Tuesday, April 6, 2010

A Response to "Embracing health care reform"

This is substantially an article I wrote for my local paper, the Hingham Journal:

“What ‘dire consequences’ do we face from the recent legislation and the President’s comments about it?”. I think there are consequences that should be understood, whether they are dire or not is a matter of opinion.

The bill is going to cost over a trillion dollars. A trillion dollars isn’t what it used to be, but it’s still a lot of money. The “bill” was “sold” as budget neutral. This means that there were revenues in the bill equal to the costs in the bill. But revenue neutral only applies to the government’s net cost of the bill and not to the total cost of the bill. In addition, the revenues and cost savings in the bill were in many cases not real, not related to the new health care programs.
For example, the bill included revenues from taking over the student loan program (which I am sure the Federal government will do a better job running then they have with their other loan programs). These revenues may or may not happen in the end and have nothing to do with health care. The bill also included Medicare budget cuts to physicians that are going to be substantially reversed, so the cost savings are not real.

Other revenues will come from increased taxes on the “rich” and the “retired”. I saved in order to semi-retire early. My wife and I planned our lives around the historical tax structure. Many other retirees similarly depend on investment income to supplement their retirement. The new “Medicare Tax” on passive income hits us directly. Given the high Massachusetts tax on passive income, the expiring Bush tax cuts and the upcoming Federal tax on passive income, my wife and I have begun to seriously consider moving out of state. I am certain I am not the only one.
I suspect most retirees as well as the wealthy will do what they can to modify their portfolios to reduce their tax liabilities (in other words, the tax increase will distort investment behavior and at the same time not produce the revenues the government desires). In addition, historically tax increases always produce less revenue than expected.

Just as importantly, the people most affected by these new taxes own or operate many of the companies in this country. When I ran companies, I looked at taxes as a cost. If one of my costs went up, I would try to cut another to offset the cost increase or raise my prices to offset the cost. So who really pays for a tax increase on the “wealthy”? You guessed it, you do.
You pay for it in one of three ways. You pay more for products and services that you buy, you get less of an annual increase in pay or no increase at all (ever hear at work that with cost increases we cannot afford to pay you more?), or you get laid off (we can’t raise our prices so the only way to keep down our cost is to produce it overseas).

So how is this bill going to be paid for? Some money will come in from the higher taxes on passive income, but not enough. Just as in Massachusetts we have had to resort to raising the sales tax, I am fairly confident we will have a federal sales or value added tax within ten years. While this type of tax probably makes sense in lieu of higher income taxes, it is not a tax on the rich, but on all Americans. In reality, this is how we should pay for it, but why not start out this way, so everyone knows there is no such thing as a “free lunch”.

But Congress is putting this tax off as long as they can (they want to get re-elected and people tend not to vote for incumbents that raised their taxes), but it is coming. All taxes are a form of consumption. This increase in funds spent on health care will increase the nation’s total health care bill by estimates of around $100 billion per year by the government and more by the rest of us through higher premiums. This higher cost means we will have less money left for other items we spend money on today (i.e. an immediate lowering of our standard of living excluding health care expenditures) and less money to invest in our personal and the nation’s future. Each individual’s retirement and the nation’s long term standard of living are based on our collective ability to create wealth and to use that wealth to invest in the future. Reduce our savings rate or collective wealth means our future is less bright.

Don’t misunderstand me, I believe as a nation we should strive for universal health care. In my previous letters published in the Hingham Journal, I laid out a range of strategies which if implemented would provide enough savings to fund universal health care and put money back in every American’s pocket. But even if you reject those strategies, the point is we should be looking for ways to cut spending for health care and invest some of those savings in providing health to those that can’t afford it.

What troubles me about Obama’s methods is that “change” generally translates into taking money from one group and distributing it to another. This is dangerous ground, most people don’t like taxes, but if everyone pays, they get over it.
What would I do differently? I would start with the idea, that this nation spends more than enough money today to provide universal health care and still have money left (based on the cost of universal health care in other countries). If it can be done in other countries, there has got to be an “American” way to accomplish the same objective. This would have been change I could believe in.

Now let’s look specifics in the bill:

Allowing dependent children to stay on their parent’s health plan is nothing more than an invisible tax on those who don’t have children on their plans. The cost needs to be covered and it will be through premium increases. Is it the right thing to do? I think there are better options.

The “donut hole” in Medicare Part D was designed with a purpose. Eliminating the “donut” hole is nothing more than increasing the cost of Medicare Part D. Who pays for it? Keep in mind, that on average individuals over age 65 have higher incomes and more wealth than individuals under the age 30, who are likely going to help pay for the “donut hole” and therefore reduce their ability to save for their own futures. Should this have been a “global” fix or could the “donut hole” fix have been targeted to those that are truly financially stretched?

Certain preventative care programs will now be free of charge to patients. I generally don’t have a problem with this concept, but figuring out what should or should not be included will be a challenge in the future. Having worked in health care, we can’t even define what health care is. For example, which alternative medicines should be covered or not covered under health insurance. Are visits to the tanning booth a form of “light” therapy to address depression or a really bad way to get a tan? Why do California residents have so many individuals that need marijuana for medicinal purposes? Should it be covered under their health care insurance?

Eliminating pre-existing conditions from health insurance increases the cost of health care to the healthy. Why should they have to pay more? Small businesses will receive a tax credit to help pay for the cost of health insurance. Hey I pay out of pocket for my health insurance, where’s my credit? Why don’t we give everyone a credit? You pay for mine and I’ll pay for yours…hey wait, let’s cut out the middleman and pay our own insurance. Bottom line every time we create a new toll for Americans to pay, we incur the cost of the toll collector. So collectively we get less out, than we paid in.

