Government Shutdown

 

The current government shutdown is in its fourth week. What is the issue? It is not Medicaid, or SNAP (food stamps). These are covered in the Continuing Resolution (CR) passed by the House of Representatives. The House resolution is called a "clean"one because it does not change anything. All current programs would be continued. The Democrat minority in the Senate, however, has used the filibuster to block the CR and demand the continuation of Federal subsidies for participants in the Affordable Care Act (Obamacare). Apparently, Obamacare enrollment has never reached expectations, while claims have skyrocketed to the extent that large premium increases are expected next year.  

 One of the first things I learned when I went into the insurance business over 50 years ago was that insurance was simply the prepayment of claims. It is paying in advance to cover some future bill or expense. It does not matter if it is life insurance, automobile insurance, or medical insurance. The same basic principle must apply. A policyholder pays monthly or annual premiums and these premiums are pooled with others to pay eventual claims. 

 

Medical insurance is no different. It only had its origins in the 1930s during the Great Depression. At that time hospitals and physicians were finding it increasingly difficult to collect from their patients, many of whom were out of work. As a result we had the birth of the “Blues.” Both Blue Cross and Blue Shield were products of the Depression. In short, people would enroll in these plans and pay a monthly or quarterly premium that over time would build up enough of a reserve to cover their future claims. This idea seemed to benefit everyone. Doctors and other health care providers would no longer have to go after their patients like collection agencies; and the patients would not have to come up with a large amount of cash to handle large, unexpected medical bills. 

 

However, to avoid excessive or frivolous claims that raise the cost for everyone, most medical insurance policies included deductibles or co-insurance to reduce or eliminate small claims. This was right out of Insurance 101 since actuaries were well aware that the most cost effective strategy was to make the patient bear part of the cost out of pocket.

 

However, the use of medical insurance to cover future health care costs only took off after World War II. The war had finally taken the country out of the Depression and the economy was booming. In a major change the Federal Government allowed corporations to purchase group medical insurance plans for their employees. Employers were not required to provide health insurance but the government altered the tax code to provide a great incentive. 

 

Unlike other forms of compensation the cost of the medical insurance would not be considered taxable income to the employee. This was important especially to high salaried employees at a time when the highest tax rate was 70%. In other words, employees covered under such a group insurance plan could now have most of their medical expenses paid with tax-free income. It was a no-brainer. Instead of giving all employees a taxable salary increase, the employer could give them a tax-free benefit that would cover future health related costs.

 

The employer sponsored plans were incredibly attractive to all concerned and sparked a veritable revolution in health care in this country. Employers could deduct the cost of their plans as an ordinary business expense while employees could rely on their pre-tax medical insurance plan to cover major medical expenses. Since these were group insurance plans all employees had to be covered even if they had pre-existing medical conditions. Increasingly these group insurance plans came to dominate the market.

Nevertheless, the basic principle of insurance still governed these group plans. They all involved a pre-payment of claims most often through automatic payroll deductions.

 

This system of corporate sponsored insurance worked remarkably well for the great majority of Americans for many years. There were obvious problems, however, that needed to be fixed. People would lose their coverage when they lost or changed their jobs. Self-employed people did not ordinarily have access to these plans. Unemployed workers would eventually lose their coverage. People with pre-existing medical problems would find it almost impossible to get coverage on their own.

 

Attempts had been made to deal with these problems but critics of the system still insisted that over 30 million people were without medical insurance. Even if that number was accurate it would be wrong to say that all those people lacked access to medical care. One of the problems with the system was that so many people refused to purchase medical insurance and just went to the local hospital ER for even ordinary care.

 

Instead of trying to fix the problems in the old system, proponents of the Affordable Care Act sought to overhaul the entire health care system in this country. Now instead of getting a tax break as an incentive for providing employees with medical insurance, employers would be forced to provide such insurance or pay a penalty. Even though the Obama administration had arbitrarily extended the corporate mandate for a year, some employers still chose to drop their plans.

