Since the legislation known as Obama Care was passed back in the spring, it seems like a good time to revisit the legislation and see what has happened in the health care industry since then. Unfortunately, for both the President and millions of Americans, early indications is that this legislation will make a bad situation worse. Keep in mind, two of the big reasons for passing this bill was to provide health care insurance coverage to the 10% of the population which does not currently have health care insurance and to reduce the high cost of health care insurance and medical treatment in this country.
How is the legislation doing vs. these objectives? Not good. Consider:
- In the August 20, 2010 issue of Fortune magazine, there was an interview article with the chairman of AT&T, Randall Stephenson. Although most of the article focused on AT&T's marketing and financial situation, the closing question was about AT&T's likely response to Obama Care. Mr. Stephenson was very clear with his answer. He did not want to drop health care coverage for his employees but under the new legislation, it was a better business decision for AT&T to drop its employee coverage and pay the much smaller fine to the government for not having a health care plan. He discussed "economic gravity" which appeared to be code words for "if my competitors take this path (dropping health care insurance programs) which makes them financially stronger, than AT&T would do so also." Thus, rather than reduce the number of uninsured Americans, this legislation might actually put hundreds of thousands of current and retired AT&T employees on the list of those that do not have healt!
h care coverage insurance.
- This was not the first time that AT&T was in the news regarding the new health care bill. In a Fortune magazine article on May 6, 2010, it discussed the fact that AT&T, Verizon, Caterpillar, and John Deere, among other companies, had created financial reserves in the billions of dollars to possibly pay for the increased expenses the health care legislation would incur, implying that these and other companies might drop health care coverage for their employees also. This ticked off Congressman Waxman of California, who demanded to see all of the internal documents these companies had produced relative to Obama Care and scheduled Congressional hearings to review the documents. Waxman initially thought that the companies were making up fear stories to discredit the legislation and he wanted to go after them. However, after reviewing the documents, he abruptly cancelled the hearings, apparently realizing that the companies were right in anticipating higher health care insurance costs for their employees. Now, we are not looking at hundreds of thousands of AT&Ters losing their health care coverage, we are looking at millions of Americans losing their health care coverage as a result of Obama Care.
- It gets worse. In a September 30, 2010 Wall Street Journal article, it was reported that McDonald's had warned the Federal government that it also might drop its health care coverage for its restaurant employees since the new legislation was incompatible with some specialized health care insurance plans ("mini-med plans" which are popular in the retail and restaurant industry) it had for its employees. They were asking for a waiver to the new law or they would have to drop their plans since they could not be in compliance with the new law.
I guess the drafters of the legislation never did their homework to understand how mini-med plans might be affected. Since about 1.4 million Americans are covered by these types of insurance plans, the potential is there to add over a million more people, in addition to the millions of AT&T, Verizon, Caterpillar, and John Deere employees and retirees who may lose their health care insurance coverage.
The other sad part of this situation is that we are already seeing companies looking for exemptions to the law. It is never a good sign when a new law may have t grant exemptions to its own rules within months after the law takes affect. This shows that someone, or everyone, in Congress did not do their homework on the ramifications of this bill.
- In that same article, it is stated that health insurance companies have already proposed a round of double digit increases in premiums in order to cover some of the mandates in the new law. Looks like between the financial cash reserves that bigger companies are setting aside for anticipated higher costs and the insurance companies asking for more money now from their premiums in order to cover the requirements of the law, that we are not going to see any abatement in rising health care costs as promised by Obama Care.
- In a very ironic twist, a November 4, 2010 Associated Press article reported that AARP was raising its health care insurance premiums anywhere from 8-13% in 2011. Part of the increase is due to generally rising medical costs but part of the increase is also due to Obama Care that the AARP vigorously endorsed. AARP is trying to avoid a 40% tax on high cost plans that will take effect in later years under the law. The article mentioned that Boeing employees are also going to see an increase in their insurance premiums as a result of the 40% tax. Thus, at least the law's unintended, mostly bad, consequences, does not differentiate friend from foe.
- But it gets even better (or worse, depending on your perspective.) In a November 12, 2010 Associated Press article, the reporter profiled a breast cancer surgeon who had posted a warning in her waiting room that she would stop taking New Medicare patients if Congress allows looming cuts in doctors' Medicare compensation to become law. If nothing is done quickly, Medicare payments to doctors will decrease 23%.
