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The Federal Healthcare Abyss

Fresh off an oversea tour and a visit to France no less, the President returns promising to become more engaged and agressive in getting his healthcare plan passed; ideally says he, by this summer.  The reasons Mr. Obama proffers are many and urgent.  Chief among the reasons is that the system (healthcare) is broke (and not just financially).  Dating back to his campaign, Mr. Obama has been selling the need for healthcare reform albeit in often couched terms and nuanced language.  Reform today however, is apparently the buzz word for “government take-over”, especially if put to the likes of Speaker Pelosi and other “get it done” proponents in the Democratic party.

I’ll admit to being an advocate for healthcare reform and I’ll also admit that I believe Washington has a role to play – a significant role.  Aside from these admissions however, the gap between the current Washington/Obama reform platform and me is as wide as the Grand Canyon.  In short, we come at the conclusion that healthcare needs fixing from not only different perspectives but from different economic and policy worlds.  I’m a healthcare guy; someone who has spent the last quarter of a century inside of U.S. healthcare.  My second dissertation was even focused on health policy; how the passage of Title 18 and Title 19, along with other key pieces of legislation in the 1960’s created the current healthcare economy in the U.S.  While I won’t claim to be an expert on healthcare or U.S. health policy, I will claim to being darn close and certainly, someone who is presently well paid to comment on it, to consult within it, and to assist others in understanding it.  

What troubles me most are the arguments being offered for reform or should I say, complete Federalization.  I say complete because after all, the Feds already control enormous sections of the present healthcare system and when Medicare and Medicaid are taken into account, represent the largest consumer/purchaser of healthcare in the present system.   To be certain, the Feds already have significant tentacles deeply rooted within the current system; the one that is “broke”.  To use an analogy, the Federal role in healthcare is similar to an elephant within a crowded shopping center; wherever the elephant goes, the people must move to get around it or out of its way.  The elephant, being the largest animal in the shopping center, dictates the flow and movement of everything else around it.  Government today is the elephant in the shopping mall of healthcare, dictating via regulation and reimbursement, how healthcare runs in the U.S.  As Elephants are large, plodding beasts, capable of rampage or just standing still, it is no wonder that the U.S. healthcare system is constantly moving to and fro, sometimes frenetically so, in an effort to stay clear of or move around, the elephant.

Taking the prime postulate that the U.S. healthcare system is broke to heart, one needs to look first at how it got broke.  The breakage didn’t occur overnight nor did it suddenly crack.  To be truthful, the system has been broken for quite some time and financially speaking, Medicare has been “broke” for years.  While it is true that the warnings from the Office of the Actuary that Medicare Part A is soon to be insolvent (tax revenue less than an annual outflows), such warnings have been prominent for years.  The present depressed economy and the waning tax revenue (Part A is paid for by payroll taxes) hastened the upcoming insolvency date.  Looking a tad deeper however, Medicare has been a black hole for General Purpose Revenue (tax generated revenue) for quite some time as its non-payroll financed parts (Part B) have been deficit spenders for well over a decade.  Part B and the more recently enacted Part D (the drug benefit) were never adequately structured or internally funded, reliant on the program participants to pay for a portion of the costs via premiums, co-payments, and deductibles – paltry sums compared to the costs incurred within these programs.  While Part A (inpatient hospital insurance primarily) has remained semi-stable in terms of its costs attributable to program utilization, Part B has been on “steroids”, growing rapidly as outpatient utilization and physician based service programs have overtaken other forms of care traditionally provided on an “inpatient” hospital basis.  This shift in care patterns combined with the structural funding problems within Part B have combined to create a phenomenally expensive entitlement program that is frankly, a run away expenditure train.  At best, programmatic tinkering on the Part B side has had only a minuscule effect in slowing program growth and expenditure patterns.