 

More importantly, at the time the Affordable Care Act was passed in 2014, President Obama indicated that it would not be so affordable, and that Federal subsidies would be needed for a couple of years to help participants pay their premiums. As it turned out, the subsidies did not go away. Because of these subsidies many enrollees in Obamacare did not have to pay the full premium for their medical insurance. No matter what you call it, it was no longer insurance but welfare.

Even with subsidies it would appear that most of the un-insured did not find the plans attractive, or were not able to navigate the red tape necessary to enroll. The expected number of plan participants never materialized.   

 

When Obamacare was passed the Federal government was over 17 Trillion dollars in debt. Now the debt is over $37 Trillion. How is the government going to pay these subsidies?  Will it just print more money and add to inflation, or will it have to raise the taxes on everyone. It is a problem that deserves careful study and cooperation, not drastic measures like shutting down the government, and shutting down the benefits of the needy. 

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Health Care and Tort Reform

Dr. Tom Price

  

One of the signature issues of Donald Trump’s campaign was the repeal of the Affordable Care Act or Obamacare. However, I noted in an earlier post that Obamacare was actually repealing itself. Premiums are increasing at double digit rates and already high deductibles are getting even higher. Also, the number of insurance companies participating is getting smaller and smaller.

Just this past week Connecticut announced that HealthyCT, one of its most promising non-profit health insurance coops, would go out of business on December 31. In the past couple of years the enrollment numbers had not met expectations despite lower than average premiums, and claims had skyrocketed. At the same time, the Federal funding that was designed to help these coops get off the ground has now run out. The State announced that existing claims would be paid out of an insurance industry fund designed to rescue insolvent companies. HealthyCt’s remaining customers will have to find new coverage.

I suspect that the fate of HealthyCT is being replicated all over the country. Premiums are increasing all over and claims continue to rise. Apparently, some states are now down to only one health insurance provider. A recent article in the Wall St. Journal suggested that about 40 different proposals to replace or change Obamacare have been proposed by Republicans in Congress in the past four years but not one has been able to get past President’s threat of a veto.

This week President-elect Donald Trump announced his nomination of Representative Tom Price of Georgia to become head of the massive Department of Health and Human Services (HHS). As a Congressmen, Price has championed a replacement for Obamacare based on 20 years of experience as an orthopedic surgeon and on his belief that the less government interferes in healthcare the better.

What can the new administration do to rein in rising health care costs? I’m sure that the will be many different suggestions and plans but I would just like to mention one. If the government or Medicare can regulate what hospitals, physicians, and drug companies receive for their services, I don’t see why it can’t pass significant tort reform and limit the size and extent of medical malpractice awards to attorneys who typically get 33% of the claimant’s award. I also don’t see why enormous punitive damages that do not benefit the actual claimant should be permitted.

Medical malpractice insurance makes up a huge part of the expenses that hospitals and physicians must pass on to their patients. Why should this be a political issue? Why have liberals and Democrats always opposed tort reform? The doctors and hospitals that actually provide the medical care must accept what Medicare and Medicaid allow but there is practically no limit on what lawyers, who add nothing to medical care, can charge.

Just recently I read that a commuter train conductor who crashed his train into the landing platform in New York’s Grand Central station was suing the rail line for $10 Million. He had fallen asleep on the job and his train crashed after hurtling through the Grand Central tunnel at over 80 miles per hour. Nevertheless, his attorney claimed that the rail company should have installed fool-proof braking devices in all trains to protect against conductors like his client.

I am not saying that all medical malpractice claims are like this one but even if they are not, what reasonable person would think a lawyer should get over $3 Million for one case? Anyone on Medicare who looks at the monthly claims report knows that the medical insurance company, following Medicare guidelines, typically reduces the hospital or doctor bill substantially. When I had radiation treatment for prostate cancer, the hospital billed my insurance company over $120000. I have no idea how the hospital arrived at that figure but it accepted the insurance company allowance of about $14000 of which I had to pay 20%.

It will not surprise me to see tort reform in the medical proposals emanating from the new Congress. The lawyers have a powerful lobby and taking it on will be a test of the dedication of Donald Trump and the Republicans to reforming health care.

