The Law of Unintended Consequences

In a famous scene in the movie "Top Gun," the salty naval commander Stinger admonishes Maverick (Tom Cruise's character) that "your ego is writing checks your body can't cash."

One might well give the same admonition to Congress, poised this week to extend unemployment benefits yet again ($47 billion), assuage bellyaching physicians with increased Medicare reimbursement ($64.9 billion), and increase Medicaid payments to the States ($24 billion), along with a handful of other initiatives both noble and nefarious to the total tune of $190 billion.

Uhm.

That besides, at the official health reform blog (HealthReform.gov), Stephanie Cutter, Assistant to the President for Special Projects, put up a post May 19 titled "Yes, You Can Keep Your Health Plan." In it, she says, "while the Act makes many changes to the individual market, it specifically allows those who want to keep their current insurance to do so. Most of the Act's protections apply only to new policies, allowing people to stick with their current plan if they prefer."

Of course, this statement is premised on the assumption that the individual's "current plan" will remain available, a condition that is - - at present - - beyond the administration's control. For those Americans whose health insurance is provided as a fringe benefit to employment, the continued availability of the "current plan" is the decision of the employer. Not the individual, and certainly not the Obama administration.

Employers understand this, and have for some time. Long before the reform bill passed, employers were considering whether continuing the paradigm of employer-based coverage still made economic sense:

The primary source of instability in the employer-sponsored insurance market is the decrease in employers offering health insurance coverage to workers and their families. Between 2000 and 2008, the percentage of firms offering health insurance coverage to their employees declined from 69 to 63; for firms employing less than 10 workers, the decline was even greater – from 57 to 49 percent.

The administration understands this too, because the above quote comes (also) from the HealthReform.gov website.

Consider the following factors in play:

• The reform bill did nothing to address the cost of care, which will continue to go up


• Premiums, which reflect the cost of care, will also continue to go up


• A surplus of employable individuals mean that businesses need not offer enhanced benefits to attract workers


• More employers, already at or near the break point of providing health insurance coverage as an employment benefit, will elect not to


• When employers drop health insurance as a benefit, the Obama administration's promise of being able to keep your "current plan" will be worthless.

Not that that would be a bad thing, necessarily. There are lots of reasons why employer-sponsored health insurance is a poor model on which to structure health care delivery.

But remember, of course, that we now have an individual mandate to purchase insurance. Individuals will be forced to continue supporting a third-party-payor model that overpays providers for poor quality care - - propping up what will be then be 1/5 of our entire national output while servicing a debt that exceeds 90% of GDP. That is what living in America will mean: being forced to support an otherwise unsupportable industry using money our grandkids will work their entire lives to pay off. That's not a future I want, and it's not a future I want for my children.

The "health care crisis" can be traced back directly to government intervention. The employer-based, third-party payor system thrived in the 50s and 60s because Congress and state governments thought it was a great idea and enacted laws that favored that model over others. Managed care thrived and became mainstream in the 70s and 80s because Congress and state governments thought they were awesome and enacted laws that favored that model over others.

The unintended consequences of all that government intervention is a system that has priced itself out of viability and yet delivers low quality care. Free markets frown on such results, and thus both individuals and business had begun to turn away from that model. But rather than return to free market principles, the recent reform bill corrals all of those that would flee and throws them right back into the third party-payor, managed care system by way of the individual purchase mandate.

That is not legislating to the benefit of the American people; it is legislating to the benefit of an outdated idea that should have died a long time ago. That is not legislating to the principles of a free market; it is legislating to the principles of a command market. That is not liberty; it is involuntary servitude to the third- party payor model of health care reimbursement. And involuntary servitude is the unintended - - but very real - - consequence of Obama's health care reform.

To See How National Health Reform Could Play Out, Watch Massachusetts Carefully

In 2006, Massachusetts enacted a series of health reforms similar in many ways to those enacted at the national level in 2010. The state instituted an "individual mandate," an independent insurance "exchange," expansion of publicly funded health programs, and individual market reforms. The hope was to make insurance more affordable by adding more people to the insured pool.

That hasn't happened, because lawmakers forgot (or perhaps never bothered to learn) that most of an insurance premium derives from the prices paid out for medical services under the policy.

By insuring more individuals, the reform law increased demand for services, creating upward price pressure. Do you suppose a doctor with a waiting list of 1,600 individuals could afford to raise prices just a bit? Ya' think?

Insurers, taking such price increases into account, foresaw premium increases. But big premium increases didn't fit the nice political picture of How Things Are Supposed To Be, particularly when Massachusetts is the poster child for federal health reform eforts. A disaster in Massachusetts would take the momentum out of national efforts modeled on the same principles.

So to make it right, Massachusetts insurance regulators simply declared all of the premium increases "unreasonable" and denied them. (OK, not ALL - - just 235 out of 274.)

Now what do you get if you are an insurer and you have upward pressure on your expense side and a regulator has imposed a freeze on your revenue side? You get losses. Big time.

