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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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So . . . what’s at the core of our healthcare mess?  The doctors and hospitals overcharging?  Insurance companies stealing from everyone?  Pharmaceutical companies paying-off Senators to allow the continuance of obscene pricing?  Medical device manufacturers creating margins of a million percent?  The government’s ineptitude at administering the Medicare program?  Well, yes.  And no.  These are all contributors (and there are many, many more), but as Curly said to Billy Crystal in City Slickers, it comes down to “One Thing.”

Now, it took Billy 1:45 of cinema run time to figure out what that One Thing is.  But for the rest of us 300+ million Americans, this healthcare movie is like watching “Lost” — there’s no real answer and there’s no end in sight.  So I’m here to give you the answers to the SATs.

The “One Thing” is entitlement.  Every American feels entitled to receive healthcare services for free.  It’s why we constantly complain about $20 copayments and deductibles.  We think that’s unfair.  The doctors and hospitals make enough money.  Why should we have to shell out hard-earned cash because we were unlucky enough to get sick or hurt?  I mean, how much did it really cost the doctor to look in my kid’s ear for 5 seconds and write a stupid prescription?  Is the cost of the ink that much?

Most people deny this is the way they feel. They’ll tell you that doctors should get paid well.  But the truth is, that is EXACTLY how we all feel.  We just don’t want to pay for this stuff.  So where does this feeling of entitlement come from?

Well, it starts with the insurance companies.  There is always going to be a problem when you have a third party paying the bills.  Think of it this way . . . if your father is filthy rich and he happily pays all of your bills, how much attention are you going to pay to prices or the amount of stuff that you buy?  Well guess what . . . when it comes to healthcare, most of us have that rich father.  Let me ‘splain.

A couple of generations ago, insurance companies recognized a new way to make money by wedging their way in between the doctors and the patients.  The result of this was, and is, a system where patients see their doctors, and their insurance company mails their doctor a check.  Free healthcare.  In point of fact, the original “indemnity” plans paid 80% of the doctor’s charges, but the doctors never bothered to collect the other 20% from the patient because the reimbursement was so good, and because they didn’t want to upset their “customer”.  But then came the ’80s Wall Street boom.  The doctors saw how much money their investment banker friends were making, and wanted to even the playing field.  So they started charging more for their services, unbundling their bills and performing more money-generating services and tests.  The same greed entered the hospital, pharmaceutical, medical device, and other healthcare sectors resulting in an explosive increase in costs to the insurers.  The insurers (never ones to lose money) responded by developing managed care plans (HMOs & PPOs) to control costs, cutting back on benefits, instituting lifetime caps and exemptions for pre-existing conditions, requiring referrals and preauthorizations, establishing co-pay requirements, increasing deductibles and raising premiums. Doctors got paid less and responded by billing more aggressively and performing extra tests to protect themselves from the rapacious malpractice attorneys.  Ultimately, the result is less service for a higher cost.

Now, most Americans get health insurance through their employers (or the government), who pick up most, if not all of the premium payments.  In recent years, as the cost of insurance has escalated, the employers have passed more of the costs on to the employees.  So an employee might be paying $50, for example, out of each bi-weekly paycheck for health insurance ($1,200/year) plus a $20 co-pay when they see their doctor.  But their employer is likely paying $20,000/year to their insurance company (or self-insured administrator) on their behalf.  A nice perk, but very few employees recognize or appreciate this. They see the health benefit as a “given right” instead of viewing it as additional compensation.  I have a friend who just lost his senior-level Wall Street job, and his primary complaint is that, in addition to not earning income, he now has to pay $25,000/yr for health insurance for his family.  In the words of Bruce Willis, “welcome to the party, pal.”  He has been incessantly whining because this is a new expense for him that is unfair.  Of course, the fact that he earned a million dollars a year for umpteen years and got health coverage for free didn’t seem to soften the blow for him.  Entitlement!

And then there’s the “pass the bill” attitude. Since insurance is paying the majority of our healthcare bills, we want to get the most for our money.  It’s like going out to a fine restaurant with a large group.  Everyone subscribes to the Nash Equilibrium concept and orders the most expensive dish and multiple drinks, figuring that when the bill is split equally among the throng, they’ll pay less than their fair share because those that have consumed less will make-up the difference.  The only problem is, in healthcare everyone is gaming the system.

So we all go to the doctor and allow him/her to take unnecessary x-rays, perform extra blood tests, do unnecessary vascular doppler studies, hearing tests, physical therapy — whatever — because the insurance company is paying.  What do we care??

Well, here’s what happens.  The bills get passed to the insurance company and they respond by raising the price of coverage, which you and I pay directly, or indirectly in the form of a smaller paycheck from our employer.  And we thought we were getting away with something — that someone else would pick-up the tab.  In reality, when you litter in healthcare, you will, at some point, have to clean-up your own mess.  The penalty is guaranteed . . . it’s just delayed.

Now, in the case where Medicare (the government) is the insurer, eventually the system runs out of money.  And they can’t pass the loss on to employers, so they pass it on to the tax payer — YOU and ME!  So along comes Obama who says we have to fix this.  Well . . . there are 3 components of healthcare delivery, and to fix the system, all 3 have to lose money.  And we all know, nobody likes to lose money.  Those 3 components are 1) Providers [i.e. doctors and hospitals]; 2) Insurance companies; and 3) Businesses that feed off healthcare like pharma companies, blood labs, imaging centers, medical device manufacturers, etc.  And all three lobby heavily to both sides of the aisle to block this new legislation that will blow-up the runaway, money-generating healthcare gravy train.

The Republicans argue that reform will be bad for business, generate unrecoverable debt, and result in poorer healthcare services because of government mismanagement.  The Democrats argue that everyone is entitled to healthcare access at any cost.  But there is one thing we all agree on — SOMETHING has to be done.  We just don’t want to pay for it.  A complicated issue, to be sure.  Let’s just hope we’re moving in the right direction.  That we’re entitled to.

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