The TRUTH About Obama / Trump Care (Part Two)

In Part 1 of this blog, I described the parts of Obamacare that ARE working.  

View Part One Here: https://scottmcmurrain.blogspot.com/2017/03/the-truth-about-obamatrump-care.html

This is Part 2 of this blog.  Here I outline where Obamacare falls short and is in desperate need of repair.

In Part 3 of this blog, I recommend SOLUTIONS.  Anybody can complain about what is wrong with the system, but any solution needs to start with some fresh IDEAS, and here are mine.

View Part Three Here: https://scottmcmurrain.blogspot.com/2017/04/the-truth-about-obama-trump-care-part.html

PART TWO

The REAL PROBLEMS with our Health Care System

In PART ONE of my blog on Obamacare, I outlined what Obamacare was intended to do, and how it IS WORKING and accomplishing it’s stated goals.

NOW, in PART TWO, I’ll talk about what the REAL problems really are.

Finally, in PART THREE, I’ll offer my OPINION on how to address these problems.

The Affordable Care Act was intended to provide access to insurance to all Americans.  With few exceptions, mostly those states who refused to expand Medicaid, Obamacare has done just that.  But there are problems with it that need to be addressed.  There is nothing in Obamacare to control COSTS.   That is where the problems lie.

Our entire economy is based on Capitalism.   But, for Capitalism to work, there must be a free market for the goods or services being purchased.  Many years ago, the medical industry was just that.  However, over the last 50 years, the free market has been slowly removed from our health care system, and Obamacare was the final nail in that coffin.

Let me explain.  Free market means that the buyers (you and me) and the sellers (hospitals and doctors) negotiate the price of the services to be rendered.  If the price is too high, we won’t buy.  If the price is too low, the hospital will not provide service.  But there are two critical elements that are absolutely necessary for the free market to function properly.  First, there must be Competition.  There must be alternatives for each party if a deal cannot be reached.  If the doctor charges to much, we can see another doctor.  If the patient demands too low of a price, the doctor will see other patients instead.   Second, neither party can be forced to make a deal. Either party can walk away if mutually acceptable terms cannot be reached.

BILLING PRACTICES

In order to freely negotiate a deal, common sense dictates that the parties know what the deal is!  But that does not happen in our medical system today. Not only do you have no way of knowing how much the service will cost, in many instances you do not even know you the providers are until you receive a bill.  When you go to a doctor, and he takes a blood, stool, or urine sample, he sends hit out for analysis to a lab that HE chooses. But the lab bills YOU. You had no choice in what lab he was going to use.  Most likely, you were not even told that the lab was a separate business at all.  It is impossible to freely negotiate a deal when you do not know the other party, or are not even aware there even IS another party.

There is no other industry that operates like this. You do not go out to a restaurant, eat your meal, pay the restaurant, and then get a separate bill later from the Chef. When you take your car in for repair, and the shop sends out your radiator to be re-cored, you do not get a separate bill from the radiator shop. Only in the health care industry are you directly billed for costs incurred by your primary vendor.

But even when you know who the providers are, you do not get a chance to negotiate prices in most cases.  

Back in the 60’s, a system was developed to standard billing and payment procedures between doctors and insurance companies.  Each procedure was given a specific code, and the insurance companies would pay based on that code.  What started as a simple coding system has morphed into a monster that contains hundreds of thousands of different codes.  When you visit a health care provider, he does not bill you for his time.  Instead, he bills for each procedure that he performs, regardless of the amount of time it takes.

But that’s not the real issue.  The real issue is HOW MUCH he bills for each coded procedure.   All doctors, hospitals, and other providers have their own standard price list they charge for each coded procedure.  This is known as the “Charge Master List”.  IT IS COMPLETE FICTION. Let me explain WHY.

When a medical provider agrees to accept payments from an insurance company, they enter into a contract with that insurance company.  That contract usually includes the following conditions:

1. The doctor bills the insurance company using the standard procedure codes. 
2. The doctor does not bill the insurance company a higher rate for any code than he bills anybody else. 
3. The insurance gets a discount off that billed amount.
4. Regardless of the billed amount after the discount, there is a maximum amount that the insurance will pay for that particular code.
5. The doctor must accept this amount and not bill the patient for the difference

For example, let’s say that code “1234” is for a standard physical exam. The doctor wants to get $100 for it. He has a discount rate of 75% for that code with the insurance company. So, if he bills $100, he will only get $25. So he bills $400, which results in his getting $100. But, then he must bill EVERYBODY the same $400. If he were to bill you only $200, then the insurance company would only pay $50, since that is his lowest billing rate.

