INTO THE ABYSS

July 20, 2009: For years Politicians of both liberal and conservative persuasion have tried to produce Federal legislation that would enable a large uninsured sector of the American population to obtain health care insurance.  The best estimates of those that should know say that there are about 40 million people living here in America who either do not have access to health care (pre-existing condition), cannot afford private health insurance, are young and undervalue health coverage so choose not to purchase, or are illegal aliens (8 Million) and cannot get health care insurance.  President Obama has made the solving of this perceived problem one of his highest priority legislative proposals.  His approach (at least as I understand it) as written in a bill passed by the House of Representatives, mandates that each individual or  employer group must have health care insurance or face a surcharge tax on their income.  Furthermore the Bill establishes a national insurance policy exchange where health care policies underwritten by those companies that have met certain standards are available for individual or group purchase.  In addition the Bill provides for the creation of a new government agency to provide low cost health care insurance as an option for those who believe: 1.) that their insurance company charges premiums that are too expensive; 2.) their employer does not provide health care benefits at all; 3.) private policies are not available at any price.  On the surface, this sounds like a noble service for the government to make available (if it is self supporting from the low premiums that it would receive from those users outlined above and it would not provide more than a basic level of care) as long as it would not be construed by a buyer to be qualitatively competitive with private full service health care insurance.  So what is so bad about this idea?  Once again, this Administration and its supporters fail to understand the incentive force of legislation, regulations or economic mandates by government upon human behavior of the consumer, in this case the individual and corporate insurance buyer.

The provision of private health care is a business that operates on the basis of transferring risk from the single covered person (insured) to a group of persons insured by that insurance company.  The company collects premiums from the insured and sets up reserves based on the loss experience of justified claims it receives for the universe it has insured.  Being a profit based company, its capital and a portion of net cash from annual premium income is allocated to a reserve for the payment of future insured claims and the remainder is credited to profit after deduction of operating expenses. The business is one of risk management.  If claims are greater than reserves plus current premium income, then the insurance company’s capital declines and it will need to raise new replacement capital to carry the continuing risk or go out of business. If the experience is less than the expectation for future claims, then the company enjoys earned income and may pay cash dividends to its investors. Therefore getting the risk and premiums paid in balance over long term periods is essential.   Now here is the problem, if the insured individual or company group believes that given their personal experience, the basic level of insurance provided by the government agency at a substantially lower premium is adequate, they will select the government insurance agency based strictly on cost savings.  The Corporate executive will seek to reduce their company’s health costs by using the government provider even though the quality or substance of coverage is much lower than that of the private provider. The private insurers will be unable to compete since their ability to stay in business is based on maintaining capital and positive cash flow.  The Government Agency issuer will be able to fund all its negative cash flow by receiving increases in its share of the Federal Budget and federal taxes. How can one compete with that?  They can’t, so they go out of business. It is estimated that by having the power to set the risk standards for the Insurance Industry issuers, the Feds will drive the private sector out of business within two years and over 100-125 Million Americans will end up being insured by and pay premiums to  one Government agency and receive health care from another government provider.

As this develops, more and more of his patient’s insurance benefits will be set by the government.  The private health care provider eventually will be paid at rates comparable to or even less than Medicare.  The quality of health care services must therefore necessarily decline since the Professional will not be able to allocate the time to patient counseling or actual medical services to the insured.  The time factor will become a major element of health care services.  The increased administrative portion of medical services will slow delivery of needed procedures thus aggravating the impact of illness symptoms. Of course, an individual acting on his own behalf may seek medical professional care services from independent provider and pay the actual costs, but even then, this being an exception, the time delay problem would still be present.  In the proposed plan, new measures will be set to close the gap in drug coverage in Medicare.  Pharmaceutical companies will be required to give rebates for medicines to Medicare and Medicaid patients.  Medicaid payment rates would increase.

To pay for all this, it shouldn’t surprise you that taxes are going to be raised first on the wealthy ( and ultimately on everyone).  This will raise $544 billion.  Steadily higher tax rates on incomes over $350,000 will contribute to the costs of this plan. The Congressional Budget Office says that the cost of operating this government agency and the funding of the provider’s medical services will be $1.07 Trillion over the next ten years.  If you believe that I’ve got a great piece of desert land I would like to offer you just east of Winnemucca, Nevada.

It is difficult to conclude that our health care industry now arguably the best in the world, will not fall into a state of mediocrity.  There is no provision in this Bill for Tort reform so the cost of malpractice insurance will continue to be a major expense to the provider whose level of income will be more and more restricted.    For the Government Agency physician, the liability will be transferred to the taxpayer.  Perhaps getting 40 million uninsured people covered for health care from one government bureaucracy by subsidizing their cost of insurance provided from another  government  bureaucracy is worth the destruction of America’s health care industry as we know it, but the logic of this approach escapes me.

One Man’s Opinion – Bud Brewer

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