Theory, Practice, Smoke, and Mirrors

Note: I’m just beginning to look in to this. The following may be way way way off base. More to come when/if I have more time. Stop by if you find anything supporting or contradicting (though I won’t be around this week)…

It’s fascinating to read the opinions and testimony of various economists regarding Obama’s healthcare plan. A long and distinguished list have weighed in on numerous aspects, in particular, the money saving features.

A big chunk of the ‘savings’, as much as 3/4’s, is described thus.

Under the plan companies will, according to economists, do one of 3 things:

1 – Larger companies, those with more than about 250 employees, will hold the value of ‘Cadillac plans’ (the health plans provided to nearly all employees, including union employees in large companies qualify as ‘Cadillac plans’) to just below the level that triggers the proposed excise tax. In other words they will reduce coverage. Initially this tax will be triggered on any amount spent on healthcare and insurance in excess of $10,200*. The difference, approximately $4,200 per employee will be paid in additional salary to the employees.

2 – Many smaller companies will cease providing health insurance, encourage employees to purchase insurance through the government marketplace, and elect to pay the proposed $2,000 fine. The difference between what they are currently spending (approx $7,000) and the $2,000 fine will be paid to employees as additional salary.

3 – Some smaller companies will make no change and will continue with their current health plan.

Nice theory, won’t happen in practice. And I’d think they know it.

Competition, locally and globally, is fierce. Few employees will see any increase in salary as the economists predict. That is simply not reality. This theory though does seem to do a good job of hiding the true costs of Obama’s plan.

Despite theory being wrong, all is perhaps not so bad. One way large employers will reduce the costs of their plans (to keep them under the $10,200 excise tax limit) will be to place employees with risky, and thus more expensive, health behaviors in a separate plan with severely limited coverage. This will include employees who are overweight, smoke, drink heavily or are a drug abuser. If you get a speeding ticket or are otherwise documented as a high health risk you could find yourself in this pool as well. This will allow low risk and healthier employees to have better coverage for the $10,200 companies will be allowed to spend. Theoretically, this will encourage employees to make healthier choices so that they can join the healthy plan that offers better coverage.



* Note that on average these companies spend about $14,400 per employee per year on heathcare and, with few exceptions, every full-time employee from bottom to top receives the same plan (many companies also offer these plans to part-time employees at a pro-rated cost). Glenn Beck and a couple of others have said that government employee healthcare costs are considerably more, perhaps as much as twice. Employee benefits industry reports that I have studied have not supported this.

Bad option or no option at all?

Sen. Harry Reid commented this morning that the U.S. is the only nation where people must file for bankruptcy because of healthcare costs. This may or may not be true. What he declined to mention is that in other nations most of these people would not have received the healthcare in the first place.

Healthcare is expensive. There are some areas where we can certainly cut healthcare costs but the reality is that if someone needs major surgery it is going to cost at least thousands and likely tens of thousands and maybe hundreds of thousands of dollars. The costs of the people involved, the equipment, drugs, and hospital facilities are what they are.

No nation can afford to provide full, complete, and unrationed healthcare to all of its citizens. The costs to do so, with today’s technology, would exceed the GDP of any nation.

Some form of rationing is required. There will not be enough to go around. Most countries with socialized medicine use Queuing as their primary method of rationing. You simply wait your turn until whatever you need becomes available. Many surgical procedures, such as a hip replacement, that we consider critical in the U.S. and that are often provided within hours, may involve several month waits in Canada, The UK, and other countries.

Limiting what procedures are available comes next. Many newer or more expensive procedures fairly widely available in the U.S. are not available at all in countries with socialized medicine. Worse, the vast majority of these are developed in the U.S., if we adopt government run healthcare system who will invent even better options?

The final form of rationing is probably best termed Justification. Does this person’s life justify spending limited resources on them? Is it worth spending $20k on a hip replacement to a 90-year-old? How about $40k in chemo therapy for someone with severe mental and physical disabilities?

So yes Harry, some people in the U.S. may go in to debt or even bankruptcy to get medical care . But under the system you want to give us they wouldn’t even have that option.