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Real Health Care Reform: Part 1- The Problem

Assuming the Supreme Court strikes down the Affordable Care Act (a/k/a Obamacare) in whole or part, it is necessary that the GOP have a working plan in place to address health care. The problems in health care did not go away with passage of the ACA and they will exist should it be struck down. When this whole mess was being played out originally, it struck this writer as funny that Congress- specifically, the Democrats- were focused on the number of uninsured almost to the detriment of the majority of Americans who do have health insurance to some degree. Most of this was a nod to the liberal mindset best exemplified by the efforts of Ted Kennedy. However, somehow lost in the shuffle was the fact this law did little to address the rising health care costs and insurance premiums of those with insurance. Wouldn’t a more logical solution that would benefit everyone be to initiate market-based efforts to lower the cost for all thus helping not only those with insurance, but also making health insurance more financially possible for those currently without insurance? Color me silly, but wouldn’t that kill two birds with one stone? Instead, we got thousands of pages of confusing regulations, formation of bureaucratic boards and commissions and the infamous mandate, an extraordinary intrusion on personal liberty that would have James Madison spinning in his grave.

First, it always struck me as funny that people view health insurance differently than they do other forms of insurance. Traditionally, insurance plans are designed to cover expensive unforeseen incidents. When we purchase car insurance, we do not expect that policy to pay for oil changes and tire rotations although we all know that those actions extend the life and quality of the vehicle. Likewise, when we purchase home insurance, we do not expect the policy to cover screen replacement or painting and caulking. But with health insurance, we expect the policy to cover what amounts to routine maintenance like well-care visits. Admittedly, the human body is more complex and one’s health is more important than an oil change or a house painting. Also, with these other insurance policies, the premium is based on individual actions. If you have a good demonstrated driving record, live in a low-crime area, etc., you are usually rewarded with lower car insurance premiums. Likewise, if you live near a fire hydrant, have a burglar alarm installed and security windows in your home, you are usually rewarded with a lower homeowners insurance policy premium. But with health insurance, that is not necessarily the case. Instead, it is a one-size-fits-all policy usually negotiated by your employer for you where coverage is dictated not necessarily by what the individual needs or wants, but by what the group demands. And there is a very good reason for that- the third party payer system. Simply, we care little about our use of health care services because we know that, in effect, others are paying the majority of our bills.

Imagine if everyone was responsible for their own health insurance. Imagine if they could tailor that policy based on their wants and needs, assuming that catastrophic coverage was part of all policies. Wouldn’t it make more sense for insurance companies to reward those with lifestyles conducive to good health and penalize those with bad habits? Instead, the current system and even the one under Obamacare encourages bad consumerism. Because Johnny has the sniffles, his mother is more apt to run him to the doctor and pay their $20 co-pay for a $100 office visit. You, I and other policy holders pay the remaining $80. But, what if Johnny’s mother had to pay that $100, or was even given that option of paying $100 in exchange for a lower yearly insurance premium? It is funny how injecting a little choice into the equation- not mandates- can change behaviors and drive down health care costs.

As concerns the number of uninsured, according to the Census Bureau, there are an estimated 48 million uninsured Americans, or 15.8% of the population. That 48 million figure is also deceiving and, quite frankly, inflated. The consensus figure for household income for purchasing adequate health insurance on the private market is about $50,000 a year. Here, 18 million Americans meet that threshold. The Census Bureau tells us that of those 18 million, 10 million of them make at least $75,000 a year- more than enough to purchase health insurance. That would drop our alleged pool of the uninsured to 30 million people. However, in that figure is 10 million illegal immigrants who are allegedly excluded and should be. So now we are down to 20 million Americans. Of that, 15 million of them are chronically uninsured and low-income people who ARE eligible for Medicaid or Medicare but who fail to voluntarily enroll in these programs for whatever reason. The remaining 5 million are children eligible for SCHIP coverage. Leaving aside the illegals, the best Obamacare could hope for is to insure an estimated 21 million, or about half of the currently uninsured while wreaking havoc elsewhere- bureaucracy, mandates, and taxes. As an unintended consequence, the CBO estimates that 19 million Americans will actually lose employer-provided coverage and they will be dumped into government programs. Doing the math, based on these CBO estimates: 38 million legal uninsured minus 21 million under Obamacare= 17 million uninsured plus 19 million losing employer-provided insurance= 36 million uninsured Americans when all is said and done. In other words, Obamacare, with respect to insuring Americans, solves exactly 5% of the problem.

Because the uninsured, when in need of medical care, use costly emergency room services and because they cannot turn anyone away, it is estimated that it costs the health care system $100 billion annually. That is paid for by the taxpayers directly and by Americans with insurance in the guise of higher premiums. Thus, saying that the uninsured are blocked from access to health care is rather disingenuous. Additionally, there is a patchwork of free clinics and public hospitals that help take up the slack. At $100 billion annually, the uninsured are certainly not denied health care. They are “denied” the health care that 84% of the population pays for in some manner.

Much of this is due to the heavy reliance on employer-based health insurance. Because of the current tax treatment, distortions are created in the market where insurance providers market their product not to the end user- the employee- but to the employer. Even still, from 2000-2006, 2.3 million Americans lost insurance through their employers. Some 80% of the uninsured work for a company that does not provide health insurance as a benefit. And the smaller the business, the less likely insurance is offered. For example, only 52% of firms with less than 50 employees offer insurance. Conversely, 99% of firms with over 200 employees offer health insurance.

Demographically, young adults are at the greatest risk to be uninsured. The fastest growing segment is the 19-29 age group. For those age 19-24, the uninsured rate is 30% compared to under 17% for those age 35-44. One reason is that the lower age group generally has unstable work histories and the low pay earned by those entering the job market. There is also the fact many people have the financial means to purchase insurance on the private market, but decline to do so. The insurance industry refers to them as the invincibles. They are well-employed, financially stable, 30 somethings. It is considered that those at 300% of the poverty level- roughly $50,000 a year- have the means to purchase insurance. In fact, at 200% of poverty level, many have reported out-of-pocket medical expenses with none of the horror stories of harrassing hospitals and collection agencies or personal bankruptcies. Some policies can be purchased at $75 a month, less than most monthly bills for one’s cell phone. It becomes a matter of priorities. Also, about half of these invincibles report themselves in good health. That is the reason they opt not to purchase insurance. When these able and low-risk people opt out, they also opt out of the insurance pool whereby the remainder pay for the higher risk people in the insurance pool. Hence, the insurance pool needs a certain number of low risk people for it to work adequately and keep premiums low. This is the whole idea behind the mandate question.

However, government creates problems by providing incentives NOT to purchase insurance. Certain states have guarantee issue laws. In effect, they are mandates disguised as community ratings and they encourage people to go without insurance until they become sick. Then when they do, guarantee issue laws mandate that they not be denied insurance thus driving up the cost for everyone. In a state like New Jersey, it is estimated that these laws add about $1,000 to the average premium.

Reform centers around four legs of the stool for health care: the purchaser (individuals, employers, the government), the insurers (insurance companies, HMOs, etc.), the provider (doctors nurses, hospitals, nursing homes), and the health care suppliers (biotechnology companies, medical supply companies, and the pharmaceutical industry). By simultaneously addressing all four actors, comprehensive health care reform in this country can be achieved. The remainder of this series will address each leg of that stool with reform ideas and then bring it all together in a considerably more condense form than that of Obamacare with choice as the underlying theme (not mandates), personal responsibility, non-demonization of any entity, and no back door deals with any of the actors. In other words, it represents the anti-Obamacare solution to health care reform efforts.

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