Obamacare in Flames - Part Three - The Plague on All Our Houses

The Attacks on both Obamacare in particular and our healthcare system in general are fragmented and hard to talk about in a very systematic manner. People have specific things that they think are great and that they think are terrible. They focus on these to criticize or glorify the whole. I find this infuriating. To fix things, we have to know exactly how things work, and what and what doesn't work well. My response, then, will be broken into parts which I hope will make sense when you put them all together.

The questions are whether Obamacare has been worth it, can it survive, should it be replaced, and what should replace it.  To answer these questions, I think we have to go back to some basic concepts. Hold on. It's going to get ugly.

The Financial Knot

I believe that anyone thinks that taken as a whole, there is enough money flowing through the system to take care of everyone.  The US spends more than almost every other country. But there is a belief that the money is misallocated, especially by and to the insurance companies.

Some people support single payer making the argument that it would either save money or that it would not require more money to execute. What I don't see in the single payer arguments are a discussion of what finances would have to be rearranged in order for it to happen. After all, money would have to be moved from people who now control it to other people who would now control it. Looking at this movement of funds can help us both identify how complicated it would be and who exactly would provide the political opposition. One thing for sure is that no magic fairy named Bernie Sanders is going to wave a wand and simply make it happen by Federal fiat. Here's why.

A. The Providers

From the point of view of the hospitals (and I will use them as the provider example, although the situation is basically the same for all providers), the payments they receive are complicated. They get money from Medicare, Medicaid, and many different commercial insurers. If we take their baseline costs of doing business as "100 percent", Medicare pays them about 98 percent of costs (by Federal policy in order to provide an incentive for the hospitals to cut their costs); Medicaid has at least traditionally paid about 60 percent of costs by State mandate; and commercial payers make up the difference by paying something like 135-140 percent of costs. (Yes, commercial insurance has long subsidized government insurance. It's a sort of secret tax).

From these payments, hospitals generally post a net two percent profit. All hospitals post profits, even the not-for-profit hospitals (and in fact, many not for profit hospitals, just like many not for profit insurance companies, are the most profitable companies in their sectors).

This net two percent profit is a bit deceiving. Keep in mind that from this "profit" the hospital has to pay for any expansions, for the acquisition of new expensive technologies or upgrades, and, in the United States, the purchasing of other hospitals. They actually can't do this on a two percent profit margin, so they need to make much more. It's just that after the accountants get through with the bookkeeping, the profit on the books ends up looking like two percent.

There are many ways that hospitals and other providers can raise their profit margins, and I can go into them in the comments section if you would like. But regarding the top down institution of single payer in the United States, "Medicare for All" would reduce the payment structure to provider to what they get from Medicare, which is 98 percent of costs. This would eliminate their real source of profits and severely restrict their financial flexibility. So the massive American provider community is going to be against Single Payer, except for some weak providers, especially those that are trying to live with a large Medicaid population.

B. The Businesses

On the premium payment side, there is another knot. Most people, until recently, got their insurance through the workplace.  Now in a single payer system, these premiums would still have to flow to the providers, ultimately. But how would they do that? Would the premiums paid by the companies be turned into a single payer tax? Or would it be turned into new income for the workers who themselves would then pay this new income into the system as a tax?

Businesses definitely want to get out of the provision of health care benefits. The way they would like to do it would be to convert all or part (and it could be all at first) of the premiums they are paying into a permanent direct wage payout to its workers. For the thing that business wants to get rid of is not so much the payment of premiums as such, but the annual premium increases they now have to cover. And here it becomes tricky. They have no intention of increasing wages to their workers to the same the degree that they had to increase the premium payments each year.  One reason why business tended to support Obamacare was that it might have set up a robust individual insurance system. The businesses could then cut its workers loose from their job based insurance and feed them into the individual system. Businesses were watching Obamacare very closely to see if it worked. One thing that would make it not work for them would be if Obamacare insurance prices started going up so fast, that it would be more expensive to cut workers lose from their work based plan than to keep them. Of course, some scumbags did anyway. But most didn't, because unless all of them did it together, those businesses that still offered employer based insurance would have a competitive advantage in attracting workers over those that just threw their workers to the dogs. In any case, businesses will oppose single payer if it requires them to pay a tax into it themselves or if it contains any provision that they have to make up in annual wage increases what they would have had to pay in annual premium increases (in other words wage increases linked to some health care COLA calculation).

C. The Obamacare Individuals

The people who did not get their insurance from work have had to pay for it on their own, albeit frequently with subsidies.  For those who don't get subsidies, they would not be getting a rise in their wages that workers who are getting their insurance from work would get. But they would have to pay anyway, which some would no doubt find inequitable.  Also potentially inequitable would be those who get the subsidies. For a single payer system, in order for it to work, would have to be blind as to who was paying what into it.  In its pure form, people would pay for it through a sort of tax as they pay for Medicare now. But as you can see, such a tax would take different amounts from different people, not so much on the basis of what they earn but on the basis of how they paid for insurance before the country went to a tax supported single payer system.

D. The Customers, God Bless Them.

The great suffering that one of our resident trolls claims that Obamacare has put millions of people through is simply experiencing the joys of insurance that the rest of us long insured know.  Navigating networks, getting pre-authorizations, calculating and paying copays and coinsurance, billing and claims screw ups, the mystery of why billed charges are so high and the net closing payment from the insurance company so low, the mystery of what all these things are that were billed for, the mystery of why one provider's bills look different from another provider's bills... all of these things have been with the rest of us for years.

What we seem to want is for everyone to be in the network and everything to be paid for with little or no out of pocket payments just like grandma's Medicaid does. Would it be so hard to do that?

E. The Government

The government will think so, because being in charge of single payer, it would then become responsible for paying for the annual increases somehow. It would also be responsible for maintaining a new, larger claims payment infrastructure, which it doesn't want to do. And in any case, the government (or at least one section of it) isn't convinced that the public wants single payer if it means a massive and perhaps continuous tax increase. This part of the government wants to rely on the market, not because there is anything miraculous about it, but because from the point of view of the consumer, the consumer would be willing to compromise or bargain the level of benefits if it meant paying lower costs. From the government's point of view, this looks like a good cost control. Single payer would mean that everybody gets everything (whether they want it or not) with no cost controls other than those that are jammed down the provider's throats or those that come from some form of incentive plan that no one has figured out and that may not exist.

F. The Insurance Companies

The insurance companies are, by nature, opposed to Single Payer, because its whole focus is to eliminate them altogether (with the possible exception of the creation of managed HMO plans administered by insurance companies).  Insurance companies get a very bad rap in the United States as greedy unnecessary middle men who have inserted themselves into the sacred relationship between patient and doctor like a leech. Part of this is perpetuated by the fact that when it comes to bills and problems it is usually the insurance company that the member deals with, so they always blame the insurance company, even if the problem rests with the provider or even the member.  And businesses, as they try to cut benefits to offset increases in national medical spending, freely allow the insurance companies to take the blame.

But insurance companies play a major role in cutting costs. I am partially saying this to defend them, but to also say that if they were to be eliminated, SOMEONE would then have to pay the role they are playing now, because Medicare as it is now isn't doing it and can't do it.

As I think I outlined in one of the comments, the business logic of an insurance company goes something like this. They set what they hope is a competitive price based on the provider discounts they have and the patient utilization patterns they saw in the prior year. They build in a small profit, but they know that they can't really depend on just getting this profit, because when one is in the disease risk business, an epidemic of something will quickly wipe everything out. So they work to increase the discount they get from the provider (a slow, slow dance) and they work to use the massive knowledge they have of patients, doctors, procedures and outcomes to promote the improvement of health outcomes in medicine. The ways they do this includes actual case management of diseases (where they keep in contact with patients to make sure that the patients are carefully following their doctor's instructions to the letter); following up with an "peer counseling" providers who are still using outmoded treatments; the promotion an sometimes the financing of new technologies (those iPads that your doctor uses to record your data and issue your scrip may well have been provided by an insurance company), the detection of pure fraud, and other things. It was insurance companies through their managed care innovation, for example, and the creation of HMO's, that cause medical prices to drop in the 1980's and led to the rationalization of medical practices that turned things that once kept you in the hospital for a week into the outpatient procedures they are today. Since all of this is in place now and since a Single Payer Scheme would have to go up against the insurance companies with their billions in assets and would also have to figure out how to liquidate hundreds of thousands of private contracts, it seemed best to work with the insurance companies rather than to shoot them in the face.