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Supreme Court Decisions

                                 

                                   

I was out of town last week and deliberately out of reach of TV and newspapers but it was still impossible to notice the monumental Supreme Court decisions that were handed down at the end of the week on Federal Health care subsidies and gay marriage. Much has been written about these issues and the newspapers and commentators will have a field day in the weeks to come.

To my mind, the most telling observation came in an opinion expressed weeks before by a legal scholar on the gay marriage case. The June/July issue of First Things noticed the words of Edward Whelan, President of the Ethics and Public Policy organization, who said that “he hasn’t given much attention to the briefs submitted, nor does he plan to follow the oral arguments, ‘because there is little basis to believe that these cases will be decided on legal reasoning’. As Justice Ginsberg said in so many words in a February interview, Americans are ready for gay marriage, so we’ll give it to them. Legal ‘reasoning’ to follow.

It now seems obvious that the justices voting in the majority in both cases went through legal hoops trying to concoct a legal reason for their decisions. All the testimony and legal arguments were just words. As some have already pointed out, the Supreme Court has increasingly acted not as a check and balance on the authority of the Executive branch, or the incompetence of the Legislative branch, but has now become a kind of nanny who corrects and smooths over their mistakes.

Nevertheless, there is one law that the Supreme Court cannot mess around with, and that is the law of unintended consequences. In the case of the Affordable Care Act (ACA) or Obamacare chief Justice Roberts has taken it upon himself to bail out the President’s pet program on two separate occasions. Now no one can say that it won’t get a chance to succeed on purely legal grounds. It was a hastily conceived law passed with an extraordinary degree of legislative chicanery. But this is all water over the dam. Now we will see if the ACA can actually work. Already it appears that even with subsidies from a government that is trillions of dollars in debt, costs are rising dramatically.

In the case of gay marriage I think that it can be argued that the State has always supported and encouraged citizens to marry for a variety of good reasons. One of these reasons is that Society benefits when people make a commitment to one another, a commitment that has legal status and that cannot be disregarded without serious legal and economic consequences.

In my experience as a former financial advisor I found that the best thing a couple could do financially was to marry. However, divorce was usually a financial disaster. For people to marry and stay married, despite the responsibilities involved, was often the key to success. Today, it would appear that many people are afraid of commitment and responsibility. Is this the reason why marriage has become increasingly unpopular with heterosexuals?

While an increasing number of heterosexuals seem uninterested in the benefits of marriage, homosexuals clamor for the right. Homosexuals, whatever the law says, will not be immune to the trials and tribulations of marriage. Now, when things don’t go well, they will not be able to walk away and leave their partner in the lurch. The right to marry is also in this country going to involve the legal consequences of divorce when things go bad.

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U.S. Health Care System

                                             

Despite the fact that the United States spends more money per capita on health care than any other country in the world, many critics argue that health care in this country is inferior to what can be found in many other developed countries, especially those with National health systems. These critics are also proponents of a sweeping conversion of health care in this country to a single-payer or national system.

Critics of the U.S. health care system point to statistics compiled by the World Health Organization (WHO) that rank the United States thirtieth in the world in life expectancy. The accompanying chart shows that in 2007 the average life expectancy in the United States was 78.06 years. Actually, that was not too far behind #1 France with an average life expectancy of 80.59. (click on the chart to enlarge)

I recently came across an excellent article* that attempted to put this statistic in perspective. The article was based on a book by Scott W. Atlas, entitled “In Excellent Health, Setting the Record Straight on America’s Health Care”, that argued that the U.S. health care system before Obamacare was “ the best system in the world.”

How could this be given the mortality statistics? Atlas argued that the WHO statistics were skewed by a number of factors, and that they should be taken with the proverbial grain of salt. The most important element in the low ranking of the U.S. mortality rate would appear to have no connection with health care at all. It is the extraordinarily high rate of murder and automobile accidents in the U. S.

“Murder and accidents account for the majority of deaths among young adults in the United States, and deaths at young ages substantially impact life expectancies.”

If murders and auto fatalities alone were factored out of the statistics, the U.S. would have the highest life expectancy in the world. Murders and automobile fatalities are serious but they are not a health care problem.

