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Introduction to Healthcare Reform

Posted on: September 22, 2008 - Email Article - Printable Version

Allen Lutz

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Socializing our Financial System with a $700 billion dollar bailout of the mortgage industry has healthcare reformers scratching their heads. This weekend Treasury Secretary Hank Paulson urged lawmakers to approve an unprecedented rescue plan to stabilize our financial system. The plan would allow the government to buy troubled loans over the next few years and then sell them as they became profitable. This would considerably raise our nation’s debt from about $10.6 trillion today to $11.3 trillion.

Healthcare reform, which has not been discussed by either of the presidential candidates in recent weeks should begin to make its way into debates. Many are wondering how our government can so swiftly spend hundreds of billions of dollars to bail out a free market financial system while our nations healthcare system leaves 47 million Americans uninsured, and pays huge mark-ups for prescription drugs and medical equipment. Over 16% of last year’s GDP was spent on healthcare, much more than any other industrialized country. That’s right, the United States pays more for healthcare than countries with universal healthcare.

According to the Kaiser Family Foundation total healthcare spending as a percent of GDP grew from 8% in 1980 to 15.2% in 2003. This means healthcare spending and healthcare costs rise much faster than income so the average American family pays more each year for care.

Rising costs are caused by expensive breakthrough technologies among other things. The Congressional Budget Office estimates spending for Medicare, Medicaid and Social Security will rise to well over 24% by 2030. These estimates are not based on any type of policy change or the institution of a universal system. The baby boomer generation, supported by the subsidies of Medicare should bankrupt us before we can reap the benefits of our social security contributions.

What do the critics blame for the state of our healthcare system?

Medicare Part D

No preventive care for the uninsured or underinsured

Frivolous patient spending (No cost/benefit analysis)

High premiums and employer sponsored plans

Medicare Part D– A federal program which subsidizes prescription drugs for Medicare beneficiaries. The program was enacted in January of 2006 as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Under the rules of the program, the government is not allowed to negotiate lower prices like other federal programs like the Veterans Administration can. Also the program heavily favors branded drugs as opposed to much cheaper generics.

Preventive Care — A bright spot with universal healthcare is that it is a type of program that encourages preventive care. Under our current system there is no incentive for a hospital to provide preventive care for an uninsured or under-insured patient. The hospital might receive payment for their care, but most likely not. Under a universal system it makes sense to provide preventive care to patients because preventive care can catch problems that would cost thousands of dollars and require years of treatment if let be. In a universal system, everyone is on the same team so costs effect all healthcare workers.

Frivolous Patient Spending — One of the problems with healthcare spending is that insured patients never see how much they pay for care. Some policy makers believe if patients were able to see how much they were spending on healthcare and were forced to pay more out of pocket, they would likely curtail unnecessary spending. This has led to the initiation of Health Savings Accounts or HSA’s.

High premiums and Employer Sponsored Plans– Are a double edged sword. Healthcare costs are rising so health insurers need to increase the premiums their clients pay to maintain margins. Medical Loss Ratios (MLR) which reflect how much client premiums are used toward medical expense have greatly expanded over the past few years to about 85% on average for the larger insurers. MLR’s are ultimately profit margins. Unemployment has risen to 6.1% as of September so Employer Sponsored Plans are going down. In order to make up the losses from less ESP’s the insurers are raising premiums causing employers to drop plans because they are too expensive.

Are health savings accounts (HSA’s) the answer?
Health savings accounts are a new type of tax advantaged account that can be used for health related expenses. Here are some of the major benefits and criticisms. They encourage saving and allow patients to be more cost savvy when making healthcare choices. However, HSA’s benefit the wealthy by providing them a nice place for extra income. The lower class on the other hand do not make enough money to benefit from the tax breaks these accounts offer.

I have only begun to scratch the surface of our healthcare problems. I will be dedicating the upcoming months to Healthcare reform as the election nears. I will be analyzing both sides of the debate and what companies should profit from policy changes. This should be a front an center issue for both parties, but unfortunately the economy and our financial system has stolen the spotlight. Regardless, healthcare expenses are not going away and will need to be addressed– sooner rather than later.

- Allen Lutz

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