As the health care reform spotlight moves to the Senate, where Senator Max Baucus released his version of a health care reform bill, I find myself once again having difficulty with the new math that is being used in the making of new laws. No matter how I look at the equation, I keep asking myself the same question: “How does one plus one equal three?”
Let’s take a look at the basics of what we have been told about health care reform:
1-The bill must improve access to insurance so that we either eliminate or significantly reduce the number of uninsured.
2-The bill must reduce the cost of health care so that we address the problem of the drain that health care has on US economy.
3-The bill must not add to the federal deficit.
Okay, so these three basics are easy enough to understand. The next thing we need to understand is the current state of affairs with Medicare. This is important because, as the largest single segment of health care, it is funded through the government and since Medicare makes up the largest payer segment for most physicians, it’s fair to say that if Medicare fails, so does the financial stability of most physicians and their practices. The cost of Medicare currently exceeds $500 billion per year. Many projections have shown that the Medicare trust fund will become insolvent somewhere between the years 2017 and 2019. Simply put, in less than a decade Medicare is projected to go completely broke.
With this information in mind, let’s look at some of the numbers being thrown around in the health care reform discussion. Then ask yourself if these add up. Let’s begin by taking a look at the current Baucus bill. The bill would increase coverage for most of the uninsured Americans in this country. It would provide increased competition through nonprofit co-ops, and it would reform insurance regulations by ridding things like pre-existing condition exclusions. It would also increase the level whereby people could qualify for Medicaid, and would provide subsidies and/or tax incentives for lower income level individuals to purchase insurance. Finally, it would implement penalties for those who choose not to purchase insurance. All in all, the Baucus bill contains some very good things. But what is the cost of this bill? The current projected price tag is just over $800 billion for the next 10 years. So basically, we are going to be starting out $800 billion in the hole. The question is “how can we afford to pay for this without adding more money to the deficit?”
There are two ways that Baucus plans on financing the expense of expanded coverage. The first way is by implementing $500 billion in cuts for government health care programs (read Medicare). A small portion of that comes from commitments from pharmaceutical companies and hospitals. The lion’s share comes from savings through “efficiencies” that will be gained in the Medicare system. This strikes me as odd. Think about this: when was the last time that you looked at a government program and the word “efficient” came to mind? We are used to talking about government waste, pork barrel projects and government inefficiency, so when did we suddenly learn how to produce efficiencies through government actions?
To illustrate this point, consider the following: Amtrak is a government subsidized transportation option. It receives over $1 billion in government aid every year. So are they efficient? I recently priced a trip from RaleighNew York and back on Amtrak. The cost of the ticket was $217 and the trip would take me over 10 hours each way. To make the same trip on any one of several airlines not subsidized by the government was $189 and the trip takes less than two hours. Don’t get me started on other government programs like the Post Office or the IRS which are also glaring examples of inefficiency. to
But wait, we are still short by about $300 billion dollars! So where does the rest of the money come from? It will likely come from various taxes and fees, the largest of which is a 35% tax on high-cost health plans or so-called “Cadillac Plans.” So basically, we are counting on over $200 billion dollars in tax revenue to come in from a 35% tax on high-cost health plans. Let’s consider a hypothetical employer, “Acme Products.” This employer has 500 employees and as a benefit, they offer a wonderful health plan. The employer pays 100% of the single subscriber rate with the employees picking up the cost of family coverage. Let’s say that Acme Product’s benefit plan qualifies for the 35% tax hit because the single employee premium, which is paid by Acme, is $9,000 per year. Under the Baucus bill, here is the choice faced by Acme: (you will need to understand that the employer penalty for not providing coverage is $400 per employee per year) Currently, Acme’s health care cost is $9,000 x 500 employees or $4.5 million per year. Under the Baucus plan, their insurance carrier would be hit with a 35% tax which they would pass along to Acme. This tax would add $3,150 to the premium cost of each employee or $1,575,000 million dollars of cost to Acme Products every year, which brings their health care costs up to $6.075 million. So what will Acme do? Well, they could do a couple of things.
