I wrote this a while ago and have been thinking about posting it for a while now... It's long, but I enjoyed researching and writing it so I thought I would share it. I apologize in advance :) First though, here is where I got most of my information:Obama's site on Health CareObama's Health Care FAQObama's Health Care Plan
I also looked and some different census data and polls to verify some of the numbers on people without health care, total health care costs, etc. I found them all with really simple Google searches.The Article
I started looking into Obama’s health care plan expecting to hate, disagree with, and ridicule every word. Much to my surprise, however; I actually agree with a surprising portion of the ideas outlined in the bill, but (perhaps predictably) I still disagree with the bill as a whole. This health care plan seems to have taken some quality ideas and used them to advance a political agenda that possesses more popularity than sense.
The first thing I would like to point out that this healthcare plan is presented as a $50-$65 billion initiative to provide health care to the uninsured, to help small businesses provide health care if needed, invest in electronic health care IS, and other smaller initiatives. Depending on who you believe, last year anywhere from 15%-33% of Americans spent at least some time without health care. Total health care spending last year was around $2.2 trillion. So, using my impressive mathematical skills, I have calculated that it should cost around $330 billon to $726 billion to provide the care specified before any of the expected savings. $10 billion is going to electronic health care technology, so on the low end Obama is expecting $275 billion (83% cost reduction) and on the high end $686 billion (94% cost reduction) to make this plan only cost $50-$65 billion. I call BS on this and for the rest of this exercise I am assuming the plan is going to cost around $300 billion and most likely much more.
The next opinion I got from reading this bill is there are basically three classes of health care participants that are targeted by this bill. (1) Those that don’t have health care and would only use it for emergencies even if they had it, (2) Those that don’t have health care and would use it for preventative care, and (3) Those that don’t have health care and are in desperate need due to some health condition. For everyone else the only thing that would change is the money you spent for everyone else’s health care. The point is, if you already have health care through an employer nothing really changes for you.
Now if you belong to the first group, thanks for wasting tax payer money! You will be getting free health care but won’t be contributing to any of the savings the plan hopes to generate to make the plan even remotely fundable. In the FAQ on the Obama Health Care Plan it is stated the plan will realize “tremendous” savings within the health care system to help fund the plan, and these savings come mainly from the benefits of preventative care. The rest of the funding will come from allowing the Bush tax cuts on people earning over $250,000 per year to expire. Now consider most people earning over $250,000 a year in the U.S. are small business owners who create the majority of the jobs, and the easiest way to come up with the extra money is to just not hire someone they otherwise would have hired. Don’t worry, the person they don’t hire won’t have a job but at least he will have health care… The other thing these small businesses might do if they earn right around $250,000 a year is manipulate their income a little bit to earn just under $250,000 a year which is a fairly simple exercise in accounting.
Now if you are a member of the second group I believe there is a good possibility a government program is the right answer and I even believe in some of Obama’s ideas. I’ve read many studies that say preventative care has a great chance at reducing the likelihood of sever illness or health issues in the future, and it is these severe health issues that burn through the dollars! 5% of people using health care account for 49% of total health care spending, and $1.7 trillion a year is spent on treatment for chronic conditions many of which onset could be delayed and/or overall treatment costs could be reduced by preventative care. Currently preventative health care accounts for about 4 cents out of every dollar spent in health care, or $80 billion dollars total, so let’s say we spend $160 billion to expand preventative care (about half of what is currently planned) and see if we gain the benefits expected. If it succeeds then, depending on the state of the industry, then there is potential for expanding the program. But, under the current plan Obama is not waiting, he is spending the money before he has realized any of the savings he requires to fund his program, and there is no guarantee those savings will materialize let alone in the amount the plan requires. The feasibility of Obama’s health care plan is dependent on the size of this second group of people and the savings realized due to the benefits of preventative care. This is important, if this second group of people is too small or the benefits of preventative care don’t materialize the plan will have a huge funding problem and you can guess where the money will come from in that case…. More taxes… Now, preventative care is not the only source of savings Obama is counting on (I will talk about those more in a bit) but it is the crucial one.
The last group, those with existing health problems and no health care coverage, is addressed only by saying pre-existing conditions cannot prevent coverage and through the expansion of disease management programs. This group of people accounts for $1.7 trillion (77%) of health care spending and they aren’t going anywhere. Even if preventative care lowers costs it won’t do it tomorrow. These people will still require coverage. The real question is, how many of those without coverage fall into this category? If the number is large (i.e. larger than those in group two) then implementing this plan will increase spending rather than realize any savings.
So, where are the other areas Obama expects to see savings? These savings are predicted to come from the use of electronic health information system technologies and attacking “anti-competitive” business practices in the insurance and pharmaceutical industries.
I agree that electronic health information system technologies are a great idea! Let’s do it! All we need to do is define how it will work, create standards, get the infrastructure in place, retrain doctors and other staff, get the current back log of paper records keyed in… the list goes on and on and on. It is not impossible, and it needs to be done, but none of the specifics have even been hinted at. On top of that, there are many companies out there that are working on exactly this problem, and it isn’t easy. They have already spent billions with no solid standard emerging. Is $10 billion enough? I seriously doubt it. Can this be done in 4 years? I seriously doubt it. Will this result in any savings short term? Absolutely NO! Will this result in any savings long term? 100% yes!
