Thought Possible

notes & magnifications, by J.E. Robertson
SEPTEMBER 21, 2009 11:20AM

Healthcare Reform Explained

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The Short Version...

Healthcare costs have doubled over the last ten years. The primary drivers of this unrestrained cost inflation are massive uninsurance and dysfunctional profit-making schemes for private health insurers. The 'market', so-called, is not really a market, because instead of lowering costs and increasing quality, it has driven costs up while reducing quality. This is what the currently proposed reforms seek to correct.

Reforms proposed by Pres. Obama and the Congressional Democrats aim to:

  1. help private insurers cover more people, by increasing choice, spreading risk, and making plans more affordable;
  2. bar insurers from rejecting treatment or coverage due to "pre-existing conditions";
  3. make Medicare stronger, by cutting waste, expanding benefits and putting patients' needs first;
  4. make sure the doctor-patient relationship is always the priority;
  5. include more people in Medicaid, up to 133% of the official "poverty" classification;
  6. create a low-cost exchange that helps those who still can't get covered buy cheap, quality insurance.

The dysfunctional healthcare market can be fixed, if everyone were able to afford or receive care. The current reforms are designed to expand the private health insurance market, shore up Medicare and Medicaid, and help subsidize those who are still too poor to buy private insurance but not poor enough for Medicaid. That's all. It's a lot, it's complicated, but it's nothing more than that.

The Long Version...

Right now, 52 million Americans have no health insurance of any kind. That's roughly 17% of the population, or one in every six people. (Recent estimates for the number of people who've lost healthcare since the recession began could put the total closer to 57 million, or one in five.) Every time someone with no insurance visits an emergency room, they incur massive costs that can never be paid, causing health service providers to find compensation by increasing charges for everything else.

Over the last two years, one in every three Americans has spent some period of time with no health insurance coverage of any kind. This is everyone's problem, not a problem of people unwilling to pay their way. Fixing the problem requires a significant improvement in the functioning of the existing hybrid public-private health insurance marketplace.

The California Nurses Association has found that over a seven year period, through June of this year, the state's six largest insurers rejected fully 22% of all healthcare treatments required by their paying customers. The private sector is, in fact, rationing care at an unprecedented rate. Currently pending reform proposals aim to stop this practice and ensure that patients get the treatment they need.

Rising costs is the chief reason such practices are spreading, and becoming more severe in their impact on patients. Reducing costs requires genuine success in making sure all potential patients have some form of insurance coverage, to spread risk and avoid the negative impact of expensive, uncompensated care, on prices across the entire system.

The redirection of existing subsidies into helping millions of people purchase low-cost health insurance from the private sector, will cover part of the population of those with no insurance. Expanding Medicaid to cover anyone whose income level is 133% or less of the official poverty line will also help to cover some of that population. Redirecting Medicare-related subsidies to private insurers to make Medicare more sustainable and more robust will also help.

But all such plans leave a certain number of millions (anywhere from 3 to 18 million) still too not-affluent to buy private insurance, even with the subsidies and tax credits, and too not-poor to qualify for Medicaid. Those millions mean there will still be a significant uncompensated care distortion in the pricing of the entire marketplace.

The sole function of the so-called "public option" would be for those people who fit this precise description to buy a plan guaranteed to be affordable, and to not deny treament to the ill or needy, because it is legislated to meet those standards, has no profit motive and yet is large enough to adequately spread risk and be sustainable. Private insurers would be encouraged to provide similar plans so that they could in fact also take over this part of the marketplace.

The result would be a more efficient and effective marketplace, in which competition drives prices down, but also pushes all players to raise the standards of coverage and treatment. This is what a private insurance marketplace is supposed to do, yet in the current climate, the American private health insurance industry is doing exactly the opposite.

In short, the Obama plan, as expressed in the various Democratic proposals in Congress, is intended to expand the market for private insurance, and expand the reach of public plans like Medicare and Medicaid, by making healthcare in general more affordable. As costs for everyone come down, the system itself becomes more sustainable and health professionals have more stable reimbursement in-flows, removing another significant driver of price increases.

Simultaneously, as insurers are able to not only cover more people, but compete in a wider market, they become more sustainable by doing more of what insurers were originally designed to do: spread the risk. They will also be able to dramatically reduce their administrative overhead, by not having to spend tens of millions of dollars per year on finding legal arguments for denying treatment or denying coverage.

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So far they have not said that buying insurance will guarantee that medical bills will be paid, so is this even insurance?
The gov't is always trying to cut waste in Medicare, so why can we believe there can be alot of savings now?
You have laid out this information very nicely.

Let's remember that we are dealing with the government here.

1. The best way to increase choice is to allow purchase of insurance across state lines.
2.So, if I have an auto with no insurance and have an accident, I can then get insurance and it will be covered as a pre-existing condition?
3. Cutting waste? Sorry, but I have to laugh at this one.
4. Medicare already interferes with that relationship. I don't think that will change.
5. How are we going to pay for all of this?
6. Cheap, quality insurance? I'm not sure I can believe that.
ali b: actually, the proposed reforms would require that insurers stop denying coverage and stop refusing to pay medical bills.

Also, in this case, there are hundreds of billions of dollars in subsidies that go to private insurers, from Medicare, that do nothing to make Medicare stronger; reclaiming those subsidies so they can actually help to fund Medicare is part of the president's plan.

Also, efforts to "cut waste" in the past have been based on the idea that benefits have to come down in order to slash the budget; this plan would not slash the budget, but would direct funding to treatment strategies directed at better health outcomes, thus reducing costs for retreatment and chronic care.
Blackflon, your concerns are understandable, but the methodology is what matters. Interstate insurance is a great idea, but it will not help reduce cost or increase choice, if insurers are able to continue denying coverage and are not required to craft plans to insure lower income customers and customers with chronic conditions.

The biggest source of waste in the healthcare system is the private insurers' out of control profit demand, which is diverting hundreds of billions of dollars away from actual health treatment, and leaving account-holders without a big enough pool to draw from.

On cutting waste, read the above response.

Medicare currently interferes with the doctor-patient relationship far less than private insurers do. Under the proposed reforms, neither would be able to. Period.

Each of the proposed bills explains how any spending would be funded. Read them. The Pres. will not sign legislation that increases the deficit. Period.

Cheap, quality insurance needs two things to happen in order to be possible: 1) insurers have to adjust their business models to cover more people, and pay more bills, expanding the pool of resources and making themselves more sustainable; and 2) denial of coverage, opposing treatment recommendations must no longer be permitted.