Although this crisis has nothing to do with Obama Care, it is instructive of how things will likely unfold in the the future. This specific cost cutting process started back in the 1990s as an attempt to get Medicare costs under control but the implementation of the law was constantly pushed back year over year. The article quotes sources as saying that if the funding is not restored, two-thirds of doctors would stop taking Medicare patients, endangering the health of tens of millions of Americans. The cost to the government of another delay to the original law's implementation? About $1 billion a month, $12 billion a year.
Why is this important? Obama Care calls for hundreds of billions of dollars to be axed from Medicare payments to doctors over the next decade. In fact, most of the flimsy financial justification for Obama Care assumed that these hundreds of billions of dollars would be saved by shorting the doctors relative to what they get today. However, if the majority of doctors are going to stop taking Medicare patients as a result of the government taking $12 billion away in payments, how many doctors do you think will stop taking Medicare patients if the government takes away hundreds of billions of dollars?
It would get ugly real fast. But I am pretty sure what would not happen. Congress would cave into pressure, would not implement the Medicare cuts called for by Obama Care, and the financial model on which this legislation was sold would be destroyed, leaving the American taxpayer with a health care industry more broken than before and much more expensive than before.
- Much of this legislation was modeled after the health care reform law passed by the state of Massachusetts. Within a few years after that law was passed, costs are already out of control, the expected drop in emergency room visits never materialized, medical coverage is being curtailed, and the system was trying to delay accepting new customers.
- The Obama administration admitted a few months ago that upwards of $100 billion a year is lost through fraud and criminal activity in current government medical insurance programs. How much worse will that fraud become and how many more taxpayer dollars will be lost by implementing an even larger government health care programs without first fixing the current fraud and criminal problems?
So let's review:
1) Millions of working and retired Americans are likely to lose their health care insurance coverage from larger companies for the simple reason it is a better economic decision under Obama Care to not have the expense of insuring their workforce and to pay a much smaller fine.
2) Companies are setting aside cash reserves in anticipation of the higher costs of complying with the law, preventing them from using that money to hire more employees, conduct more research and development, and compete with other global companies.
3) Hundreds of thousands, if not more than a million Americans receiving health care coverage via their retail or restaurant jobs, will likely lose coverage because their specialized insurance programs cannot be made compatible with the requirements of the new health care reform law. Thus, rather than reducing the number of Americans without affordable health care insurance, this legislation is highly to increase the number of uninsured Americans.
4) Insurance premiums are already going up as a result of the new law, including those premiums covered by supporters of the law such as AARP.
The hundreds of billions in savings predicted from Obama Care in the area of Medicare doctor payments is likely to never materialize since even a small decrease has already provoked doctors into promising not to accept Medicare patients.
5) The one state that has a similar plan to Obama Care has experienced a nightmare of rising costs, declining coverage, and unexpected steady streams of people into emergency rooms.
6) More and larger government health care programs is likely to result in higher amounts of fraud and crime.
Why has this turning into a disaster within seven months after it was signed? The political class never understood the root causes of our rising health care costs, high costs that put affordable health care insurance out of the financial reach of millions of Americans. Without understanding the root causes, there is very little chance of coming up with an efficient and effective solution. The horror stories listed above prove this point. Higher costs, higher premiums, and fewer people getting insurance coverage, the exact opposite of what the legislation was supposed to do.
What should be done? Two things. First, this law has to be repealed and the process has to start over. It has introduced unbelievable uncertainty into the market, uncertainty that has left companies in a non-hiring mode since they do not understand what their future health care costs will be. Thus, it is better for employers to hunker down with the current workforce than to expand and possibly find out they cannot afford the additional employees due to Obama Care. Plus, at 2,500 pages or whatever the final number was, nobody in Congress or the White House understands what is in the legislation and what the unintended consequences will be.
Second, an entirely new process needs to be undertaken to understand the root causes of our high health care costs using smart Americans from a wide variety of fields of expertise and which minimizes the input of lobbyists and politicians. Obama Care never understood the underlying causes. All this bill did was take the existing money in the national health care delivery system and move it around, and then stir in additional taxation on top of everything. It never got underneath the problem to understand the reality of the situation and the root causes of ever escalating health care costs.
In an old children's song, "the wheels on the bus go round and round." In the world of Obama Care, the wheels on this bus never went round and round since they fell off almost immediately, probably increasing the number of people on the bus without insurance and raising the cost of eventually fixing the bus.