Now, as for “anti-competitive” business practices, let’s start with the insurance industry. First thing to consider here is health insurance is a misnomer. The concept of insurance implies a chance expenses will not be realized, and the “risk” of a claim can be mitigated by having a sufficiently large customer base paying premiums. Now in the current health insurance industry, the insurers are insuring many fixed costs. They know you are going to have doctor’s visits, check ups, and all these general expenses and they have to pass those costs down to their customers or they don’t make money and they don’t stay in business. They are providing health care, not insurance. Now under Obama’s plan they cannot turn someone away due to a pre-existing condition. In this situation a risk has already been realized, the person is sick, and this becomes another fixed cost. How does the insurer pay for this? They have two options, (1) charge the sick person more or (2) charge everyone else more. So, even if Obama creates more competition and lowers profits in the insurance industry which has the potential to collapse the industry, he is still going to raise costs (or at the very least not lower them) by increasing insurance companies fixed costs. Now let’s take this a step further, if the health care industry becomes so competitive that profit becomes non-existent then businesses will leave the industry and take their money elsewhere. Who does that leave to provide health care? The government.
The pharmaceuticals, though; those guys are evil! I mean they make money hand over fist right? So in Obama’s plan says we need to import “safe” drugs from overseas to lower costs. This is stupid on so many levels it is mind boggling. First and foremost, how do we know these are safe drugs? The FDA has no power in these other countries! With out a huge investment in oversight how can we guarantee the safety of drugs? We haven’t been able to do it in the past that is for sure! Second, this ignores how pharmaceuticals work. They have extremely large investments in R&D that more often than not do not pay off. The R&D that results in an effective drug must generate a HUGE profit to pay for all of the R&D spending that led nowhere. If you undercut their profit, you hinder future research, and long term over all health care suffers. Third, other countries have undercut US pharmaceuticals in a similar fashion forcing them to lower prices, so what had to happen for these companies to continue to fund their research? They had to raise prices in the US. Yes, pharmaceutical companies make a lot of money, sometimes, but they also take on very large amounts of risk. Obama says people have a right to what they produce independent of any compensation they might receive for their product. That is another way to say slavery and all that will happen is businesses will leave the industry and take their money elsewhere.
The Obama team does not seem to understand that if you take all the fun (money) out of the game (industry) the players (investors) will take their ball (money) and go home (invest somewhere else). How does that improve health care in the US?
So time for an overview, I agree with (but did not necessarily discuss above) the following:
- Preventative care should be available to all, but we need to define what preventative care means.
- Electronic health information systems should be implemented.
- Malpractice law and insurance should be reworked.
- Hospitals should be required to collect and report quality health care data (transparency is a good thing).
I disagree with (but again did not necessarily discuss above) the following:
- The estimated cost of the proposed plan. Obama is dreaming!
- The estimated/assumed savings of the proposed plan. Obama is REALLY dreaming!
- Forcing health insurance companies to accept pre-existing conditions unconditionally.
- Undercutting profits in the pharmaceutical industry
- Providing comprehensive health care to everyone
This is what I think will happen under the current plan:
- Initially small businesses will suffer due to increased taxes, or they will limit growth and manipulate income to avoid the taxes.
- The plan will be horribly under funded for the first year and then more taxes will be raised to make up for the deficiency.
- Electronic health information systems investments will be the first to get cut as funding gets tight.
- Profitability in the insurance industry will plummet as the government creates unfair competition and companies will start to go under.
- Profitability in the pharmaceutical industry will plummet as other countries will import cheap versions of drugs developed in the US and companies will start to go under.
- As pharmaceuticals go out of business spending in R&D will drop and improvements in health care will stagnate.
- As the health care industry falters the government will be “forced” to step in and pick up the slack at the tax payers expense.
This is how I would do it:
- Start off with an increase in the investment for preventative health care and the most effective disease management programs.
- Fund this with stimulus money. We are printing so much of it might as well use some of it for creating effective jobs in the health care industry.
- Create a health care record standard with the help of major players in the industry and enforce it. Let the companies who know what they are doing run with it.
- Create a schedule for hospitals receiving any federal money to work towards electronic processing over the next 10 years or what ever is deemed realistic by industry experts. And provide certain levels of stimulus money to help fund the conversion if needed.
- Allow pharmaceuticals to depreciate their R&D expenses rather than writing them off. The proportion that is depreciable will scale based on the effectiveness of their R&D program (i.e. the health benefits per dollar spend in R&D) and their participation in price negotiations with large health insurance parties such as Medicare and Medicaid.
If we did it my way this is what I would expect to see:
- Some savings due to preventative health care and disease management programs, and a slow trend of stagnating or decreasing overall health care spending over the next decade.
- Decreased costs in hospitals over the next decade as they fully integrate with electronic systems.
- A boom in the electronic health information system industry
- Lower drug prices as pharmaceutical companies benefit from the tax savings realized from depreciating R&D expenses. This will happen due to competition, one company will lower prices to undercut the rest, and the rest will have to follow.
- Increase in R&D spending due to new tax benefits and higher quality medication as a result.
- Decrease in health insurance costs as we remove the fixed costs associated with the industry. Again, normal competition will enforce this.
Some final thoughts:
- If you can afford health insurance and choose not to purchase it you deserve what you get.
- If you can’t afford health insurance and you do not take advantage of current government funded care programs you most likely deserve what you get.
- Society does have a responsibility to help care for those who cannot care for themselves, and very few people fall into this category.
- There is no such thing as a right to health care, just like there is no such thing as a right to a house or car.
- From the little I know about McCain’s program I think it might have been worse than Obama’s…