RTRB: Health Care, Critiquing Obamacare

Over the past couple weeks, we methodically outlined the problems facing our health care system. Today, we use that outline to take an in-depth look at Obamacare, to see if it solves those problems, and what other problems it may create.

Let us begin by listing the problems to be fixed. . . our report card:

Cost

___ 1. Dramatically reduce the costs of Medicare/Medicaid.
___ 2. Maintain or reduce the costs of private insurance.
___ 3. Reduce the costs of medical innovation, without reducing the incentive to innovate.
___ 4. Decrease the amount of medically unnecessary procedures/tests.
___ 5. Decrease administrative costs.
___ 6. Reduce the costs of care required by the top 1% of users.
___ 7. Reduce the growth of prescription drug costs.
___ 8. Decrease the amount of uncompensated care.
___ 9. Reform the legal system to reduce the costs of malpractice insurance.

Access

___ 10. Provide insurance coverage to the 17 million who cannot afford it, and the 5 million who are considered uninsurable.
___ 11. Provide insurance for the 9.7 million aliens.
___ 12. Eliminate the problem that job loss can lead to loss of insurance.

Quality Control

___ 13. Reduce over-testing.
___ 14. Improve compliance with the standard of care.
___ 15. Reduce the number of preventable medical injuries.
___ 16. Find an effective manner to oversee the medical profession to ensure quality control.

Now let’s see what Obamacare offers for each:

___ 1. Dramatically reduce the costs of Medicare/Medicaid.

As we noted, Medicare/Medicaid costs 2.4 times what private insurance costs per recipient. Potential savings in this area, just by cutting those rates to the rate charged by regular insurance equal $518 billion per year.

Obamacare makes the following proposals to reduce the cost of Medicare/Medicaid:

1. Medicare/Medicaid just negotiated an agreement with hospital groups to reduce the amount they reimburse hospitals each year by $15.5 billion.

2. Eliminate waste, fraud and abuse -- the old fall back. No dollar figures are given for this, but they are not large. The largest estimate of waste, fraud and abuse, by the National Health Care Anti-Fraud Association, puts the potential savings at $60 billion per year. However, the HHS Office of Inspector General, which pursues these matters, has recovered only an average of $1.2 billion per year.

3. Obamacare may allow providers to share in cost-savings that they achieve for the Medicare program. While this sounds good in concept, it is not clear how this will work because providers are paid for services provided. Thus, lost revenue likely will exceed any share of the savings, thereby eliminating the incentive to find savings. However, this program is intriguing and raises the grade from an F to a D.

Total likely savings: $16.2 billion of the potential $518 billion.

Grade: D


___ 2. Maintain or reduce the costs of private insurance.

Private insurance costs an average of $4,700 per single person and $12,700 for family of four. Additionally, Americans pay an additional $2,500 out of pocket for care.

Obamacare proposes:

1. Reducing costs by encouraging the adoption and use of information technology. There are no reliable estimates on the cost savings this could generate, but IT lobbyists claim savings between $30 billion and $77 billion. This represents a 1-2% saving.

2. “Strengthening” primary and chronic care management. In other words, doing better. No savings indicated.

However, any savings obtained may get lost in another portion of the plan. At this point, it appears that Obamacare also will establish a committee to recommend an “essential benefits package” which all insurance policies would need to provide. Moreover, Obamacare would forbid insurers from excluding persons for pre-existing conditions. No estimates exist to determine what this would do to the cost of insurance, but history suggests it could dramatically increase the price of insurance.

Grade: F


___ 3. Reduce the costs of medical innovation, without reducing the incentive to innovate.

Obamacare will require drug or device manufacturers to disclose payments and incentives given to providers and any investment interest held by a physician. While the potential cost savings, if any, are unclear, such a policy would be helpful for purposes of uncovering potential fraud or abuse, and may help consumers make informed choices.

However, this plan alone does little to ensure that an efficient amount of resources are allocated to medical innovation.

Grade: C


___ 4. Decrease the amount of medically unnecessary procedures/tests.

It is estimated that $500-$700 billion is wasted annually on treatments, tests, or hospitalizations that do nothing to improve health.

Obamacare does not address this issue.

Grade: F


___ 5. Decrease administrative costs.

Since the American system wastes $339 billion each year in administrative expenses (as compared to the Canadian system), this should be a fertile ground for cost savings.

However, Obamacare proposes only two measures, neither of which will reduce this cost. First, Obamacare plans to “promote efficiency and quality” in the way payments are handled. In other words, they have no plan yet, but they hope to come up with something better.

Secondly, they plan to enhance the collection and reporting of race and ethnic data in health care. The purpose of this is not clear, but it is clear that this will add to the administrative expenses, not reduce them.

Grade: F


___ 6. Reduce the costs of care required by the top 1% of users.

The top 1% of users account for 27% of health care dollars spent.

Obamacare plans to create a “Chronic Management Innovation Center” to disseminate innovations for the treating of high-cost, chronically ill Medicare beneficiaries. In other words, they’re hoping to come up with something.

Grade: F


___ 7. Reduce the growth of prescription drug costs.

Prescription drugs are the most rapidly growing portion of health care costs in the country, though recent shifts to generic drugs are reversing this trend.

Obamacare plans to limit the patent length of sophisticated biotech drugs that don’t face generic competition to either 7 or 12 years. While this is likely to reduce these costs, specialty drugs account for only 1.3% of prescriptions.