Other factors are almost as important in lowering life expectancy. The United States has a much higher rate of obesity than other developed countries and obesity reduces life spans by up to eight or ten years. Also, while smoking has dramatically decreased in the U. S., the residual effects of a long history of smoking in this country will continue to impact mortality statistics for years to come.

Finally, differences in record keeping also impact mortality statistics. Scott Atlas noted the more stringent reporting requirements in the U.S. compared to Europe in the matter of infant mortality figures.

“considering that roughly half of all U.S. infant mortality occurs in the first twenty four hours, the single criterion of omitting deaths within the first twenty four hours by many European nations generates their falsely superior infant mortality rates.”

Rather than blaming the U.S. for higher infant mortality rates, Atlas argued that,

“The United States health care system should be applauded for its efforts to save premature babies rather than write them off as stillborn, as many other countries do.”

A proper evaluation of the health care system in the U.S. should be based not on flawed mortality statistics but on actual medical care, especially the diagnosis and treatment of important diseases. Here are some facts that Atlas unearthed.

1. Prolonged wait times are commonly found in health systems with government controlled nationalized health insurance. Numerous countries with single payer systems had to create policies to address prolonged wait times, including Canada, England, Italy, Sweden, and Spain.

[I saw this myself  when I visited my cousins in Italy a few years ago. They had purchased individual insurance policies to pay for things or procedures not covered by the national system. For example, government doctors would routinely say that you could wait four months for a procedure, or visit them in their private office for the procedure in the next day or two if they would pay on their own, The above chart indicates that over 90% of people in Italy have purchased private insurance policies.]

2. In the United States, referring doctors book CT and MRI appointments within days. In other countries people wait. In 2010, the average wait time for a CT scan was 4 weeks and for an MRI 10 weeks. A 2011 study in the United Kingdom indicated thousands of people waited over six weeks for an MRI scan. With respect to breast cancer biopsies, another survey indicated that only 1% of U.S. patients waited three weeks or more while 44% of Canadian and 20% of U.K. patients waited that long.

3. No elective cardiac bypass patients in the United States were known to have waited more than three months, while 47% in Canada and 89% in the United Kingdom waited that long.

4. The United States tends to have the highest percentage of screenings for breast, cervical, prostate and colon cancer.

In conclusion, the availability of state of the art medical technology, timely access to specialists, the most effective screening, the shortest wait times for life changing surgeries, the newest, most effective drugs for more accurate, safer diagnosis and for the most advanced treatment are all superior in the United States.

In 2008 one study showed that up to 85000 patients sought in-patient treatment outside their home country, and 87% of them traveled to the United States.

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*The article was written by Charles P. McQuaid, President and Chief Executive Officer of Columbia Wanger Asset Management. and appeared in the 2013 semiannual report of the Wanger International Fund. It was based on the book by Scott Adams mentioned above, as well as a book by Robert Ohsfeldt and John Schneider, "The Business of Health."

Government Bureaucracy

                                        

My biggest objection to the Affordable Care Act (Obamacare) is not the sleazy way it was railroaded through Congress, or the crazy Supreme Court decision that allowed it to pass as a tax when President Obama had repeatedly said that the purchase mandate was not a tax. From the beginning I have believed that the whole thing was unworkable and that implementation would be a logistical nightmare.

It’s not just the snafus and computer glitches that have plagued the recent opening of the health care exchanges. I cannot imagine that the government will be able to enroll more than 30 million people in these exchanges even when more than half of them will receive premium subsidies.

As someone who worked in the insurance business for over 35 years, I know how difficult it was to get people to pay for something that they disliked even when they acknowledge that they needed it. Very few people like to pay for any kind of insurance. It’s like taking bad tasting medicine. Although a basic amount of auto insurance is mandatory in most states, here is Connecticut we still have to add uninsured motorist coverage to our policies. Driving without insurance is against the law but many still take the chance.