Insurance companies will be prevented from imposing a life-time cap on the total cost of health coverage for patients. Who could disagree with this? In reality this touches on a very deep ethical issue. That issue is, “when has a society expended enough for one individual?” For example, from my health care experience, many families will not “pull the plug” on a brain dead patient until their life-time benefits are exhausted.

There are nursing homes all over America filled with patients that are brain dead and kept alive by machines until their life-time benefits are exhausted. At that moment the family decides to “pull the plug”. Is that the right time to do it? Should it have been done sooner? Should it not be done at all? I don’t know the answer, but at least the current system does create a point at which a decision is made. These are very difficult decisions and my heart goes out to those that need to make them.

In addition, many states have Medicaid “carve out” programs for individuals that have exhausted their life-time benefits. These programs allow us as a society to share the cost of assisting these individuals with their health care needs and deciding what we really collectively want to pay for. I am more willing to share the cost of a child born with severe birth defects, than I am for other situations like the one noted above. I do defend the right of an individual to spend their money as they choose, but not their right to spend mine.

People rail about the fact that health care consumes 16-18% of our nation’s resources, this provision alone may add another 1-2% to that number in the future combined with the underlying trends of an aging population and expanded utilization of health care by all ages and our nation’s health care bill is very likely to burst through the 20% level within 5 years. There are a host of tough ethical issues surrounding the provision of unlimited health care services and passing a bill that avoids addressing those issues is plainly wrong.

Insurance companies will be required to disclose the cost of medical care in relation to their administrative costs and proposed premium increases will be subject to review. Great idea…unfortunately, it already is the case in most states, where insurance commissions must review and approve rate increases. Health insurance is a regulated industry with state insurance commissions responsible for overseeing their activities in every state. It is still not clear to me, the roll of the Federal government versus the state governments with respect to this oversight mandate.

Now that we increased the cost of insurance, we are going to mandate everyone buy a policy. In other words, young people with lower incomes who are healthy will need to purchase much higher cost health insurance to subsidize others. We have this in Massachusetts, it must be good. Oh wait a second, this program is driving the state broke and we are begging Washington to send us money to us pay for it. If we can’t fix the problem here (remember we have some of the best brains in the country at places like Harvard and MIT), why do we think the Federal government will do a better job.

Health insurance exchanges sound great, but they don’t work. It would take another article to explain why, but trust me health insurance exchanges in one form or another have existed for over 30 years. They have gone by such names as Multiple Employer Trusts (an exchange made up of small employers) or Affinity Groups (an exchange made up of people with something in common like CPAs or lawyers). In each and every form they have failed.

But isn’t it the outlandish profits of health insurance companies that are driving up the cost of health insurance…that is why we in highly regulated Massachusetts with our universal health care, “not-for-profit” hospitals and “not-for-profit” insurance companies have the lowest health insurance premiums…oh wait a second …we actually have among the highest health insurance rates in the country. Go figure, “a non profit motive” does nothing to reduce high health care costs…doesn’t sound right, but happens to be true.

As to making Medicaid available to families making less than $88,000 a year. The median family income in America was just over $61,500 in 2008 (according to the US Census Bureau). Are we really saying we are going to offer a subsidy to just over 50% of Americans? Does this really make sense? Or do we need to focus on the cost of health care so that Americans don’t need a subsidy to purchase it.

Companies with over 50 employees that don’t offer health insurance will be charged a fee. I have run some fairly large companies. Each year I would sit down with my Human Resource executive and my benefits consultant and we would calculate what our benefit costs were going to be in the next year. That would then influence what we had available for salary increases to staff. In other words, this cost will come from the employees not the employers. With many Americans already being squeezed, the government has dodged dealing with health care costs and instead forced everyone to contribute more towards it. In the end, Americans will be “taxed” through lower salary increases to pay for health care. This is already happening, it is just going to get worse.

Insurance companies will be prohibited from denying coverage or imposing higher costs based on medical history. This is called community rating and it already applies in many states, like ours. In general, I agree with the concept of community rating with adjustments for age and lifestyle (i.e. smoking as an example), but it does result in healthy people subsidizing less healthy people and it does nothing to lower health care costs. More importantly, we did not need Federal legislation to get “community rating”.

That said, I strongly believe in “pre-existing health insurance” exclusions for individuals that have not maintained insurance coverage either through private insurance or government programs. This makes the whole concept of community rating work by preventing people from opting out of insurance and paying a small fine and jumping in when something bad happens.

As to the challenge for alternatives, I would point to the several articles I have written in the Hingham Journal (who I thank for publishing them) with respect to making health insurance more available and affordable, but more importantly to the article I have written on how to actually reduce health care costs.

Less you think I am against everything Obama is attempting to implement. I do support his proposal to require new cars to get 36 miles per gallon on average. We need to shift the balance of trade so that wealth flows into this country instead of out. The money that exits this country to fund our energy needs dwarfs the cost of universal health insurance.

I even support a limited carbon tax on coal and oil, where alternative competitive energy sources could be easily substituted, on the one condition that such taxes were used exclusively to fund the transition to other domestically produced energy sources.

But getting back to health care, I think this new legislation should be repealed. We needed to start with “health care cost reform” before or in tandem with universal health insurance coverage, but we didn’t. The legislation does nothing to address the rising cost of health care and instead contributes to it. Is it “dire”? That is a matter of opinion, but it is expensive and we are all going to pay a great deal for it.