Government Run Health Care

Powerful forces will expand public funding of health care no matter what.

By Ian Morrison

About the time you read this column we will have Government Run Health Care. No it’s not what you think. While Obamacare has just passed in Congress, the full effect of the legislation will not be felt until 2014 and beyond. No, what I mean is that even if health care reform is repealed, or blocked in implementation, the public sector share of health spending will exceed 50 percent in 2010 for the first time.

Wait, you wonks say, the recent official CMS projections say that doesn’t happen until 2012. (See “Health Spending Projections Through 2019: The Recession’s Impact Continues,” by

Christopher J. Truffer, Sean Keehan, Sheila Smith, Jonathan Cylus, Andrea Sisko, John A. Poisal, Joseph Lizonitz and M. Kent Clemens, in Health Affairs, vol. 29, no. 3 [2010], 10.1377/hlthaff.2009.1074.) True, but read the fine print. That forecast assumes that Medicare follows current law and cuts Medicare physicians’ fees by 20 percent in March because of the sustainable growth rate (SGR) provisions. Since SGR is set to get its annual stay of execution extended for another year, if you follow the authors’ own math, then sometime in mid-2010 public payment will exceed private payment in American health care for the first time.

Demography and Recession

As the CMS projections show, this is a result of relentless demographic change, coupled to the lingering effects of the massive economic downturn, which has raised Medicaid burdens by a record annual increase of 3.3 million eligibles (to a total of 46.3 million), swollen the ranks of the COBRA subsidized, and reduced the total number of privately insured by 1.2 percent. But, this is no short-term phenomenon. CMS’s current law projection has the public sector growing more than the private sector as far as their eye can see (which is up until 2019). Beyond that, you don’t need to be an actuary or futurist to realize that the private sector is unlikely to make a late-breaking comeback in the fourth quarter because of the aging of the baby boom. (By the way, one of my working definitions of a futurist: an actuary who doesn’t like numbers).

Remember, the baby boom has just started to turn Medicare eligible. We are on our way! We boomers can’t wait to convert from the uncertainty and capriciousness of private sector health insurance coverage, especially those of us buying individual coverage from Anthem in California (as my family does), and get our hands on one of those Magic Kingdom cards that is Medicare, that guarantees we can see pretty much any doctor and Medicare will at least pay them something. Sounds pretty good to me, even though the benefit consultants and financial planners tell us we also will each need to save $500,000 for our lifetime out-of-pocket medical costs not covered by Medicare. That still may be a better deal than a lifelong relationship with Anthem, trust me.

Higher Taxes Are Inevitable

Republicans are not the mean spirited rubes that so many sneering progressive intellectuals make them out to be. They understand this math perfectly, and they do not want any part of the massive tax increases that this inexorable, demographically induced march implies.

Republicans were therefore not exactly big fans of the Obama administration wanting to expand coverage to the poor and middle class through government subsidies (albeit that the administration plans are in part financed by provider rate cuts in Medicare). Plus, all of the Democratic legislation expands Medicaid by 16 million enrollees. Medicaid is another publicly financed program, not particularly near and dear to the core Republican voter (or as the polls show, it is not particularly popular with Independents either).

The Republican Plan

So the demographic inevitability of higher taxes for health care motivates Republicans to fight any health care coverage expansion through public financing.

This partly explains what happened at the exquisite Kabuki Theater of the Health Care Summit at Blair House. The Republicans’ goal was to stop this rollercoaster; better yet, reverse it. Step 1 was to stop Obamacare. The Republicans had exactly the same cue cards—some Republican leaders read them better than others—but they all said “Start over, clean sheet of paper, step by step.” It could be a top-40 electro-pop lyric that would make the Black-Eyed Peas proud.

Step 2 is to propose sensible, reasonable, American alternatives. (By the way, clue me in here, who gets to decide what are sensible, reasonable, American alternatives?)

The Republican plan was estimated to reduce the uninsured by 3 million and this was achieved, as follows:

Say “free market” a lot. Government health care is bad, free market health care is good. (I graduated from Edinburgh University 200 years to the day after Adam Smith went there to write The Wealth of Nations, and we still see each other at alumni meetings. He would be appalled that the term free market was applied to anything in American health care. Even private sector health care bears little resemblance to a free market.)

Create high-risk pools at the state level so you can turbo-charge the death spiral in the insurance market. A high-risk pool makes health insurance cheaper for healthy people and more expensive for sick people. Whenever high-risk pools have been established at the state level they rapidly death-spiral out of control.

Provide tiny wee tax credits for “affordable insurance.” The polls show Americans like tax credits, particularly for small business. What the polls don’t always measure is that the tax credits would not be sufficient to pay for the insurance; getting a tiny wee tax credit toward a very big expensive health insurance bill doesn’t sound so good.

Create “affordable insurance policies” that don’t cover anything. We know how to make health insurance premiums cheaper. It’s simple: Limit what’s covered and raise the cost-sharing. But wait, isn’t that what everyone’s mad about?

Encourage consumers to buy “affordable insurance” from an insurance company in another state that has no consumer protection and no contractual relationship with local doctors and hospitals. Practically, insurance executives tell me, there really are no states with significantly cheaper policies that could be sold in other states, unless of course they are trying to eliminate consumer protection. Or maybe it’s because of the bargaining clout that an insurer in Alabama has over my doctor in Palo Alto, Calif.

