The American people have been treated to political theater over the last two weeks as discussions over the budget and the debt ceiling raged.
Arguably the issue most acrimoniously debated is President Barack Obama’s signature legislation, the Patient Protection and Affordable Care Act, or Obamacare. There is little common ground. Some predict it will not increase the deficit, others warn of unsustainable costs.
I will not debate the pros and cons of Obamacare. Instead, I would like to point out how a few select improvements in the health care marketplace could significantly and positively impact insurance costs, and perhaps deliver on health care affordability.
SKIN IN THE GAME
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Americans with health care coverage are largely insulated from prices for health care services. Medicare recipients can only be billed 20 percent (if they opt against a “Medigap” policy) while Medicaid and worker compensation patients pay nothing.
It is estimated that covered patients outside Medicare effectively pay not more than 10 cents of every dollar spent, and hospitals actually have a difficult time making up bids for cash customers.
Price competition is integral to all other parts of our economy and likely could help control health care costs. A starting point might be to offer significant cost savings on insurance to all individuals who pay for maintenance care out of pocket.
Under Obamacare, unfortunately, only people under age 30 may buy catastrophic/hospital-only insurance. Also unfortunately under Obamacare, the utility and availability of existing tools for direct participation in the health market — flexible spending, medical and health savings accounts — are sharply circumscribed.
The power of more shoppers with “skin in the game” should not be discounted and is nicely demonstrated by the popularity and success of the Federal Employee Health Benefit Program; it is hoped that the insurance exchanges will provide similar market incentives.
THE COMMERCE CLAUSE
Congress is empowered to facilitate interstate commerce by Section 8 of the Constitution. Unfortunately the health insurance marketplace seems to function outside of the Commerce Clause; generally one cannot take a health insurance policy from state to state or even job to job within the same state.
Most states have relatively a few, dominant health insurers, and the companies vigorously resist opening the market to more competition. Their efforts to preserve monopoly/oligopoly pricing are abetted by state insurance commissioners.
I hope that the federal health insurance exchange will help this situation, but Congress should invoke the Commerce Clause and allow insurance plans meeting minimum standards to participate nationwide, without additional constraints imposed by state insurance commissioners or lobbied for by local insurers. Successful companies would then compete on price, product and service as they do, for example, on homeowners and automobile insurance.
Employer-based health insurance grew out of a World War II IRS ruling, codified into law in 1954, that made health insurance an expense to companies, thereby lowering their tax burden, and an untaxed benefit to employees, which was estimated to cost the federal government more than $150 billion in 2009.
Individuals, in contrast, purchase health insurance with after-tax dollars, making it vastly more expensive. While provisions for (in essence) community rating of insurance under Obamacare might help persuade some to shop the market individually, what is required is a level tax playing field.
A solution could be to require after-tax purchase of benefits by employers or, and perhaps more politically palatable, enable individuals to purchase coverage with pretax dollars. An additional option, planned in the future under Obamacare, is to tax “rich” (so-called Cadillac) coverage plans, but support is swelling to repeal this section.
Medical malpractice insurance costs, defense costs, frivolous lawsuits and the like result in costs estimated between 2.5 percent to 25 percent of the overall health care bill. Tort reform can work; Texas has seen a decrease in lawsuits and an increase in providers since its law was passed in 2003.
Congress has initiated tort reform for other industries to good effect. As an example, the General Aviation Revitalization Act of 1994 is widely regarded as having saved private aviation in the United States. Might not malpractice tort reform help control costs? Our annual national health care bill approaches $2 trillion; even if one accepts the 2.5 percent estimate, that’s a $50 billion savings per year.
Decades of an “other peoples’ money” mentality and the explosion of medical knowledge and technology have led us to the cost precipice where we now stand. No simple, set solutions will repair this problem within the next year or so. However, repair of some perverse incentives and system problems, as I’ve outlined, could help, whether as new parts of the Patient Protection and Affordable Care Act or as new legislation.
Dr. Michael Schlitt is a neurosurgeon with offices in Burien.