Here in New York we have heard this song before. A couple of times, actually, but most recently when it was revealed that Physicians' Reciprocal, a medical malpractice insurer, was more than $43 million in the hole and insolvent from an accounting perspective. Why? In no small part because Eliot Spitzer, before being drummed out of office for soliciting prostitutes, imposed a premium freeze on malpractice insurance rates. Like the Massachusetts freezes, that was done for political reasons. Like the Massachusetts freezes, the result is cash-strapped insurers.

Health care providers like to pretend that health insurers hold all the cards when in comes to negotiating price. Available data (again from Massachusetts) suggest otherwise. Networks sell policies, and in the case of sole hospitals in unpopulated areas insurers are virtually at the mercy of the hospital - - because without the hospital, the health plan can't sell any policies at all.

If all of this is true, Massachusetts hospitals should be sitting fat and happy under the new reform regime. And indeed they are.

Health plans are also boxed in by federal anti-kickback and antitrust laws, which prevent them in many cases from forging new relationships with providers or devising new payment methods that would incent quality over quantity.

As a result, there is very little, if any, downward pressure on the largest component of health insurance premiums - - the price of medical services. And so the costs go up - - and up and up and up. Even in places like Provo, Utah, where healthy residents live in an area dominated by a medical system famed for its quality-over-quantity intitiatives, the price of care is still soaring.

Massachusetts proves that spreading the pain over a larger pool of members still results in unbearable pain when no effort is made to control the cost of care. The federal reform effort is not much different. Health reform proponents point to a few measures in the bill that hint at cost control. This is tinkering, if you could even call it that.

The Obama administration will do its best in the coming months to prop up Massachusetts and to paint a rosy, rosy picture of health reform. It will do this to protect the Democrats in Congress who supported the measures and try to avoid bloodletting at the polls.

It will do this at the ultimate expense of the ultimate payors for health care services: you and I.

A free market would require health care providers to justify their prices to the ultimate payors - - their patients. The problem with health care is that the current market is anything but free. Unless and until we take steps in that direction, look for the cost of care to go nowhere but up.

Braly's Obama Letter is a Bad Move

WellPoint CEO Angela Braly has told President Barack Obama by way of a letter that attacks on health insurers "must end."

I feel fairly comfortable in saying that Obama's attacks on health insurers will not end, Braly's letter notwithstanding, anytime soon. And here's why:

Support for Obama's health reform is weak. More American's opposed the health reform bill than supported it, and of those that were undecided at the time the bill passed, more have decided against it than in favor of it. Generally speaking, social programs do not begin with much popular support as they go against a very long tradition in the United States of self-determination and personal responsbility.

Backlash against health reform is strong. Tea partiers, 9/12 movements, and traditionally conservative organizations are using health reform as a rallying cry. Twenty states have launched legal challenges to the reform bill and more yet may be coming. Incumbent Senator Bob Bennett of Utah was recently decapitated (figuratively speaking) by his own Republican party due in no small part to his support of the Wall Street bailout and support of bipartisan health reform efforts.

In light of these two factors, Obama needs to work continually to gin up support for the health reform initiative and protect his party. If he doesn't, his party and centrist Republicans are facing certain slaughter in the November elections. That is why Secretary of Health and Human Services Kathleen Sebelius has become the most vocal Obama cheerleader, "trumpeting" health reform's immediate impact even as she cajoles insurers into acting early on select implementation issues.

Health insurers were the whipping boy of the Obama administration. Anthem's (a WellPoint subsidiary) ill-timed rate increase in California breathed life into what was a very nearly dead effort to pass a reform bill.

The AMA grudigngly supported Obama's reform in exchange for the "Doc fix," a change to Medicare reimbursement that the Congressional Budget Office recently re-estimated will cost $276 billion over the next 10 years - - an increase, by the way, of 33% over CBO's previous estimate and a giveaway of more than twice the entire estimated "savings" of the health reform bill itself.

Hospitals are community anchors and are untouchable despite growing skepticism over their financial practices. In rural communities, hospitals are often the only sizable employer other than government and school districts.

Patients, of course, are ultimately voters and so they must be made out as innocent if not unwitting victims.

And that leaves insurers. And hey, it worked in March because the health reform bill indeed became a reality.

So it is a fair bet that Obama will go back to the "health insurers are evil" well many, many times between now and November.

Braly now says the country has a history of coming together after tough debates, and "health reform should be no different." This conciliatory statement underestimates the robustness of the backlash against reform, and will ultimately serve only to hearten the administration in its effort to gain support for its agenda - - from anywhere they can get it.

WellPoint would have been better served by throwing an elbow. Eighty-five to ninety percent of the increasing cost of insurance is due to the increasing cost of care. Health care payors are largely hamstrung by restrictive state and federal laws from pursuing efforts to reduce the cost of care, and the administration has done nothing but protect physicians and drug manufacturers from downward price pressure. WellPoint would have been better off asking why Obama is working so hard on only 12% of the problem while ignoring the other 88%.