Reform malpractice caps to reduce defensive medicine and let doctors focus on offensive medicine. Policy wonks dismiss malpractice as a driver of health care costs, but it is a big issue to doctors and to Republicans. (Personally, I believe the Obama administration missed a huge opportunity from the beginning by not embracing comprehensive medical malpractice coupled to patient safety reform.)

Increase personal responsibility. Successful surgeon senators advocate for “skin in the game”; community organizer presidents empathize more with $40,000-a-year families who can’t pay for food or gas, let alone health insurance. These families have more than enough “skin in the game.”

Borrow more money from the Chinese so we can cut taxes. Deficits would remain large and growing even if all these “sensible, step by step” plans were pursued. Therefore any tax cuts would have to be financed by borrowing from the Chinese, just as we have over the last decade.

The Democratic Plan

In the interest of being fair and balanced, we need to scrutinize the health reform legislation that just passed in Congress with the same degree of “vitriolic sardonicism” as Monty Python called it. Democrats will cover about 30 plus million of the uninsured (10 times the Republican number) and they achieve this as follows:

Expand Medicaid by 16 million because it is such a swell program. The bill expands Medicaid by 16 million enrollees. When did Medicaid become such a great program? Did I miss a class? I thought it was horribly inefficient from an enrollment point of view, and provided pathetic levels of reimbursement to providers to the point that most mainstream providers won’t accept Medicaid patients. Yet it has become the vehicle for half of the newly covered. Maybe that is why so many moderates liked the Wyden-Bennet proposal where people get a voucher. And there’s your answer to why the Wyden-Bennet plan had no traction: It’s pretty easy to stop printing little vouchers under a change in administration; it’s a little more difficult to dismantle an entitlement program for 60 million people.

Have taxpayers in the states with generous Medicaid programs subsidize the Medicaid expansion in the states with less generous Medicaid. I spent the week of the Kabuki Summit, not in Washington, New York or California, but in Oklahoma and South Dakota. And I heard about, and experienced directly, entire local state legislatures and majorities of individuals in the community committed to sending back Obamacare money to Washington if it passed, refusing to accept the rule of the federal government if reform passed, and pleas of “Liberty or death.”

Whoa! The delicious irony is that the greatest potential beneficiaries of Obamacare are the very states with the most tight-fisted Medicaid programs. Liberal California software executives and closet lefty Goldman Sachs partners would be paying increased federal taxes to support the Medicaid programs for the less than munificent taxpayers of Texas and Alabama. The Massachusetts voters figured this out in their vote for Scott Brown; they already had Obamacare and like it, so why did they need to pay twice?

Mandate that most other uninsured Americans buy health insurance that they can’t really afford… Under Obamacare you must have health insurance, unless you really can’t afford it, or you work for a very small business (where most of the uninsured are) or you are a Christian Scientist, or you take a free ride because you can do grade 1 arithmetic and figure out that paying the fine is way cheaper than buying insurance. Apart from those limited exceptions, you must have insurance.

And then subsidize them so they can. Did we tell you that we are subsidizing you to buy unaffordable insurance? (Ben Stein the noted economist, columnist and media celebrity, said on CNN after the summit that we should just give poor people the money to buy health insurance in the private market.) Here’s the conversation you would have with a typical uninsured family with two kids, making $40,000 a year:

“Hey folks. I am from the government. Here’s $12,000, but we would like you to buy health insurance with it.”

“This is Candid Camera, right?”

Regulate insurance companies to take all comers even though all comers are not going to come. There is this pesky little problem with private health insurance markets. Insurers want to make sure that the people who sign up are not just sick people. And if they sign up only sick people, they want to be able to charge what it costs to treat those sick people, plus a fee for administration. Come on now. Be reasonable.

Raise fees and taxes on stakeholders who will pass it on in higher costs to the end consumer. Tax drug companies, medical device manufacturers, insurers and providers. These taxes will be passed on immediately to the end user in higher prices.

Start the taxes now; add the coverage later so in the next 10 years it actually reduces the deficit. Gather in all the taxes, now, so you can pay for expanded coverage later. If you have new revenues for a few years before the costs start it makes it easier to make it budget neutral and in fact actually reduce the deficit. But…

In the long run, hold your breath and be prepared to borrow even more money from the Chinese. Once we get to a true run rate of the costs of reform, it may be difficult to say we are reducing the deficit because of reform.

We now know who really won the Kabuki Summit. Rahm Emanuel and the Democratic leadership in Congress have “persuaded” enough blue dog Democrats to vote for the good of the party for health reform with this parting comment:

“We know you are going to lose your seat over this, but you have to vote for this; otherwise we won’t have health reform for another decade, and then it’s too late. We’re sorry it didn’t work out for you, here. But we have some parting gifts for you. Thanks for playing.”

This is historic, important and directionally correct legislation that will change healthcare dramatically, when it is fully implemented in 2014. But even in the interim we will have Government Run Health care no matter what. We just have to learn how to make it all work better.

Ian Morrison is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Weekly and a member of Health Forum’s Forum Faculty Speaker Service.