To overcome such reluctance insurance companies strongly encourage automatic pay plans where payments are automatically deducted from checking accounts. Anything is better than waiting for customers to mail in payments. The government learned this many years ago when it required employers to withhold taxes and Social Security payments from paychecks.

However, it’s not just a question of payment. I suspect that a large portion of the eligible population will not, for various reasons, even bother to sign up. They will either not want to, not know how, or just be turned off by the red tape. This group will even include those who do not have to pay. After all, in the past it was very easy to just go to the local hospital emergency room when you were sick. You could never be turned away.

It’s true that those who fail to sign up will have to pay a penalty but how is that mandate to be enforced? Will it be a payroll deduction or a deduction from a Social Security disability check? Will the government reduce someone’s unemployment check?

Thinking about these administrative problems brought to mind my first and only experience as a government employee. In our first of marriage my wife and I decided that I would go back to graduate school to complete my course work for a PhD in history. She was a nurse and would be the breadwinner. I was able to complete my course work in a year. By that time she was pregnant and I had to get a job. Fortunately, I had taken and passed the US Civil Service exam and just at the right moment I received a notice offering me a position as management analysis intern with the Federal Aviation Agency at New York’s Idlewild airport. President Kennedy had been assassinated the year before but the airport’s name had not as yet been changed to JFK.

I interviewed and was hired. I was a lowly GS 5. The FAA was a large organization with a huge responsibility but the management analysis office at the airport was a small operation. There was the chief who had his own private office and then three senior analysts of varying grades. Our desks were all in a row and I was assigned one right by the door. We were a diverse crew and resembled one of those World War Ii movies where the crew of the plane or ship was made up of different ethnic groups. The three analysts were all educated and middle class—one was Italian, one Jewish and the other Black. Of course, there were few female analysts then but there were two young expert secretaries, who in those days were still called secretaries.

I was a management intern totally lacking in knowledge or experience of either aviation or management. Back in the 1960s management analysis was a somewhat new thing and the government was just beginning to follow private industry in adopting it. At the time management analysis was looked down upon by people who were actually doing the real work. The whole field was also held up to ridicule by comic authors and filmmakers who liked to make a mockery of the so-called time and motion studies done to improve workplace efficiency. Anyone who remembers Lucille Ball (I Love Lucy) at the assembly line in the chocolate factory will know what I mean.

In the beginning I remember that I spent most of my time reading aviation magazines. There was no formal orientation program. Eventually, I must have been given some low level assignments and responsibilities but only remember one. In 1964/5 President Lyndon Johnson launched a much heralded government efficiency program. He took the lead by personally shutting off light bulbs in the White House. More seriously, he insisted that all government agencies cut back on paperwork. Since this was impossible, he took the drastic step of forbidding the purchase of any new filing cabinets. This would force all departments to reevaluate what they really needed to file, and also clean out unnecessary files. For example, the FAA was required to file papers detailing every take off and landing at even the smallest airports. It would not surprise me it these documents from the dawn of aviation history might still be in some repository.

Anyway FAA management analysis offices all over the country had to implement these new filing regulations.  We sent out manuals, directives, and detailed instructions to all field offices and mandated that they comply. Now field offices were the places where the vitally important work of the FAA was done. I recall one trip to a massive flight control center where Air Traffic Controllers (mostly ex-military pilots) were intently watching the blips on the primitive radar screens that often seemed perilously close to one another. It was a fatiguing and nerve-wracking job and I wouldn’t have done it for a million dollars. The safety of thousands of air travelers was in their hands.

But in our office we were concerned about files and filing cabinets. One day one of the field offices called up and virtually begged us to go out to his office and help him figure out how he should implement all these new directives. We couldn’t be bothered. It was his job. Just read the manual. The last thing we would want to do was to visit a field office or actually try to implement one of our own directives.

My experience with the FAA has stayed with me for over 50 years, and makes me sympathize today with all those doctors who, while holding the fates of thousands of patients in their hands, must deal with the administrative nightmare that is Obamacare.

At the end of my first year I got an offer to teach at a small college in Connecticut. When I told the bureau chief that I would be leaving, he expressed regret and told me that he was considering a promotion for me for a job well done.

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