Wednesday, March 11, 2009

Health Reform? I Think Not

Americans are justifiably upset by the continuous increases in health costs. Premiums increase, deductibles rise, HMO’s and PPO’s deny coverage, limit access, and refuse payments. Frustration is understandable.

We hunger for reform, while being clueless as to what reform is.

True reform will provide equal or greater medical care at a lower cost. Otherwise, it will fail – a very costly failure. Health reform should curb the price increases while continuing to deliver outstanding service – an unsolvable equation.

Meaningful reform is impossible unless we control the reasons for the cost increases. These options never seem to be on the table. Without addressing the underlying root causes for the escalating costs, the federal government will be no more effective than the private insurers in controlling costs.

The underlying pressures are:

1) An aging population;
2) Mandated benefits;
3) Malpractice litigation and trial lawyers;
4) Defensive medicine;
5) Innovation and technology;
6) Pharmaceuticals;

We are a graying society; the baby boomers are entering their golden years. We know that our needs for medical care increase with age. As we pass through 40, our medical visits rise and the medical procedures become increasingly intrusive. “Oscopies” become periodic.

Our once reliable bodies are showing the wear and tear of decades of use and abuse - all that beer and pizza in college, the greasy burgers, dogs and fries, the donuts, cake, ice cream and pies, show up in high blood pressure and cholesterol.

Cancer is primarily a disease of aging. For example, almost every man if he lives long enough will have prostrate cancer, not to mention prostrate problems along the way. Dementia with all its problems is a growing risk of aging.

The 1990 census found 31.2 million Americans aged 65 and over. The number rose to 35 million in the 2000 census, and is estimated to be 38 million today. That is an enormous pressure on the health care system.

We are not going to throw grandma off the bus, so these costs will escalate.

Health insurers are increasingly required by legislatures to extend coverage; that is, they are mandated to cover hundreds of risks and procedures they wish to exclude, beginning with the coverage of preexisting conditions. Some of these procedures may be individually inexpensive, but cumulatively they pose a substantial increase in health care costs. Other mandates, such as in-vitro fertilization may be very expensive.

The point is not rather or not these mandates are desirable, but that they raise the costs of health insurance by an estimated 20-50% depending upon the state.

A large proportion of our health care costs cover malpractice insurance and liability. Trial lawyers accurately point out that the number of large verdicts against medical providers is not increasing. However, large settlements are escalating because insurers do not want to risk large jury verdicts. When in doubt, they settle.

President Obama is not about to take on the trial lawyers.

Medical providers engage in defensive medicine to minimize the risks of litigation. In other words, they order extra tests and procedures to minimize risks. The cost of an extra X-Ray or glaucoma test may be small, but the cumulative cost to society is high.

The risk of liability for problems in deliveries result in doctors performing an excessive number of C-sections - over twice as many as are medically necessary. The medical joke is that no doctor has ever been sued for performing a C-section, but that many have been for not performing one. Litigation almost always follows a child being born with cerebral palsy, presumably caused by an insufficient amount of oxygen during the birthing process. John Edwards made his legal fortune in winning these cases.

Doctors also increasingly prescribe extensive periods of bed rest for pregnant women, often exceeding a month. The practical issue is not whether bed rest is medically necessary, but is it legally recommended.

We witness medical miracles daily because of rapid advances in technology. Cat Scans, MRI’s, organ transplants, arthroscopic surgery, neo-natal, novel treatments save and prolong lives, but they are costly. Someone has to pay for the research, or it will not occur.

We need prescription drugs, especially as we age, but they are expensive. New drugs might require $2 billion in research and development costs to bring to market. Foreign governments, including Canada, sharply limit the price of prescription drugs. That is why pharmaceuticals are substantially less costly in Canada. The companies offset it by charging more in the United States.

Similarly, the Medicare and Medicaid plans limit the reimbursement rates to healthcare providers. Doctors and pharmacists respond by dropping the plans, charging more to private insurers, or retiring.

Unfortunately, the discussion of health reform centers on two constructs. The first is universal coverage, and ultimately a single provider, the government.

Increasing demand, that is universal coverage, without increasing supply, that is medical providers, is a classic recipe for inflation. It will also be accompanied by rationing of services through gatekeepers, i.e. the government. The British and Canadian healthcare systems are plagued with rationing.

Second, the Obama Plan is premised not on cutting any of the causes of the healthcare cost increases, but on imposing new taxes and raising others while further squeezing the providers, that is, doctors, pharmacists and hospitals. The increased squeeze will result in a large number of experienced specialists retiring early, reducing the supply of physicians. We are already experiencing shortages of general surgeons and family physicians because these fields are increasingly financially unattractive.

Congress is capable of many acts, including moving the Sierra Nevada Mountains scores of miles to subsidize the Central Pacific Railway, but it has never been able to repeal the basic law of supply and demand.

The Obama healthcare reform will result in reduced health coverage. We will call it rationing. History will record it as a misguided disaster.

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