down the mandate it will also invalidate the coverage requirement.

    The court contracted an independent lawyer to provide arguments that it could strike down only the insurance mandate, leaving the rest of the law alone. But the government has considered the argument you make and does seem to agree with it.

  5. Gordon Long says:

    Would a value added national tax and no tax exemptions put a severe enough crimp on the vested insurance and other interests that the politicians could afford to sit down and work out something that works for the people?

  6. Wine Guy says:

    Until U.S. citizens figure out that personal responsibility is at the core of medicine (which some, if not many, find unpalatable), medical costs will continue to rise. Getting the best medical care IS expensive. If you want to continue to receive the best, it needs to be paid for somehow.

    Other thoughts (in no particular order)

    1. Futile care: terminal cases of cancer are called that because they are terminal. Yes, there are miraculous recoveries, but they are the exception to the rule because they are miraculous.

    2. The U.S taxpayer and insurance companies fund most medication research in the world. Other countries keep costs down by mandating what a medication costs, driving up our costs here because research is expensive and big Pharma has to fund it somehow.

    3. While the argument can be made that access to health care is an ethical (some say moral) right, it is a legal right because Congress (at state and federal level) has made it while only offering to fund so without offering to fund more than 20-40% of that mandate (depending on the state).

    4. The demand for ‘instant access’ to medical care drives up costs. If more people were willing to wait for routine and non-urgent care (run of the mill head colds that get better in 5-7 days no matter what I as an ER doc can do), costs would go down.

    5. Insurance Companies work for their shareholders, not for their policy holders. They DO have a fiduciary responsibility to both: guess which one wins most often? (An alternative way to word this is “How much profit does an insurance company really need and are we willing to regulate that?”)

    6. We continue to pay for people’s healthcare when they deliberately abuse their bodies through: smoking, obesity, risk-taking behavior that has predictably consequences (“Extreme Sports” among late-teens through mid-30’s who do not have health insurance comes to mind).

    Some call this a “Blame the victim” mentality, but then I ask who else is to blame? I didn’t force that person to start smoking; I didn’t force the person to go BASE jumping; and I didn’t force the person to have unprotected intercourse with someone who turned out to be Hep C positive (or pick other serious viral diseases or STDs).

    7. Preventive Health Care needs to be emphasized. Too much of medicine is on the treatment side – when most of the damage is already done and all we’re doing is fighting a delaying action to stave off serious morbidity (disability associated with illness or injury). The problem is insurance companies don’t reimburse for keeping people healthy, they reimburse for treating sick people. Without a real change in the mentality of both insurers AND patients, medicine will forever be playing catch-up.

    8. We are victims of our own success: The longer people live, the more they get sick and the more they have disabling injuries and diseases. People who would’ve died at age 55 or 60 of their heart attack, serious pneumonia, or stroke now routinely live another 5-25 years – even if at a reduced level of activity and productivity. Growing old, as they say, isn’t for sissies.

    I would be happy to pay more for my health care if I could be assured that it would actually make a difference (I don’t see this happening with a government program), if it would emphasize preventive care (which is much more time and clinic intensive than any other type of care and is barely reimbursed by any medical payors, including medicare and the VA), and if there were personal responsibility built in (smokers pay more, obese pay more, etc.).

    Everyone says they want a level playing field but what most people really mean is I need my health care the way I want it and everyone else can get their care however they get it.

    /rant

    1. Mikor says:

      Hear, hear! A thoughtful rant, as Mr. Modesitt has remarked. Combining meaningful ways to reduce costs that Wine Guy has outlined, plus understanding Adverse Selection which is the outcome of lack of universal insurance pool that LEM mentioned at the beginning of this thread, is what’s needed in this debate.

      1. Mayhem says:

        I have to agree with a fair chunk of that rant but do have a few points to add.

        Medical research – this is a bit of a red herring – while the US research model supports a lot of big pharma industry, the volume of successful medications being released is steadily decreasing due to a combination of most of the low hanging fruit disappearing, and significantly increased regulatory costs.
        So new medications are costing exponentially more while offering only incremental benefits.
        There is a difference though between new research and known drugs – the taxpayer shouldn’t have to pay through the nose for say a well known heart medication when generics are available at a fraction of the cost.
        In NZ for example, the state will subsidise costs for a range of medications that provide benefit to the most people for the best cost. This doesn’t always mean cheapest, only most effective. If you fall outside that (lets say 95%) range and require special meds, you will either need to obtain extra insurance to assist with potential costs, or pay extra to get them. Why do americans consider this wrong?

        Another point seldom raised is that due to the way the insurance companies pay out in the US, you’ll often get the full gamut of tests ordered by a doctor unnecessarily, as the aggregate payout for the tests will help provide a cushion against the inevitable losses from medicaid customers. Combine fancier tests and machines with ever decreasing rates of return and it is no wonder costs spiral up.
        (eg: a new scanner that provides a 5% increased resolution but costs 10x more – is it worth it?)

  7. That may be a rant, but it’s a thoughtful one from someone in the medical trenches.

  8. Nate says:

    Hear, hear. A cogent rant from an informed person. I’ll take one of those every time.

  9. AMos says:

    “Personal responsibility,” when used these days in the right wing media, is usually meant to disguise the fact that the people using it don’t want their healthcare premiums to pay for other people. This is a good idea in theory, but in practice what it actually means is that the poorest Americans, who are most likely to be unhealthy due to economic and social reasons, can’t afford healthcare and end up going to the emergency room–which we all end up paying for anyway.