Now, let’s say a second insurance company negotiates a rate of 80%. Well, that $400 charge is no longer enough. So, he starts charging $1,000 for this same exam that he wants to get $100 out of. With a bill for $1,000 bill, the first insurance company would pay $250. But it probably has a maximum allowed payment of between $80 and $120 that it will pay, so that is what he gets.

Here is the problem: For someone without insurance, they would owe the full $1,000. But they probably can’t afford it, so they either don’t pay or pay only a little and get a ding on their credit. However, if you care about your credit and you do have the ability to pay, you are on the hook for $1,000 unless you can negotiate a discount. Good luck with that after the fact! And let’s not forget that you had no idea about this charge at all BEFORE the fact!

What this means is that there is really no way to know what you will ow before receiving the service. And if you have no way of knowing, there is no free market here.

THE FREE MARKET NO LONGER EXISTS IN OUR HEALTH CARE SYSTEM.

LACK OF AWARENESS OF COSTS

For most of us with insurance, our only concerns are how much our premiums are and how much our out-of-pocket costs will be.  Once we reach our deductible each year, we don’t CARE what the bill is, since we don’t have to pay it.  Since major medical expenses will reach your annual maximum in a matter of hours, the providers know you don’t really care that the insurance company is paying $100,000 per year for a single drug.

But people don’t realize is that they ARE paying for that $100,000 drug in the form of higher premiums next year.  When they see premiums rising, they blame Obamacare or their insurance companies rather than realizing that it’s the providers themselves that are driving their escalating costs.

OBAMACARE STEPS IN

Under Obamacare, insurance companies MUST provide access to health services within your local area if they are available.  If there are multiple providers of the same service, the insurance company MUST deal with at least one of those providers.  If there is only one provider, the insurance MUST deal with that one provider.   The insurance company does NOT have the option to walk away.   In many areas, there is only one hospital serving an area.  So, the insurance companies MUST deal with that one hospital.  The hospital knows this, and can charge whatever prices it wants for its services. The insurance company has no choice but to pay.  It no longer has the ability to set a “Maximum Price” it will pay for a procedure at that hospital.

I live in a rural county in Virginia.  Our entire county has a population of around 100,000 people. We have one hospital in our county, and every insurance company MUST pay for services at that hospital.  Our hospital is a NON-PROFIT hospital, which means that it must file a Form 990 with the IRS every year listing its income, expenses, and executive compensation.  This form is public record, and can be viewed on-line.   In the last year on record, our little hospital collected $308 MILLION dollars in revenue.  And that’s what it actually collected; not what it billed.   That averages out to over $250 per MONTH for EVERY PERSON in the county!

Is that excessive, or is it necessary?  Let’s take a look at what the executives at our little, NON-PROFIT hospital are paid: The Executive Director was paid over $750,000 last year.  That’s almost twice what the President of the United States makes.  But, wait!  There’s more. There are numerous other executives at this hospital who are also paid over $400,000 per year. These are not doctors, surgeons, or other medical specialists. These are just the executives in management. How can a little, non-profit hospital in a small, rural county afford to pay these exorbitant salaries? They can afford to do so because they simply raise the prices they make the insurance companies pay. They can do this because they know that the insurance companies have no choice but to pay.

Drug Companies are another example. Insurance MUST pay for at least one drug in each class of medicine. When there is only one drug in a class, the insurance company MUST buy that drug when a doctor prescribes it.  They simply have no choice. The Drug companies know this, and the outrageous prices increases we have seen in the drug market is proof that the free market is dead here. Some drugs have gone from $5 per pill to over $1,000 in just the last couple of years!

But, again: Wait! There’s more! The lobbyists for the drug companies have successfully persuaded Congress to pass laws making it illegal for U.S. Citizens to buy these drugs just anywhere. We cannot buy the drugs from pharmacies outside the United States and have them shipped to us, even when they are the SAME EXACT drugs!

Why is this a big deal? Because the Drug Companies sell the SAME DRUGS for VASTLY LOWER PRICES on other countries. In countries where they do not hold total control over the market.   Prices for these same drugs in other countries are often HALF or even a THIRD of the prices we pay.

DID OBAMACARE CAUSE THIS?  Pretty much, for several reasons:

First, Obamacare removed the lifetime limits on insurance policies.  Prior to Obamacare, most insurance policies had a lifetime limit between $500,000 and $2,000,000.  So, no matter how sick one became, insurance companies would stop paying after reaching that amount.  Hospitals and Drug companies knew this, and that factored into their pricing structure.