If (and I concur) the present system is so broke that reform is the only possible solution, the question is begged, “what kind of reform”?  Herein lies the government fixing the problem paradox.  While all healthcare non-government funded has grown modestly and rather controlled (not at all higgledy-piggledy as many would contend), where then would the problem lie?  Simple.  The primary problem is the government entitlement programs of Medicare principally and Medicaid to a lesser extent.  These financially and structurally flawed programs are the primary causes of the present financial crisis within the U.S. healthcare industry and the secondary cause as well (their flaws flow through all aspects of healthcare whether incurred via regulations or reimbursement inadequacy).  Combine the present financial conundrum within the Medicare and Medicaid programs within a growing eligibility base and a declining revenue base (aging population accessing benefits with fewer worker’s paying in) and the alchemy is a potion that would likely kill Rasputin.  The question posed is thus, “how can the goverment that is principally responsible for breaking U.S. healthcare reform U.S. healthcare?”

If reform is defrocked for what it is for Mr. Obama, complete Federalization, then U.S. healthcare will assuredly fall into an enormous economic and social abyss.  Consider that the U.S. already spends more on healthcare than any other world nation and at present, the U.S. healthcare economy alone is larger than the GDP of all world nations save five (Germany, Japan, France, the U.K. and China).  At its present level, the U.S. spends more on healthcare than the entire GDP of Canada.  The Obama plan, such that it is, calls for massive increases in spending of an estimated $1 trillion more per year, $10 trillion over the upcoming decade.  As these estimates are notoriously inadequate, presume more or an error of at least a few hundred billion.  The error factor is inherent in predicting how people with limited to no healthcare coverage and resources present will consume once the government is paying “unconstrained” for their care ( the probability of a large amount of potential or pent-up demand).  Further, as the reform process is political, there is no way to estimate how much pork and/or special interest spending will be memorialized in the form of new benefits and new policy in the omnibus legislation that could become the new U.S. healthcare system.

What is certain is that the argument that the current system is unsustainable economically (if not also morally according to some) is not solved by layering on or transferring the present structural and funding problems to the taxpaying public of the U.S.  Without question, to fund the great reform proposed, Mr.Obama and Congress will assuredly raise taxes in wholesale measure, across nearly all goods, income levels and services provided in the U.S.  As assuredly the reformed system will grow in scope and benefits, coverage and spending then the annual ante for funding will also grow, consuming greater levels of tax revenue to keep the new healthcare system afloat.   A safe bet is that the “new” system will grow to nearly 18% to 20% (rapidly) of the U.S. GDP and at that level, the system will not be sustainable and the U.S. economy will fracture in ways that make the current recessionary times pale in comparison.  No country, not even the heavily socialized European nations, spend anywhere near this level on their health systems and their present economies are as dysfunctional and stagnant as the U.S. economy, if not more so.  In contrast, these nations are moving away from much of the policy that has socialized their health systems and taxed their economies – they simply can’t afford to sustain the path that they were/are on.

Aside from the funding equation flaws that are inherent in the reform movement under Obama, there lies a practical and perplexing problem: How can politicians solve a problem such as the healthcare dilemma in the U.S.?  The answer? Politically, of course.  The U.S. healthcare system is already a bureaucratic morass of bad policy, inane regulations, complex formulas, regionalism, special-interest, lobbyists, etc.  Once fully Federalized, only the simplest of minds could possibly believe that a system fully controlled by politicians won’t be overloaded and bloated with political payola, patronage, special interest, pork and liberal (not the political term) bureaucracy.  Arguably, one of the main problems with the current system is how “politicized and federalized” it already is, bureaucratized beyond normal human comprehension and insanely difficult for even the most intelligent to understand – nearly to the level of the federal tax code.   Under any practical scenario (or impractical for that matter), politicians will, to borrow a polite phrase, “F” it up beyond belief – it is what they do when there are enormous dollar figures involved and a chance to gain power, money and political influence.

The question that still begs to be answered is, if one believes as I do that reform is required, “what should be done?”  To answer that question, one needs to dissect the core problems within healthcare today and realign the system to eliminate these problems and to right-size the incentives to current economic and social realities.  In my next blog entry, I’ll walk through an approach to reform that should make logical sense and moreover, fit financially within the current U.S. economy.


June 8, 2009 - Posted by | Policy and Politics - Federal

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