Health Care: Stop Arguing About Repeal and Focus on Enacting the Right Reforms

While Republicans in Congress have made the repeal of the Patient Protection and Affordable Care Act a rallying call, vowing to repeal it in light of their post-election gains, industry experts remain unwavering in their assertion that reforms will move forward unfettered. James Forbes, an executive with Bank of America/Merrill Lynch was quoted by the Miami Herald as saying, "Reform is not going to be repealed. It's not going to happen, folks", while speaking at the recent Miami Global Business Forum. Forbes added, "Quite honestly, most of your private equity firms view this as a tremendous opportunity." That should tell you all you need to know.

Like many American Executives, Forbes views the reforms as an inevitable adaptation. Health care costs have been rising far in excess of general inflation for years and threaten to make many businesses unsustainable. A peak in baby boomers reaching advanced age, along with innovative, but expensive new technologies, and inefficient and inconsistent treatments and record keeping have contributed to what has become an increasingly backbreaking cost to both employers and employees.

Historical highs in unemployment, seen as a long-term factor, have also meant an increase in individuals who qualify for Medicaid, compounding the effect of problems with that program that were not nearly as evident or costly before such increases. In addition, many small businesses have had to cease offering benefits in recent years, simply because their business model was not viable when they absorbed the rising costs.

The major challenge has been the fact that it impacts a relatively small percentage of Americans, who are easily stirred into a frenzy at the thought of changing the status quo. While a staggering number of Americans (near 50 million) are uninsured, that still means that 85 percent have insurance benefits and most of them report being happy with their plans, largely because the majority of them who do not suffer major medical events don't know much about them, a fact evidenced that the more a person uses their insurance the less satisfied they are with it.

The other 15 percent, many of which fall into the growing class of Americans that are not eligible for coverage through an employer, but cannot afford insurance on their own, or do not qualify for individual plans because of pre-existing conditions, desperately want government involvement. So, you end up with a not-so surprising lack of public will for something seen by many as essential to our long-term national competitiveness. It is in these such instances where courageous leadership is supposed to step in and bridge the gap between what is desired and what is essential.

The Census Bureau reports that 60 percent of Americans receive their coverage through an employer and 9 percent buy individual plans, while the remainder of the insured are part of those covered by some sort of government program (with some overlap in the three). Those without coverage often use their local emergency room as their primary care provider, an expensive practice that costs hospital chains tens of millions each year – costs that are ultimately passed on and contribute to rising costs in insurance premiums.

Some of the fundamental flaws in the system are the ways in which insurers pool risks. To an insurance company, a large employer spreads risk among a lot of insured employees, and plans in which an employer contributes substantially to the cost, tend to inspire more participation from the youngest and healthiest employees who reduce the risk in the pool the most. The law of large numbers means that an insurer can do a fairly accurate job of predicting costs in such a scenario.

If there are 10,000 employees of a certain composition, their actuaries can predict how many will have births, heart attacks or develop diabetes each year with frightening accuracy. The premiums from the vast majority of employees that remain healthy and virtually cost-free that year serve to offset those who don't, and it is unlikely that enough of the 10,000 will suffer major maladies and meaningfully upset that prediction. This scenario represents those most satisfied on all sides and is what need to be duplicated through reform. After all, this is the basic tenant of insurance that dates back to the earliest fire insurance policies. None of us can afford the cost of an unlikely catastrophe, if it does in fact happen, so we pool our collective risk and pay a much smaller "just in case" fee that covers the unfortunate handful of souls in the pool who do, and the insurance company profits from whatever is left over.

However, if you take a group of 15 employees at a small business and just one of them has an expensive incident or develops a disease that requires ongoing expensive treatment like dialysis, that can seriously impact their underwriting and even make it impossible for the employer to afford their portion of the premiums. An employer cannot revoke that person's ability to participate in group health benefits, nor can they ask questions about such things when interviewing prospective employees as it may cause them to be discriminatory in the hiring process, so in many instances the employer's only choice is to drop health insurance as a benefit altogether once they can no longer afford it. This part clearly doesn't work.

