For roughly the past 15 years, one of the responsibilities I have had in my job has been working with insurance brokers on negotiating healthcare plans. Naturally I’ve stayed in touch with the ObamaCare development. It’s not too hard to get caught up in the drama. Mostly I’ve found folks repeating the latest slogans and talking points from political propaganda: “death panels”; “socialized medicine”; “higher taxes”, etc. To be sure, some of that may well be true. But such a debate misses the fundamentals of the issue.
Recently, my physician and I discussed a procedure that we both agreed was time for me to do. We discussed various options, reasons, risks, etc. One key question I had was “where?” Should I go with the one local specialist? Should I travel an hour to a larger teaching hospital loaded with some of the top specialists in New England. Being a business person, I weighed the costs and benefits. I wonder how many people have such a discussion with their physician. Were similar discussions going on with ObamaCare?
The first group to jump on the ObamaCare bandwagon was the insurance industry. They came because they understand the true fundamental to healthcare costs...the delivery system. When you break the healthcare world down, it’s really a patchwork of cottage industries made up of small provider practices in non-competitive markets. Insurance companies and hospitals on average achieve about 2-3% margins. Yet, of every premium dollar, 85 cents goes to the cost of care, providers, suppliers, medical centers, prescriptions, etc. The 2% margin for 2009 of the entire healthcare insurance industry would cover the costs for two days of the nation’s healthcare expenses. When ObamaCare reached the beginning of its end with Scott Brown’s victory in Massachusetts, President Obama responded predictably by castigating the insurance industry by saying…”I mean, to be fair, the status quo is working for the insurance industry, but it’s not working for the American people.” Not a statement that is helpful to building a relationship with your first ally.
To be honest, its health insurance reform, not healthcare reform. ObamaCare focuses not on healthcare delivery, but standardizing benefits and eliminating the relationship between the amount an insurer is allowed to charge and the true cost of the care. Insurers would be required to offer “guaranteed issue” (accept everyone on the plan) with limited ability to adjust premiums based on actual business / utilization costs. So if actual care of a patient is where 85% of the cost sits, how will ObamaCare impact the overall cost of healthcare?
A number of congressmen (Republicans and Democrats) asked the same question. WellPoint, one of the largest healthcare insurance companies, provided a model based on its’ own actuarial data. They found ObamaCare would nearly triple premiums for most of their customers. The response from the Obama Administration? WellPoint is no better than those evil tobacco companies.
The U.S. healthcare system offers choice and the most advanced treatments and technology in the world. Yet, its’ business practices are outdated. Nearly every sector of the U.S. economy has evolved their managerial and delivery practices resulting in some of the highest productivity and quality available. To be competitive, consumer products, service industries, banking, etc. have to be mindful of costs. The healthcare industry is not structured so that providers have incentives to control costs. And no incentives for insurers, (medicare one of them), to reimburse costs realistically. There is a lack of competition where needed. And a lack of strategic provider-insurer partnerships as well. In this regard, the Obama Administration is missing an opportunity by not seeing that insurers add value if they are part of that delivery system. By having information from my insurer about the cost and quality of that procedure my physician and I agreed on, I was actually making an informed decision within the market.
Healthcare costs are negotiated between providers and health plans. But in a true market costs are driven by competition. But the cost-control provisions of ObamaCare exempt the doctors and hospital, (the 85 cents of every healthcare dollar), from being involved in managing cost. It appears Pennsylvania Avenue is having a hard time hearing this message.
Publius
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