They could reduce the benefits they offer to their employees by increasing the deductible or co-insurance amount to make sure that they are under the "threshold" for the tax. Net result: Acme saves money, the employees get less benefits, the government doesn't get the tax revenue, and Acme blames Washington for the loss of benefits.
They could choose to drop the health plan altogether. Net result: Acme saves $4.5 million per year, the employees are forced to purchase their own insurance in the co-op program, the government doesn't get any tax revenue, Acme pays a penalty of $200,000, and Acme may or may not give the employees a raise to help offset the loss of this crucial benefit.
Finally, they could decide, despite a bad economy, to keep the health plan as it is and pay the 35% tax. Net result: Acme just reduced it's profits by $1.575 million per year, the employees get to keep their benefits, and the government gets its tax revenue.
Now, what do you think is the likelihood of Acme Products actually keeping its benefit plan intact with this kind of massive premium tax imposed?
I look at the Baucus bill, and I keep wondering how one plus one are going to equal three. I can see the expenses of expanding coverage, but I am having an extremely hard time believing that the $500 billion in efficiency savings or the $200 billion in taxes from high-cost health plans are going to pay for this thing. If I’m right and those financing sources don’t materialize, what are we going to do? Remember that this whole thing started with a discussion on how to control costs and keep Medicare from going broke. So where do we get the money? Well, one scary thought and the one that concerns me the most is that the money will have to come from reductions in the cost of Medicare through either a reduction in Medicare benefits or through a reduction in the Medicare fee schedule. Since every politician knows that the easiest way to become an ex-politician is to touch Medicare or Social Security, I fully expect them to hit the Medicare fee schedule first. Medicare expenditures currently account for almost $500 billion per year, which means for every 10% cut in reimbursement rates the government saves $50 billion dollars.
So if you are a physician, ask yourself, “What is the world going to look like if we have expanded coverage under Medicaid which is priced off the Medicare fee schedule, and this health reform doesn’t pay for itself such that the government decides to finance this expanded coverage through Medicare reimbursement cuts?” I don’t know about you, but seeing more patients for less money doesn’t strike me as a recipe for success.
Let’s take a look at the basics of what we have been told about health care reform:
1-The bill must improve access to insurance so that we either eliminate or significantly reduce the number of uninsured.
2-The bill must reduce the cost of health care so that we address the problem of the drain that health care has on US economy.
3-The bill must not add to the federal deficit.
Okay, so these three basics are easy enough to understand. The next thing we need to understand is the current state of affairs with Medicare. This is important because, as the largest single segment of health care, it is funded through the government and since Medicare makes up the largest payer segment for most physicians, it’s fair to say that if Medicare fails, so does the financial stability of most physicians and their practices. The cost of Medicare currently exceeds $500 billion per year. Many projections have shown that the Medicare trust fund will become insolvent somewhere between the years 2017 and 2019. Simply put, in less than a decade Medicare is projected to go completely broke.
With this information in mind, let’s look at some of the numbers being thrown around in the health care reform discussion. Then ask yourself if these add up. Let’s begin by taking a look at the current Baucus bill. The bill would increase coverage for most of the uninsured Americans in this country. It would provide increased competition through nonprofit co-ops, and it would reform insurance regulations by ridding things like pre-existing condition exclusions. It would also increase the level whereby people could qualify for Medicaid, and would provide subsidies and/or tax incentives for lower income level individuals to purchase insurance. Finally, it would implement penalties for those who choose not to purchase insurance. All in all, the Baucus bill contains some very good things. But what is the cost of this bill? The current projected price tag is just over $800 billion for the next 10 years. So basically, we are going to be starting out $800 billion in the hole. The question is “how can we afford to pay for this without adding more money to the deficit?”
There are two ways that Baucus plans on financing the expense of expanded coverage. The first way is by implementing $500 billion in cuts for government health care programs (read Medicare). A small portion of that comes from commitments from pharmaceutical companies and hospitals. The lion’s share comes from savings through “efficiencies” that will be gained in the Medicare system. This strikes me as odd. Think about this: when was the last time that you looked at a government program and the word “efficient” came to mind? We are used to talking about government waste, pork barrel projects and government inefficiency, so when did we suddenly learn how to produce efficiencies through government actions?