On the individual market, things are even worse. Because there essentially is no pool to offset costs, each customer is considered separately and priced based on their perceived likelihood to incur claims. If someone has a history of health problems, has high blood pressure, is overweight or smokes, insurers presume they will cost more because data shows that to be the case. If they have a pre-existing condition, the insurer can increase premiums or in some cases give them the option to waive coverage pertaining to it. If they have a condition like diabetes that guarantees high costs to the insurer, most will deny the application outright – something they cannot do on a group policy, which is why many such peoples' employment decisions revolve completely around access to group care. I (or one of my dependents) have diabetes, so I can't leave my job no matter what.

This is like fire insurance for a pyromaniac in a house built of matchsticks. There is no monthly cost that can realistically be levied in premiums to effectively make them even a wash, so you need a lot of low, low risk people in the pool to offset them, because unlike the house that you simply don't pay to rebuild when it's not insured -- the system still ends up absorbing the cost when they end up in the ER -- and the cost is almost always much higher than it would have been had they had access to preventative care before it got that bad. A general practitioner does not have to treat someone who has signs of something bad (and expensive) about to happen, but an ER does have to treat them once it does. This part also clearly doesn't work.

At the core of the problem is the rising cost of care – a cost that is rising much higher than flat or reduced incomes and profits. You have a situation where employers are strategically tailoring their workforce to be comprised of mostly "just under full-time" employees who they do not have to extend benefits to, while also increasing the amount of 1099 or "sub-contracted" employees that give them the same out. The rising cost of premiums also present a dilemma for the individuals. If the cost of attaining available insurance prohibits their ability to pay for day to day essentials like food, gas and the mortgage, the risk is moot – and as we pointed out, worst case they can go to the ER. Why would they care about the possibility of bankrupting themselves then, if paying the premium now would essentially be doing that beforehand?

One of the major tools used in arguing against reform, including the lawsuit filed by the State of Florida, is the requirement for mandatory coverage and the argument that it is unconstitutional. Because new reforms will eventually prevent insurers from denying anyone coverage due to a pre-existing condition, even on individual plans, they say requiring everyone to have coverage is the only way to ensure such people do not purchase insurance only when they are sick, which they further claim would bankrupt their industry.

Imagine a scenario where a young healthy person declines coverage because they've never had a hospital visit as an adult and see little risk. Were they to develop signs of a serious illness, they might enroll knowing that they could not be declined and the insurance company would have to pay for their required treatments. The insurance company would have to pay out hefty disbursements immediately, while collecting considerably smaller premiums each month. If the condition is corrected, the individual might elect to drop the coverage, making it impossible to ever recoup the paid claims through their premiums. It's true that you simply cannot eliminate the ability to rate and decline without mandatory participation.

Health insurance companies are far from innocent in their role. They've basically shaped an industry that allows them to insure only the largest groups and healthiest individuals at a staggering price – and considerable and incredibly consistent profit. For that reason, they have been proactively lobbying against reforms and their ultimate nemesis, the single payer system, for a very long time. However, many see their acquiescence toward lobbying for how to make the most of the inevitable reforms – and insurers have gotten much of what they want in this legislation – as further proof of the certainty that repeal will fail.

As noted, Americans on the whole have been largely resistant to the changes, though polling shows that very few truly understand the changes that have been enacted or are on deck. Popular opinion notwithstanding, this appears to be an instance where economic realities and the desires of big business to slip out from under the 800-pound gorilla called health care premiums will trump populist rhetoric and misinformation campaigns.

At the end of the day, the cost of providing health care will always outpace other inflation for the simple reason that newer, better, and more expensive procedures will be continuously developed and people will continue to demand them no matter their cost-effectiveness in relation to what that person is contributing in. If your kid gets cancer and there is a treatment that costs $70,000 that has a 60 percent success rate and one that costs $500,000 with a 65 percent chance and one that cost $2 million with a 68 percent chance, which one are you going to demand? Get my point? That is why constant reforms to improve efficiency in delivery are and will continue to be required.

As for it being a voluntary program and the argument against imposing required coverage, until someone says that if you don't have insurance you cannot get treated in an ER, no matter what – such a system will continue to bankrupt itself. Go ahead, say that's the way it should be and then tell me that you're going to be the hospital administrator that denies care to the six-year old little girl bleeding out in the lobby because her single mom got laid off and couldn't afford her COBRA payments. It's not realistic and I don't want to live in such a society, and I hope you don't either. Reform is needed, reform is coming – let's shift the debate to ensure the right ones are enacted, rather than wasting time talking about repeal.