    Health insurance is a way of making healthcare affordable by spreading the risk, and the cost, between a lot of healthy people and some sick people, which is pretty obvious–but which also contradicts the idea summarized above. Personal responsibility plays a role in healthcare, in that you have to take charge of your own lifestyle and health choices. But “personal responsibility,” as it has come to be used today, usually means instead, “What those people? Forget about them.”

    I’m hesitant anytime I see someone pounding the drum for personal responsibility, because it implies that lazy, fat smokers are to blame for our healthcare costs–but they are only one small part of a much larger problem. There is no simple fix, and it’s unproductive to pretend there is. It also leads to a lot of people feeling disgruntled, even disgusted, whenever they see someone making different lifestyle choices, as though the mentality is, “Well I’m paying for you to be obese.” It becomes absurd and condescending. [Full disclosure: I exercise daily, don’t smoke, and am under my “target weight” for my height.]

    Talking about “personal responsibility is almost always a red herring meant to distract us from the real issues of health care (many, but not all, of which Wine Guy does cover in his enumerated points).

    1. Wine Guy says:

      AMos, when I say personal responsibility, that is exactly what I mean: see your personal physician on a regular basis, have a thoughtful discussion with them regarding need for regular, proven screening tests and treatments, and (if nothing else) get help losing weight and stopping smoking.

      Why do I say this? Easy: since nothing coming from the top is making a difference, change has to start at the bottom. We, as patients and consumers, must be the catalyst for change.

      And since health care insurance is about spreading risk (as is all insurance, if done properly), why would anyone NOT want to lower the overall risk by creating a healthier population?

      You say that the poorest Americans have the worst health because of economic and social reasons: that they cannot afford expensive things. This is a tautologism.

      And it IS absurd: it is absurd when poor patients on Medi-Cal or receiving CMSP (County Medical Service Program – another form of Medicaid) tell me that they cannot afford their government subsidized medications when in the next wheezy breath they tell me that they smoke 1-2 packs per day. In CA, that costs them between $8 and 10 PER DAY.

      It IS absurd that I see 20 and 21 year olds with Social Security Supplemental Security Income (commonly called “SSI” or “Disability”) for back pain or asthma (while still smoking).

      It IS absurd that they don’t use the clinics set up by the local hospitals and would rather use the ER because ‘they can be seen any time they want to’ if they come to the ER. I’m not allowed to charge as little as a $10 co-pay. Would that my insurance was so forgiving of improper use of the ER.

      I will stipulate that many – even most – of the working poor do not act like this and make their way in the world as best they can, but if 5% of the apples in the barrel are bad, that’s all it takes to ruin the barrel: or in this case, run up health care expenses that could be more effectively used elsewhere.

      Most expenses in medical insurance are administrative.

      A little google-fu will show that medical insurance companies pay their CEO’s very well (a cut and paste from
      http://www.healthreformwatch.com which took information from SEC filing statements).

      Ins. Co. & CEO With 2007 Total CEO Compensation
      Aetna Ronald A. Williams: $23,045,834
      Cigna H. Edward Hanway: $25,839,777
      Coventry Dale B. Wolf : $14,869,823
      Health Net Jay M. Gellert: $3,686,230
      Humana Michael McCallister: $10,312,557
      U.Health Grp Stephen J. Hemsley: $13,164,529
      WellPoint Angela Braly (2007): $9,094,271
      L. Glasscock (2006): $23,886,169
      Ins. Co. & CEO With 2008 Total CEO Compensation
      Aetna, Ronald A. Williams: $24,300,112
      Cigna, H. Edward Hanway: $12,236,740
      Coventry, Dale Wolf: $9,047,469
      Health Net, Jay Gellert: $4,425,355
      Humana, Michael McCallister: $4,764,309
      U. Health Group, Stephen J. Hemsley: $3,241,042
      Wellpoint, Angela Braly: $9,844,212

      Non-profits over the same amount of time were no better:
      (same reference)

      Partners HealthCare Systems James J. Mongan: $3,376,554 in 2008.
      New York-Presbyterian Hospital Herbert Pardes (CEO): $6,170,885
      Memorial Sloan-Kettering Cancer Center Harold Varmus (CEO): $3,677,402
      Partners HealthCare System James J. Mongan (CEO): $3,376,554
      New York Presbyterian Hospital Steven J. Corwin (COO): $3,127,051
      Mount Sinai School of Medicine Samin Sharma (Professor of Medicine and Cardiology): $2,894,580

      I won’t pretend that I am not paid fairly well for my time and effort

  10. There is one aspect of health care, though, where federal programs have resulted in essentially subsidizing obesity. Because federal farm programs essentially subsidize carb/sugar heavy products, calorie for calorie, a healthful diet in the U.S. costs 2-3 times as much as an unhealthy one [depending on menu, etc.]. Admittedly, it’s still an individual choice, but making things harder and/or more expensive for the less affluent or poor doesn’t seem to me to be the wisest of federal policies.

  11. Mayhem says:

    Interesting media article on the subject of drug costs
    http://www.guardian.co.uk/business/2012/apr/27/drug-company-nice-lupus-reject

    The Guardian, being a left leaning paper is torn here – it doesn’t like either party much, so is reasonably balanced.
    GSK is charging something like £61,000 per QALY, when (1) they know that NICE rarely funds drugs costing more than £30,000 per QALY, and (2) this is for a condition that affects at most 25,000 ppl out of a populaton of 60 million, and in fact is only necessary for a small proportion of those.
    It looks to me like GSK is charging high to try and recoup development costs which owing to the small target market are unlikely to be recovered quickly. I can definitely see the NICE case – compared with a course of generics costing <£500 per QALY it simply isn't viable to fund. The question then becomes – where is the failure – with GSK for spending too much, or with NICE, for not funding a tangible benefit for a small group of people?

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