Obamacare for Lobbyists

In the construction of a major legislative package, the White House and significant Congressional committees maintain strong control over the major concepts and compromises. To get this into legislative language, staff lawyers and officials of involved executive departments supply the meat to put on the bones, so to speak. But in the obscure technicalities of the industry under consideration, particularly those with no particular political weight, experts and lobbyists from the industry itself have considerable ability to shape things. It may even go so far as to provide "suggested" language. In the health insurance field, for example, actuarial advice and opinion is not otherwise readily available to the legislative process.

Here are a few significant areas where the lobbyists have considerable influence:

Is Preventive Medicine always and everywhere less expensive? As heads nod vigorously in support of prevention, notice that in general usage it suggests several different things. The implication is that small interventions for everyone are always less expensive to society or society's insurance plans, than large expenses for a few. That is clearly not absolutely true, and unfortunately in an insurance world, it may seldom be true. Take for example a tetanus toxoid booster, which ten years ago cost less than a dollar for the material. Recently, I was charged by my corner drugstore $85 dollars for the material in preparation for a vacation trip. If you do the math, I feel it is rather likely that $85.00 times the millions of Americans who could be at risk for tetanus is far greater than the cost of having tetanus, even dividing by ten for the conventional advice to have the booster every ten years. This becomes more certain if one adds in the cost of administration. The vaccine is quite effective, we had almost no cases in the Far Eastern Theater in World War II whereas the British who did not vaccinate routinely had large numbers of often fatal cases. Furthermore, even if the patient survives, the disease is hideously painful. Is it better to vaccinate routinely? Yes, it is. Is it cheaper? I'm not entirely sure, because I have no access to the information about production costs of tetanus toxoid. But it seems likely that something unsatisfactory has transformed a preventive procedure from clearly cost effective to probably not cheaper. This is likely a malpractice liability problem for the vaccine maker, not a preventive care issue. In the case of small pox vaccination, it is clearly more expensive to vaccinate everyone in the world than to sustain a few fatal cases; the approach currently being taken is to limit vaccination to countries where there are still a few cases, hoping to eradicate the disease from the planet. Over and over, examination of individual vaccinations shows the answer to be: better, yes, cheaper, no; with the ultimate answer depending on accounting tricks in the calculation of cost, cost inflation because of third-party payment, and related perplexities.

Routine pap tests, routine annual physical examinations, routine colonoscopies and a whole host of other routines are in general question as to cost effectiveness. Much of the current denunciation of "Cadillac" health insurance plans boils down to the elaborate prevention programs enjoyed by Wall Street executives, college professors, industrial unions, and other privileged classes. The inference is rather strong that unrestrained pursuit of preventive approaches will escalate costs rather considerably. While self-interest is a possibility if physicians are consulted, reliance on bean-counters is far worse. Without some form of patient participation in the cost, this issue is essentially unsolvable. To launch a host of double-blind clinical trials to find out the truth will lead to answers of some sort, which will quickly be undermined by price/cost confusion, leading to increasingly futile regulation. Only by including preventive costs in the deductible can a true balance be observed; which is to say, universal preventive care admiration cannot even be adequately assessed except in the presence of a substantial open market for the product. The fact is that most "preventive" care is really "early detection" or "early management". When the goal changes so subtly, it is often not possible to say what is worth while, except by placing a price on pain and suffering. The abuse of the monetization of pain and suffering in the malpractice field, ought to be a gentle reminder of that.

Outpatient Care is Not Necessarily Always Cheaper Than Inpatient Care. Because hospital inpatient care is reimbursed at roughly 106% of cost, while hospital outpatient care is reimbursed at roughly 150% of cost, hospitals favor outpatient care, while reimbursement third-parties favor inpatient care. Hospital management is resistant to wage increases in the inpatient area, less resistant in the outpatient and home care programs, so true costs are steadily rising in the outpatient area. Personnel shortages follow, as does friction between hospitals and office-based physicians. Wherever the balance currently happens to be, it is likely that in time outpatient care will inevitably be more expensive than inpatient, as it was in 1751 when Benjamin Franklin founded the Pennsylvania Hospital and raised funds on this plea. If to this is added the cost-shifting of administrative costs, it is uncertain just where we now stand. The one thing which is very clear is that the present pushing of truths of the past will lead to distortions in the future. Even addressing these shifts on a continuing basis while destroying market mechanisms with third-party reimbursement will lead to continuously bizarre situations. Those who propose universal third-party reimbursement for every cost and for every person will some day be doomed to perpetual ridicule.

The Donut Hole: Deductibles versus CopaymentsTo understand why the donut hole is a good idea, you have to understand why copayment is a flawed idea. In both cases, the purpose is to make the patient responsible for some of the cost in order to restrain abuse. The question is how to do it; the donut has not been widely tried, but the copayment approach is very familiar: charge the patient 20% of the cost, in cash. This idea finds great favor with management and labor in negotiations, because the savings are immediately known. If the copayment is 10%, then the employer cost will be decreased 10%; if it is 50%, the cost is reduced 50%. In midnight bargaining sessions, such simplicity is much appreciated.

Health insurance companies like it, too. It affords the opportunity to sell two insurance policies for the two pieces, adding up to 100% coverage, thus doubling the marketing and administrative costs, an advantage only to the insurance intermediary, but totally undermining the idea of restraining patient overuse. In practice, having two insurances for every charge has led to mysterious delays in payment of the second one, even though they are often administered by the same company. Physicians and other providers hate the system, not only because it involves two insurance claims processes per claim, but because it often makes it impossible to calculate any residual after insurance until months after the service has been rendered. Patients often take this long silence to imply payment in full, and disputes are common.

So, the idea of a donut hole was born, with certainty about what was owed on two levels, one for small common claims, and another for big ones. The patient either paid cash in full or was insured in full, and arriving at the Paradise of full coverage has to be purchased in cash within the deductible. Unfortunately, once that threshold was crossed, the sky was the limit. The idea was generated that if the two levels of the donut hole were calculated from actual claims data, there would be a clear separation of minor illnesses from major ones. Since the patient would ordinarily be uncertain how far he was from triggering the donut hole, the restraint of abuse might carry over even into areas where the facts were not as feared. It is too early to judge the relative effectiveness of the two patient-responsibility approaches, but it is not too early to watch politicians pander to confusion caused by a new and unfamiliar approach.

Plan Design The insurance industry, particularly the actuaries working in that area, have long and sophisticated experience with the considerations leading to upper and lower limits, exclusions and exceptions. The legislative committees would be wise to solicit advice on these matters, which ordinarily have very little political content. However, the advisers from the insurance world have an eye to bidding on later contracts to advise and administer these plans. They are not immune to the temptation to advise inclusion of provisions which invisibly slant the contract toward favoring a particular bidder, and failing that, they look for ways to make things easier for whichever insurance company does get the contract. The donut hole is a recent example of these incentives in action; no member of any congressional committee was able to explain the donut for a television audience, so it was ridiculed. The outcome was a race between politicians to see who could most quickly figure out a way to reduce the size of the hole. The idea that the size of the hole was intended to be an automatic adjustment to experience, seems not to have occurred to any of them. Asking industry experts for advice is fine, but it would be well to ask for such advice from several sources.

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