G. Obamacare

When push came to shove with Obamacare, when it became time to face the international scandal that our health system had become with so many uninsured, too many powerful and very well financed interests were arrayed against the Single Payer people. Note that I focus on the interests; the providers, the insurance companies, and (at least on a wait and see basis) business in general.  In the business magazines and on the blogs, the Single Payer "Let's get rid of insurance in one fell swoop and replace it with Medicare" knuckleheads duked it out with the Free Market "Let's sell insurance across state lines, provide tiny little insurance vouchers for people, and tax free accounts" knuckleheads.

Obamacare was always going to have to work it out with the providers and the insurance companies and gradually leg the businesses into the whole thing so that they quietly got what they wanted—all at the same time.

So, baby steps. The pre-existing condition problem had to be eliminated. (This population scared the government as much as anyone else. If they had gone to a single payer system, they themselves would have been taking on all this unknown risk, and directly out of the gate). Minimal benefit requirements, especially for children, had to be established. Benefit payout caps needed to be eliminated. All of these things should survive Obamacare and would survive in a Single Payer system.

The government knew, as everyone did, that the uninsured was not just a pre-existing condition problem. There were millions who could not afford benefits at all because they worked for places like Wal-Mart who exploited the poorest workers in the country. So there would have to be a subsidy. To cover the uninsured there would always have to be a subsidy, because medical care as well as insurance is so very expensive in the United States. The subsidies too should survive Obamacare and would have to be part of any Single Payer system.  (The not-too-bright section of the Right's contention that these were people who really just didn't want insurance was a myth).

The utilization risk issue that I outlined in Part 2 was a big worry for the commercial insurers, so some means were needed to be able to offset this for them to buy into it.  Hence the creation of the 3 R's. These risk controls were mostly meant to be temporary until everyone found out how bad things were. The three year duration of most of them was an entirely arbitrary number.  But now that we know that three years was probably not long enough, and should another post-Obamacare move come in where the country attempts to insure its entire population, the risk controls will have to be revisited, because they didn't work very well.

So that leaves the Co-Ops. Were they a bad idea?  No. They were a bold free market experiment which, like most experiments, don't always work. What would have made them more likely to work would have been:

1. A longer ramp up period of two years to fully build the networks.

2. A longer ramp up period for both the Co-Ops and CMS to properly build their infrastructure.

3. Far better Federal due diligence at the proposal stage to make sure that there was an adequate number of actual seasoned insurance professionals in all positions of real authority, from the C-Suite through the managers.

4. A longer funded and financially supported time-line to let the businesses develop. The length of this time period should have included a requirement that there be a mix between the primarily individual Obamacare core business and the more stable small group business.  Perhaps a minimum ratio of 70:30.  Insurance companies have always known that even in the best of circumstances, a company only selling individual policies is very very risky.

5. The ability to use some of the start up funds to advertise, since marketing is just like any other administrative expense. I get the impression even in comments here that many people were not even aware that the Co-Ops existed until they started to fail.

6. The hiring of people with actual insurance company experience on the operations and finance side in the State and Federal regulatory bodies.

7. Either the proper financing or the replacement of the so-called risk corridor.  It was a deeply flawed piece of legislation, and incompletely funded.

These seven things would have made all the difference.  And to keep the surviving Co-Ops alive or even (why not) reviving some of the dead ones or starting new ones in states where they weren't implemented, I would recommend that these seven things be done now.

Will we see single payer insurance in the United States?

Only when the Left captures the presidency, the Senate and the Congress and a majority of the Supreme Court. I fear that the many monied interests are too strong right now. We have to work with what we have.

 

 

 

 

 

 

unagidon is a contributing editor to Commonweal.

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