Will the GOP attack on Health Care Costs kill the beast?

Hercules and the Hydra, from The Labors of Hercules, 1545

Health care is expensive for a lot of reasons — the high costs of becoming a health care professional, the high costs of malpractice insurance, the high costs of state of the art medical equipment, for-profit models of service, and expectations of high quality services available quickly (aka service on demand) to name a few.

With or without health insurance, many of the 330 Million U.S. residents are using health care in small and big ways, and racking up about $3.2 Trillion worth of health care bills each year. Switching to a fully federally funded model seems unlikely, since this would required buying out hundreds of billions of dollars worth of insurance shares.

So what can we do? What should we do?

As President Trump stated — health care is complicated. Really complicated. Especially, figuring out how to pay for all of it.

Should we have health insurance at all?

One of the things floated in every discussion of health care reform is just eliminating health insurance completely. Go back to oldest model of health care where people get what they can pay for. The idea being that people will have stronger incentive to negotiate the costs of care, and providers will have stronger incentive to reduce their costs to find more “customers.”

A spin-off to this idea, is self-funded group coverage. Instead of each individual being on their own to negotiate, they come together with the power of a group. This idea is starting to catch some steam with employers, large and small, who have seen their costs to provide health care coverage go up — and employee satisfaction in the plans go down. Under this model employers pay directly for routine care for their employees (after negotiating good rates with specific local providers). This incentivizes employers to have wellness programs for their workers to keep them healthy and reduce medical costs.

Paying for healthy people vs. Paying for sick people

Obviously, very healthy people who never need to go to the doctor beyond a check-up once a year or an occasional visit to get some prescription strength cough syrup for a mild illness have very low costs of health care. Many people who are healthy might not have more than $100 worth of health care each year and would have no problem just funding the majority of their own routine care. If you follow Joe Walsh on Twitter you may have seen this:

When I’m feeling charitable, I give Tea Partiers the benefit of the doubt that they aren’t actually trying to cull the poor and sick from the population and that they actually think that moving more services to direct pay will improve both patient outcomes and lower prices.

Why they think this will help

There are plenty of onesey-twosey examples of this working, for people who have loads of cash on hand or access to plenty of credit. Think of all those elective procedures that have gotten cheaper due to patient demand: boob jobs, Lasik eye surgery, Botox. When a procedure is not ‘life and death’, there’s plenty of time to pull the classic car buying move of just walking away from the table until you hear a number that you like.

Most of the healthcare that the average person uses, falls into this “not life or death” category. The idea is that if you are responsible for paying out of pocket for routine healthcare like physicals and cholesterol tests and vaccinations, that you’ll shop around and find the best price. And that if millions of people shop around and find the best prices — all the prices for everyone will go down.

This clearly works for procedures where there isn’t a hurry to get it done, but how does this work for care that you really need in a timely manner?

Short version: if you’re going to die if you don’t get an oxygen tank delivered to your house every Friday and there’s only one supplier in town, you’re not in a position to try strong arm negotiations.

Paying for people with expensive health care needs

5% of Americans drive 50% of healthcare spending in the U.S. This is about 16 million people, spending an average of $98K each for their health care every year. If you’re trying to be a profitable health insurance company — limiting how many of these high cost patients are enrolled in your plan by identifying those who are already high cost and predicting who is going to become high cost is the name of the game.

And really — this is where we run into the political friction. How do we pay for the expensive care of 5% of people? What responsibility does the government have to these 5%? What responsibility does the 95% have?

In case you missed it, Jimmy Kimmel’s son was born with a rare heart defect that required immediate life saving surgery. Fortunately, Kimmel has a good job, good health insurance, and other financial resources to ensure his

The current version of the American Health Care Act that was passed in the House allows states to start monkeying around with how healthcare is paid for — leaving the door wide open for ending cost sharing between high cost and low cost patients.

That doesn’t sound good for sick people…

It’s actually really bad for sick people. Right now, insurance prices are set using something called Community Rating. This means that everyone who lives in a zip code and fits into an age range get’s charged the same for the same amount of coverage. This levels premium costs between the low cost and high cost people.

Without Community Rating, insurers can use what they call Experience Rating. Which means they can charge you more based on how expensive they think you will be.

Supporters of the current version of the AHCA say that the bill as written would only have insurers reverting to Experience Rating systems in extremely rare circumstances: states must opt into the changes, they have to show a plan for covering more people with their changes, and insurers have to take up the option of switching back to experience rating. Suuuuuuper unlikely says them. Which, if that were true — why even write it into the bill?

Well, Gov. Scott Walker of Wisconsin has already said that he plans on taking advantage of these options. And he’s willing to get into public fights over it.

So back to the original question — does the AHCA do anything to make health care more affordable?

Well, it really depends on how many people we’d be willing to let die from lack of healthcare to avoid subsidizing their care.

Mick Mulvaney — Director of the Office of Management and Budget thinks that there should be an eligibility test to make sure that a person didn’t cause their own pre-existing condition.

Depending on how many of the 130 million people with pre-existing conditions are deemed to have self-inflicted them, it seems like there is going to be a lot of tom foolery happening with the numbers.

So where does that put us?

From what I can tell there will be:

  1. A basic community rating covering the costs of the “healthy” and the “innocent” pre-existing conditions. Oh, and by the way — subsidies are being drastically cut. So, the difference will be paid out of pocket by all the people in this pool.
  2. Experience ratings for the rest of the 130 million of us with pre-existing conditions. And since we were found to have self-inflicted our conditions, no subsidies for us either.

So, I don’t really see how this gets anywhere close to lowering the cost of health care for most people. But, it doesn’t really seem like it was meant to…

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