HEALTH CARE REFORM : THE BIG HEDGE

ABI Health Care Committee News / Volume 7, Number 5 / September 2010
by: Eric Huebscher

Almost two years ago, the financial markets collapsed and big banks came running to the government for a bailout. Public opinion held that an era of irresponsible lending and unquestioned growth in the U.S. housing market precipitated the economic downfall of late 2008, just as Barack Obama was campaigning to become our next president. Now, as many citizens blame Wall Street's largest financial institutions for gambling at the expense of the general public, the current administration has elected to make a few bets of its own in the name of health care reform. Financial institutions were criticized for lending to homebuyers incapable of sustaining their mortgage payments, and subsequently creating the convoluted securities that ensured that the expense would be shared by all.

These institutions operated under an assumption of circular logic: The increased fee revenue and growth of the housing market would properly mitigate the risks of default, even though such increase in credit supply would lead to inflated and unstable property values. This increased availability of credit was encouraged at the executive level, which touted homeownership as the flagship of the American dream. Just as the consequences of Clinton's National Homeownership Strategy and Bush's Ownership Society could hardly be considered products of "housing reform" in hindsight, the increase in health care coverage pushed by the Obama administration may have unintended consequences that undermine the true spirit of reform.

One particular problem is that the "reform" outlined by the health care plan does not constitute actual reform. True reform would address the core issues of disease management and focus on where the highest dollars are spent. The plan also does little to address rising costs in the treatment of specific conditions-such as childhood asthma, heart disease and diabetes-and does not effectively embrace palliative care, which has been the case in Canada and Europe. Instead of addressing those operational issues, the plan calls for market expansion and cost reallocation. The plan projects costs of approximately $1 trillion over the next 10 years to extend coverage to approximately 34 million currently uninsured individuals. Additionally, the Obama administration has projected that the bill would cut the current deficit by $1.3 trillion in the same period. Unfortunately, these projections rely on a number of scales tipping in the right direction. The administration has framed the plan as a hedge, but the plan consists of several bets.

All individuals on U.S. soil had (and will continue to have) access to some form of health care in America. While this access may have led to financial ruin and bankruptcy for the uninsured and the underinsured-and certainly a number of hospitals, states and municipalities-access to care in the emergency rooms of our nation will remain largely unchanged. As such, nonpayment will remain a shortfall for hospitals and states to manage.

In a recession, people tend to cut nonessential costs and delay nonessential surgery, which means that primary care as a first point of care might decline as individuals delay health care options or opt to pay the tax penalties in the interests of short-term financial obligations. While the general premise to the public benefit of increased coverage is that more people will embrace earlier access to health care, this benefit might not materialize, for many believe that we have yet to clear the rubble of the recent financial crisis.

To pay for this expanded coverage, the plan calls for reductions in Medicare spending of $577 billion through 2019. While taxes on high earners and the well insured will contribute to savings, the plan assumes that this will be achieved in part by reducing Medicare physician fees by 30 percent over the next three years, a provision that Medicare Chief Actuary Richard Foster calls "implausible."[1] Foster projects that roughly one in seven facilities (e.g., hospitals, skilled-nursing facilities, home-health agencies and hospices) will become unprofitable, leading many doctors and facilities to opt out of Medicare altogether. His long-term projections show that the number of unprofitable facilities will grow to 25 percent by 2030 and 40 percent by 2050 if the reform is implemented as written.

These are but a few of the assumptions that must hold true for the "big hedge" to payoff. The plan relies on high earners, businesses and those with expensive health plans to avoid potential loopholes and behave exactly the same to raise these funds, while it holds the uninsured and the financially strapped (who may be facing foreclosure after the last big bet) to prudently receive health care at earlier points of the system. If this is not the case, then states and hospitals will be on the frontlines fighting the battle for adequate funding. Will the savings be there when needed, or has the house finally made a bet it cannot win?