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Archive for December, 2013

Forest and the trees.  Reflecting on the OJ Simpson trial in which microscopic analysis of a topic obscured the obvious macroscopic truth, I thought it might be an illuminating exercise to rise above the trees and get a more global view of Obamacare and where we could be headed.

 As a starting point, let’s examine the primary issue.  The third party payer system is a broken model that incentivizes overutilization of services and poor patient outcomes.  It has created a culture where people feel entitled to healthcare for free, insurance companies generate outsized profits by exploiting their control of the system, and providers own businesses that are driven by subsidies.  It is self-evident that Medicare, the nation’s largest insurer, has been operating at a deficit since its inception in 19651, and is an unsustainable model, sadly resembling a Ponzi Scheme.  The projected date for Medicare insolvency is 20262. These are indisputable facts.

 Fast forward to the Obama administration in 2008, who made it their priority to fix this seemingly intractable problem.  As we all know, the U.S. healthcare problem is vastly complex, emotionally charged, and driven by both a moral imperative and powerful plutocratic interests.  There are thousands of moving pieces flying in every direction.  So, what is the best way to get the system under control?

 If one views the situation purely from a business perspective (given the fact  that healthcare has evolved into a big business), the most logical approach to correcting the overall problem is to adopt a single payer system.  Kaiser is a good example of such a system, and I believe that the Obama administration took notice of their success and aspired to emulate their model.  Kaiser is both an insurer (they take risk) and a provider.  No middleman.  They own the hospitals, the doctors (salaried), the labs, pharmacies, imaging centers and dialysis centers.  They are not subject to capricious charges from any of these providers.  If a Kaiser hospital is underperforming, the administration has the ability to fire the staff and hire better people.  In contrast, what could Aetna or United do about one of their underperforming hospitals, especially when they absolutely must have the institution in their network?  In addition, the control inherent in a single payer system enables the administration to drive rapid adoption of more efficient processes and better patient care.  Among these are disease management programs, population management, clinical decision support, cost controls, and better patient support services.  That’s how you run a business.  Control.

 But here’s the problem.  A single payer system has the aroma (perhaps rightfully so) of socialized medicine, which is a show-stopper for the American public.  It is an unsellable concept.  Yet, common sense dictates that it is the only practical solution to the healthcare meltdown.  So, what to do?

 Perhaps a history lesson might provide an answer.  Back in the ‘80s, when HMOs began to gain momentum in the employer-based healthcare market, most Americans considered the option to be repulsive.  But as a result of the confluence of rising healthcare costs and a contracting economy, these plans gained significant market share through a slow, but steady recruitment of providers and employers looking to reduce expenses.  In the end, the folks who initially turned-up their noses at these plans were faced with a new environment of limited, and often no choices for healthcare coverage.  Health benefits, once an afterthought and perceived entitlement, now became a priority when it came to employment.  Many people took a second job at Starbucks or Home Depot just for the benefits.  Notably, it took an assault on the consumers’ pocketbooks to achieve this wholesale attitudinal change.  It was a two-stage process.

 Whether by design or evolution of economic market forces, there is a strong possibility that this lesson will be applied to the current healthcare reform movement.  As we know, in general, Obamacare requires every U.S. citizen to buy health insurance to amortize the underlying financial risk profile of the system.  In order to facilitate this requirement, the now infamous federal and state healthcare insurance shopping exchanges were created, all in an ostensible effort to lower costs to the consumer through even-playing-field competition.  Ironically, the unintended (or intended) consequence of this setup has been sticker shock.  As most people get their benefits through work, they are now being given a monetary stipend to purchase their own health insurance, and are largely finding that this amount is grossly inadequate to purchase the type of healthcare coverage they feel they need.  And for those who heretofore had no insurance, the premiums are indeed more affordable than before, but their out-of-pocket expenses will be significant thanks to high deductibles.  Bottom line:  if you are above the poverty line, you are being forced to buy insurance that you may not be able to afford.  It is my contention that this situation may very well eventually lead to a public outcry for emergent corrective action and create a climate in which a single payer system will be viewed as an acceptable alternative.  HMO redux.  A two-stage process.

 Should this be the ultimate outcome, then what will be heralded as the precipitating factor: Natural market evolution or a pre-conceived strategic two-stage plan?  I suspect most people would argue that the current administration could not have had the insight nor the capacity to engineer such a complex vehicle of social change.  But irrespective of the majority view that Obamacare was ill-conceived and improperly thought out, it is difficult to dismiss the amount of collective brain power gleaned from an army of recruited academic and healthcare industry experts that went into creating thousands of pages of healthcare reform legislation.  This exercise obviously represented more than just throwing something against the wall to see if it would stick.

 Clearly, the overall picture is much more complex than outlined above, given recent developments such as the emergence of Accountable Care Organizations, hospital systems becoming insurers, Medicare flat-rate reimbursement, concierge medicine, etc., but is it possible that the end game is actually being driven by the old “Potomic Two-Step” presented to Harrison Ford in Patriot Games?  It’s sure beginning to look that way.

1  With the exception of 1966 & 1974; National Review Online, April 25, 2012, “Medicare’s Dirty Little Secret”, Holtz-Eakin, D. and Nussle, J.

2  2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Medicare Trustees Report), pg. 6

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