To illustrate this point, consider the following: Amtrak is a government subsidized transportation option. It receives over $1 billion in government aid every year. So are they efficient? I recently priced a trip from RaleighNew York and back on Amtrak. The cost of the ticket was $217 and the trip would take me over 10 hours each way. To make the same trip on any one of several airlines not subsidized by the government was $189 and the trip takes less than two hours. Don’t get me started on other government programs like the Post Office or the IRS which are also glaring examples of inefficiency. to
But wait, we are still short by about $300 billion dollars! So where does the rest of the money come from? It will likely come from various taxes and fees, the largest of which is a 35% tax on high-cost health plans or so-called “Cadillac Plans.” So basically, we are counting on over $200 billion dollars in tax revenue to come in from a 35% tax on high-cost health plans. Let’s consider a hypothetical employer, “Acme Products.” This employer has 500 employees and as a benefit, they offer a wonderful health plan. The employer pays 100% of the single subscriber rate with the employees picking up the cost of family coverage. Let’s say that Acme Product’s benefit plan qualifies for the 35% tax hit because the single employee premium, which is paid by Acme, is $9,000 per year. Under the Baucus bill, here is the choice faced by Acme: (you will need to understand that the employer penalty for not providing coverage is $400 per employee per year) Currently, Acme’s health care cost is $9,000 x 500 employees or $4.5 million per year. Under the Baucus plan, their insurance carrier would be hit with a 35% tax which they would pass along to Acme. This tax would add $3,150 to the premium cost of each employee or $1,575,000 million dollars of cost to Acme Products every year, which brings their health care costs up to $6.075 million. So what will Acme do? Well, they could do a couple of things.
They could reduce the benefits they offer to their employees by increasing the deductible or co-insurance amount to make sure that they are under the "threshold" for the tax. Net result: Acme saves money, the employees get less benefits, the government doesn't get the tax revenue, and Acme blames Washington for the loss of benefits.
They could choose to drop the health plan altogether. Net result: Acme saves $4.5 million per year, the employees are forced to purchase their own insurance in the co-op program, the government doesn't get any tax revenue, Acme pays a penalty of $200,000, and Acme may or may not give the employees a raise to help offset the loss of this crucial benefit.
Finally, they could decide, despite a bad economy, to keep the health plan as it is and pay the 35% tax. Net result: Acme just reduced it's profits by $1.575 million per year, the employees get to keep their benefits, and the government gets its tax revenue.
Now, what do you think is the likelihood of Acme Products actually keeping its benefit plan intact with this kind of massive premium tax imposed?
I look at the Baucus bill, and I keep wondering how one plus one are going to equal three. I can see the expenses of expanding coverage, but I am having an extremely hard time believing that the $500 billion in efficiency savings or the $200 billion in taxes from high-cost health plans are going to pay for this thing. If I’m right and those financing sources don’t materialize, what are we going to do? Remember that this whole thing started with a discussion on how to control costs and keep Medicare from going broke. So where do we get the money? Well, one scary thought and the one that concerns me the most is that the money will have to come from reductions in the cost of Medicare through either a reduction in Medicare benefits or through a reduction in the Medicare fee schedule. Since every politician knows that the easiest way to become an ex-politician is to touch Medicare or Social Security, I fully expect them to hit the Medicare fee schedule first. Medicare expenditures currently account for almost $500 billion per year, which means for every 10% cut in reimbursement rates the government saves $50 billion dollars.
So if you are a physician, ask yourself, “What is the world going to look like if we have expanded coverage under Medicaid which is priced off the Medicare fee schedule, and this health reform doesn’t pay for itself such that the government decides to finance this expanded coverage through Medicare reimbursement cuts?” I don’t know about you, but seeing more patients for less money doesn’t strike me as a recipe for success.
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