Grade: D


___ 8. Decrease the amount of uncompensated care.

Hospitals provided $35 billion worth of uncompensated care (for the uninsured) in 2008. The government reimbursed 80% of this.

In a deal about to be struck with the hospital lobby, Obamacare looks to cut that reimbursement by 10% ($3.5 billion annually). Obamacare hopes that this is offset by the increase in insurance coverage. However, gaps in coverage will remain -- see below.

Grade: D


___ 9. Reform the legal system to reduce the costs of malpractice insurance.

It is estimated that between $6 billion and $66 billion can be saved by reducing defensive medicine, i.e. over-treating to avoid lawsuits. Another $11.3 billion can be saved by reducing the costs of medical malpractice insurance.

Obamacare does not address this issue.

Grade: F


___ 10. Provide insurance coverage to the 17 million who cannot afford it, and the 5 million who are considered uninsurable.

As we discussed, the 46 million uninsured really represents only 17 million people who are uninsured because they cannot afford insurance.

The democrats are estimating that Obamacare will cover 95% of the population. That leaves 16 million uninsured. It is not clear which group this will be.

Moreover, the proposed coverage is not total coverage. Instead, Obamacare proposes to offer four levels of care. Thus, even those covered by Obamacare may still find themselves with significant expenses beyond the level of insurance they have. Although, Obamacare does seek to prohibit lifetime or even year limits on coverage, but, then, it is not clear how this will work in practice.

Obamacare will prohibit insurers from denying coverage based on pre-existing conditions, though it is not clear whether such insurance will be affordable.

Grade: C


___ 11. Provide insurance for the 9.7 million aliens.

No solution offered.

Grade: F


___ 12. Eliminate the problem that job loss can lead to loss of insurance.

In an odd way, Obamacare will solve this problem. . . by getting employers to stop providing health care. Obamacare plans to fine employers who fail to offer coverage to their employees the amount of $750 per employee. As employers currently pay an average of $7,815 annually to cover each employee, it is highly unlikely that employers will continue to provide coverage once Obamacare is implemented.

While we consider it a good thing to break the connection between employers and medical insurance (to be explained in future article), Obamacare fails to provide an adequate replacement system.

In any event, this issue may be moot, as it was disclosed today that the Senate may remove this provision owing to political pressure.

Grade: F


___ 13. Reduce over-testing.

It is estimated that over-treatment, i.e. the providing of medically unnecessary tests or procedures, wasted $500-$700 billion in 2007.

Obamacare does not address this issue.

Grade: F


___ 14. Improve compliance with the standard of care.

The primary cause of medical errors are the lack of national standards.

Obamacare proposes establishing a framework to set national priorities for comparative clinical effectiveness and to reform medical education to increase the training of primary providers. In other words, they propose to come up with something.

Grade: F


___ 15. Reduce the number of preventable medical injuries.

It is estimated that the medical costs alone of treating injuries caused by medical errors could be as high as $520 billion annually.

Obamacare does not address this issue.

Grade: F


___ 16. Find an effective manner to oversee the medical profession to ensure quality control.

Finally, Obamacare proposes to develop a strategy to improve quality. Once again, they have nothing.

Grade: F


Additional Problems Caused By Obamacare

1. Cost: So what does this plan cost? The democrats have not provided an estimate for the cost of Obamacare. They have, however, stated that they intend to pay for the plan by imposing $600 billion in unspecified new taxes over the next ten years ($60 billion annually).

So far, the taxes proposed have been a 4% surcharge on persons making more than $200,000 a year, taxing employee health benefits that exceed the coverage for federal workers, and fining individuals who do not have healthcare.

But consider this. If coverage is extended to the 17 million uninsured, at the Medicare rate, the added cost will be $204 billion annually, more than three times the tax increases expected. Even at the private insurance rate, the costs would far exceed the estimated tax revenues.

2. Also, it is not at all clear that doctors will agree to accept this insurance, particularly if the payment provisions are too onerous.

3. Finally, it is not clear what will happen to the people who lose their employer-based insurance but do not qualify for Obamacare insurance. It is conceivable that this plan could lead to the wholesale upheaval of the current system.

Conclusion

Lastly, let’s look at the Report Card again:

Cost

__D__ 1. Dramatically reduce the costs of Medicare/Medicaid.
__F__ 2. Maintain or reduce the costs of private insurance.
__C__ 3. Reduce the costs of medical innovation, without reducing the incentive to innovate.
__F__ 4. Decrease the amount of medically unnecessary procedures/tests.
__F__ 5. Decrease administrative costs.
__F__ 6. Reduce the costs of care required by the top 1% of users.
__D__ 7. Reduce the growth of prescription drug costs.
__D__ 8. Decrease the amount of uncompensated care.
__F__ 9. Reform the legal system to reduce the costs of malpractice insurance.

Access

__C__ 10. Provide insurance coverage to the 17 million who cannot afford it, and the 5 million who are considered uninsurable.
__F__ 11. Provide insurance for the 9.7 million aliens.
__F__ 12. Eliminate the problem that job loss can lead to loss of insurance.

Quality Control

__F__ 13. Reduce over-testing.
__F__ 14. Improve compliance with the standard of care.
__F__ 15. Reduce the number of preventable medical injuries.
__F__ 16. Find an effective manner to oversee the medical profession to ensure quality control.

* All information not otherwise referenced was obtained from the Kaiser Foundation.