Second, Obamacare removed the option for insurance companies to walk away for every hospital or drug company if it do desired. The insurance company could deal with a hospital 50 or 100 miles away if needed, and patients would just have to go there. This also provided an incentive for hospitals to keep their prices reasonable.

Third, Obamacare requires insurance companies to pay out at LEAST 80% (85% for large group policies) of premiums to providers or refund the difference to the patients. This was put in there to reign in greedy insurance companies. But, it had the opposite effect. Insurance companies must set their premiums more than six months before the year begins, and cannot raise them during the year. So, they must GUESS what their expenses are going to be when setting the premiums.  If, at the end of the year, they paid out only 78% of premiums, they would have to refund the other 2%. But, on the other hand, if they paid out 88% or even 110% of the premiums they collected, they are not allowed to recoup those losses next year, because the next year starts another 80% limit again.

With the hospitals and drug companies raising their prices like there’s no tomorrow, most insurance companies have LOST money each year under Obamacare, with no hope of ever getting it back.

Fourth, this same 80/20 rule does not provide any incentive for an insurance to even try to negotiate prices, since the more they PAY OUT, the more they are allowed to keep. 20% of a $5.00 pill is $1.00. 20% of a $1,000 pill is $200. The harder an insurance company negotiates, the LESS money it is allowed to make. Of course, it was assumed that multiple insurance companies would compete in each market, and that competition would keep their prices in line.  But, since most of the companies were losing money by trying to keep premiums low, many insurance companies simply pulled out of the market, leaving only one insurance company to serve that market.  Bye-Bye completion; Bye-Bye hard negotiations!

DOCTORS ARE GETTING CHEATED

On the other hand, your personal doctor is even worse off than you! Unlike hospitals and drug companies that are virtual monopolies, there are dozens of doctors in any given town. This time, it’s the insurance companies that are the monopoly. When there is only one or two insurance companies in a market, every doctor is forced to deal with them or lose most of their patients. The insurance companies know this, and use their position to squeeze doctors to the breaking point.

For example, last year I had a minor outpatient surgical procedure done at our local hospital. I went in at 8:00 in the morning and left by noon. After all discounts, the hospital was paid $2,000 for use of its facilities. The anesthesiologist was paid $750 to put me to sleep and make sure I woke back up. The surgeon who actually performed the procedure received only $250. And, of course, he has his own office and staff to pay out of that. Remember, there is only ONE hospital on my area, very few anesthesiologists, and a LOT of doctors.

THE ELEPHANT IN THE ROOM

Finally, and this is the topic that no one wants to talk about, is the sad fact that it costs a LOT of money to die. Unless you are killed instantly in an accident or suffer a massive fatal heart attack, you are either going to spend months at a health care facility during your last days, or you are going to spend them in a nursing home. Very few families have Grandma and Grandpa living at home until they die. Nursing homes can easily run $5,000 or more per month. If Grandpa spends the last five years of his life there, that is $300,000 right there. And that does not count the numerous times he will be sent to the hospital before he finally passes. Same for Grandma.

Cancer is the second leading cause of death in the U.S. Cancer treatments alone can run between $10,000 and $50,000 per month. 11 of the 12 approved cancer drugs in 2012 cost over $100,000 per year!  A single cancer patient can easily incur costs of $500,000 to $1,000,000 or more during the course of their treatment. The annual cost for cancer treatments in the U.S. are projected to be $175 BILLION per year by 2020. That’s almost $600 for every person in the U.S. just for cancer treatments.

THESE ARE THE REAL PROBLEMS WE FACE IN OUR HEALTHCARE SYSTEM.

SUMMARY SO FAR

The parts of Obamacare that DO Work are:

(1) Nobody pays more than 10% of their income to get the second-lowest SILVER plan in their market
(2) All insurance policies offer the same MINIMUM standards of care
(3) Insurance companies MUST cover anybody who buys a policy
(4) Everybody MUST buy a policy.

Where Obamacare has FAILED:

(1) Eliminated the free market in Health Care System
(2) Handicapped the insurance companies' ability to negotiate prices
(3) Allowed monopolies to take advantage of their positions
(4) Allowed opaque pricing structure to remain
(5) Does not allow consumers to buy drugs outside U.S.
(6) Does not allow Medicare to negotiate drug prices at all
(7) Does not allow insurance companies to see across state lines
(8) Smaller providers are suffering

Where Obamacare CANNOT and SHOULD NOT help:

(1) Address Cost vs. Benefits of artificially keeping people alive
(2) Treat all doctors and providers as equals while ignoring experience, talent, reputation, and patient choice
(3) Decide what treatments patients may or may not receive


In my next, and final, installment, I’ll give you my OPINION on what should be done to address some of these issues.