Why Government Health Plan Fails
by Dr. Tony Magana
Health care reform which encourages the hidden tax on private insurance by cost shifting of government programs like Medicare, Medicaid, and the new Democratic proposal of the alternative public plan will not allow Americans to keep their current insurance plan.
This week President Obama began the callous bustle to garner his health reform package being passed before the end of the summer. The President’s health plan propounds to help improve the economic recovery of the nation by controlling health care costs. Key components of the plan encompasses creating a government sponsored health program that would compete against private insurance companies, establishing best practices quality of care standards that would pay only for care that followed approved guidelines, the digitalization of medical records, and stronger emphasis on preventive care rather than procedure based medicine which may compromise the restructuring of payments to providers for disease management rather than by individual events such as procedures and diagnostic tests.
One of the most controversial points of contention is whether formulating a government health plan, which would probably be similar to Medicare, competes for clients with private insurance and would increase the costs of private insurance or even drive it out of existence.
Currently in the United States just over half of all patients who go to hospitals are covered by the government program, Medicare. Because Medicare almost exclusively blankets the elderly and it is well established that the greatest medical costs in life befall within the last six months of life for most of the population, this government program is the payer for the most expensive part of American health care. That both Medicare and to an even lesser extent Medicaid have traditionally paid less than the true cost of care has been well documented by published studies. Since the conception of Medicare under President Johnson there has been a planned incongruity between what Medicare actually pays providers and the genuine cost of care received. Currently Medicare pays only 95% and Medicaid 89% of the honest expenses of hospitalization for enrollees.
Since the creation of Medicare two tactics have been in place to make up for the deficit created in hospital costs for treating government program enrolled patients. Medicare invents modifiers and incentives for hospitals to get additional payments or payment increases for a variety of factors. The overall severity of illness of patients admitted, presence in a geographically under served area, indigent patient burden, cost of labor, capital improvements including new technology or programs, and the sponsoring of graduate medical education programs are a few examples. The other tactic was to cost shift the care of Medicare patients to private insured patients who would pay more to the hospital relatively.
Analysis of private insurance hospitalization payments versus government program payments has demonstrated that private insurance often disburses more than the actual cost of hospitalization to the tune of 122% in the year 2003. The total expense of the this cost shift exceeds $88 billion per year and increases the cost of the typical family’s insurance premium by $1,512.
The Obama administration and the Center for Medicare and Medicaid Services have recently announced major cutbacks are looming in payments to hospitals for Medicare patients. The special modifiers and incentives mentioned above have, they claim, resulted in wide disparities in payments across the country. The future plan is to replace this compensation for new ones that will reward disease management outcomes and best use utilization of technology. Opponents of the new public health alternative say these changes could exacerbate cost shifting even further.
Critics of the creation of a new public health plan alternative cite that if its payments are too low to hospitals in the same way as Medicare there will be even more cost-shifting to private insurance. The “artificial” reduction of lower premiums compounded with lower payments to providers will amplify not only the premiums demanded by insurance companies for private programs but also will demand that hospitals increase their charges to those in private programs to make up the losses for public program patients.
Some proponents of the public health alternative say that discretion should be limited to those who do not already have employer coverage, the self-employed, and the uninsured to reduce the cost shift but not in Congress agree to these restrictions. Albeit Obama in his campaign said his plan would allow Americans to keep the coverage they have if they wished, well based estimates of the number of people who could loss their private coverage if the public plan option is unrestricted could reach 171.6 million people or 70% of those currently insured privately.
A possibly better alternative to the public plan has been alluded by a moderate Democrat, Senator Kent Conrad (ND) which would consist of a nonprofit cooperative program for individuals and very small businesses (<10 employees). To be advantageous co-ops would have to be able to enroll large numbers of individuals to draw competitive bids from insurance companies. This idea is too fresh to evaluate fully yet but is worth exploring more comprehensively.
The impetus to commence a stimulus package and bailout of many failed American banks and corporations has clearly proven the old adage “Haste makes waste”. I fear the same may ensue if Obama and the liberal Democrats are enfranchised to speed a poorly conceived health reform package through Congress. There is strong historic and economic evidence that a public health plan alternative to private insurance particularly if unrestricted in enrollment will ultimately lead to a single payer system because private insurance will not survive.
No one should vacillate that our health care system needs reform. The best system for America should be a market based system not a government mandated public scheme. Rather than fantasizing increasing government program enrollments more ideas looking at non-governmental models should be appraised for all Americans including Medicare and Medicaid recipients. Our current thinking about health care reform thirsts to be more “out of the box” to novel inspirations and not just restricted to conventional insurance vs. conventional government program.
Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin
