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Healthcare Reform – A Guide For the Perplexed

As the great campaign to reform the American healthcare system heats up and enters an important new phase – the phase in which key legislative leaders take the five bills that have been passed, here and there, by sundry Congressional committees, and, behind closed doors, attempt to cobble together a compromise bill which they believe they can threaten and/or bribe a majority of Congresspersons into supporting – many Americans find themselves confused about what it all means. What, after all, are we attempting to accomplish here? How much will it cost, and who will pay for it?  Why does the whole process seem so darned difficult and confusing?

Fear not. As a public service, DrRich will now explain healthcare reform in a very simple way, so that – whether you study the issue closely on a day-to-day basis, or just accidentally come across some relevant headlines now and again as you look for the sports page – you will always know what’s going on. For, once you understand a few key concepts, this thing is really pretty easy to follow.

The Fundamental Problem

The fundamental problem with American healthcare is this: None of the pools of money we have created (or ever could create) to pay for our healthcare – whether those pools of money reside with the insurance companies or the government or both – can possibly buy all the healthcare that might benefit all Americans. This means we have to ration healthcare (i.e., intentionally withhold at least some beneficial healthcare from at least some of the people who would benefit from it). But because we’re Americans and Americans don’t ration, we (and in particular, our political leaders) are unable to address this need to ration openly and forthrightly. Therefore, the unavoidable rationing is being conducted covertly.

Until now, most of the covert rationing has been overseen by the health insurance industry. This, indeed, from the very beginning was the primary purpose of modern health insurance companies, as determined by Congress itself when it legislated the formation of HMOs. (See the ruling of the U.S. Supreme Court in Pegram et al. v. Herdrich (98-1949), 530 US 211, 2000.) So, when the health insurers engage in cherrypicking patients, denying medically necessary services, coercing doctors to ration at the bedside, retrospectively canceling the policies of patients after they get sick, and doing everything short of dispatching teams of Ninjas in the dark of night to slaughter some of their more expensive subscribers in their sleep, they are not really being evil. They are only carrying out the job that has been assigned to them by our society. Covert rationing is a dirty, thankless job, but somebody’s got to do it.

The major sin of the health insurers is that, despite their Herculean efforts to harness covert rationing to control costs – and despite the wondrous incentive of greater profits if they do so – they have utterly failed in their assignment. Healthcare costs continue to rise at 3 – 4 times the rise in the cost of living, and within the next couple of decades promises to bring our republic to its fiscal knees (even without all the other stuff that’s making our deficit explode).

This is the healthcare crisis, and it’s real. We simply cannot actually spend $40 trillion on Medicare patients over the next three or four decades (as we’ve explicitly promised the baby boomers). The only real question is whether we will avoid spending all that money because of societal disruption and revolution, or by some more civilized means. (The fiscal implosion of our society would of course finally fix our healthcare crisis. Healthcare, far from being an essential and indispensable human need, actually is a luxury, a recent artifact of our advanced, stable, and affluent culture. Runaway healthcare costs, by bringing down our societal stability, will eventually provide its own cure.) Our current “healthcare reform process,” such as it is, is our stab at a more civilized means of addressing our looming impossible fiscal obligations.

What Is Healthcare Reform Actually Going to Reform?

What we are witnessing today is merely a rather messy changing of the guard. The primary responsibility for covert healthcare rationing is going to shift from the health insurers to the government.

The health insurance industry has run out its string. They have had 15+ years of virtually unfettered opportunity to get healthcare costs under control, and they have utterly failed. Over those 15 years, their attitude has evolved from arrogance to concern to abject fear. They finally and starkly realize that they have no clue how to control costs.  So they are not looking to block healthcare reform (despite their recent “attacks” on the Baucus bill), but rather, are partnering with the reformers in the hope of finding for themselves a graceful exit strategy. They hope to gain one last windfall in profits and stock prices (from mandates and insurance subsidies for the tens of millions of currently uninsured Americans), and once that happens, they hope to settle into the business of administering, and processing transactions for, government-controlled healthcare.

So the overriding aim of healthcare reform, with the complete support of the insurance industry, is to conduct an orderly transfer of the pools of money with which we pay for our healthcare – along with the responsibility of managing “risk” and controlling the cost of care (i.e., covert rationing) – away from private insurers and to the government.

Understanding the Players

Government control of healthcare, of course, is precisely what the Republicans accuse the Democrats of wanting, and what the Democrats angrily deny they want.

Understanding the Republicans. Republicans as a group cling to the quaint notion that competition among insurers is all that is needed to reduce healthcare costs; that given the right market incentives, the insurance industry – in its wisdom – will bring healthcare inflation under control. They utterly fail to hear what the insurance companies themselves are saying (by their actions): “No mas!”

The Republicans’ arguments ring hollow. It is useless to protest that the Democrat plans will lead to rationing, when not only do we already have rationing, but covert rationing in fact has been the official cost-cutting “plan” assigned to HMOs for decades now. It is useless to protest that 85% of Americans like their current health insurance, when the fiscal reality is that health insurance will change drastically for all Americans over the next decade or so, whether we change it by design or not. It does not matter that a lot of Americans like the health insurance they have now. Keeping it over the long term is not an option.

To a very large extent (DrRich is sorry to say, what with his conservative leanings and all), with such arguments the Republicans have made themselves nearly irrelevant in the current discussion.

Understanding the Democrats. The Democrats have been handed the opportunity of a generation. What President Obama has now that President Clinton did not have 15 years ago is: the health insurance industry is finished, and the industry knows it. And while that industry can still make things very hot for the reformers, and can possibly torpedo reform altogether (which is what they are now trying to demonstrate), they would much rather come to a mutual understanding that, in the end, will give the government all the control over American healthcare it could ever want (in exchange for certain considerations, described elsewhere).

So, by default, the Democrats now find themselves with the ball. Since the Democrats control both houses of Congress and the Presidency, since Americans generally understand there’s a need to reform healthcare, and since the insurance industry (again, given certain reasonable considerations) not only won’t stand in their way but will support them, one would think that accomplishing healthcare reform would be a slam-dunk.

Why Healthcare Reform Is Not A Slam-Dunk

Several major obstacles remain for Democrats, despite being in the driver’s seat.  Most of these obstacles will require the party leadership – in order to bring along enough rank-and-file legislators to actually pass the legislation – to convince various constituencies within their own party that the bill does one thing while actually it does another.

For instance, they must pretend they are not engineering a government takeover of healthcare, when in fact they are. As we have seen, there is not really much choice here. They must take over healthcare even if they don’t want to (though many of them do), because the health insurance industry is finished. The pretense is necessary, however, because the notion of government-controlled healthcare is not something the people – or even many Democrats – want, or are willing to tolerate. The pretense is all the more difficult because many Americans are suspicious that government takeover is what the Democrats have in mind, despite their strong denials. While some of this suspicion can be laid at the feet of Republican troublemakers, it does not help that several Democrats – including some rather prominent ones like former Senator Obama, Barney Frank, and Nancy Pelosi – have spilled the beans, publicly assuring their left-leaning supporters (in the way of pleading for a little slack) that they are actually working toward a universal, government-controlled healthcare system.

The need to maintain this pretense is why the Democrats so desperately need the cooperation of the insurance industry. The insurers could blow the whole thing up at any time (as they are now gently reminding their friends in power), but are happy to collude with a government takeover as long as they get what they want in the process.

Key among the things the insurance companies want is a federal mandate on individuals to buy health insurance. But many Americans, including many Democrat lawmakers, find such a mandate to be in violation of our Constitution. So, the Democratic leadership has to figure out how to include a mandate strong enough to satisfy the insurance industry, but inobtrusive enough to bring along a majority of Democratic congresspersons. Not an easy task.

There are several other juggling acts the Democratic leadership will have to perform in crafting their “compromise” legislation, to allow various constituencies within their party to believe that the bill does (or does not) do various things they insist it must (or must not) do, such as providing insurance for illegal aliens, or paying for abortions on demand.

Furthermore, the Democrats have to find a way to pay for their healthcare reforms without alienating some of their key constituencies. Reforming healthcare will be so supremely expensive that it will be utterly impossible to actually pay for it only by taking money from the rich. The Democrat reform plans that we know a little about reveal this problem. HR 3200, for instance, according to the CBO, explodes the federal deficit. And the Baucus plan introduces fees, penalties and surcharges that threaten to affect many if not most middle-class Americans (including, worst of all, members of labor unions with very nice health plans). To pass a bill, the Democratic leadership will have to sell the fiction that the whole thing can be paid for without causing any of their key constituencies any significant fiscal pain.

Perhaps the biggest problem of all is that with any healthcare reform “victory,” Democrats will have to take control of covert healthcare rationing. Covert rationing will be much more difficult for a government-run system than it has been for insurance companies. A government healthcare system will not have the opportunity to incorporate the most effective rationing techniques that have been available to the insurance industry – cherrypicking patients, for instance, or canceling the policies of people who get sick. Nor will the government be able to get away with summarily denying patients needed medical services – a standard tactic of HMOs. This is especially true now that chief Republican intellectuals have called everyone’s attention to the possibility of death panels. The unwashed masses, having been duly alerted to the government’s intentions of withholding life-saving healthcare, will now be on the lookout for “unreasonable” denials of care. Any move by the government to refuse to pay for a particular medical service will have to be supported by extremely convincing clinical data (which itself will be very expensive to collect), and even then Americans may not quietly accept such denials. The “death panel watchdogs” will be alert for every move the government makes, and will be quick to howl an alarm.

So even though the Democrats are in complete control of the process – the only people they have to convince to vote for reform being other Democrats – and even though they have the insurance industry in their pocket (unless they continue to alienate them by reneging on deals), assembling a reform plan that Congress will pass remains a huge challenge.

What Happens Next?

Now that five reform plans have been advanced by five Democrat-controlled Congressional committees, a few prominent Democrats – Pelosi, Reid, and Baucus to name a few, along with numerous staffers and sundry czars of this and that – will gather in secrecy to put together a “compromise” bill aimed at being acceptable to enough Democrat legislators to pass both houses of Congress.

In concept this sounds easy, but we have seen that it won’t be. They will have to assemble a bill that holds together both the radical left-wing of the party and the conservative (so-called Blue Dog) Democrats. The bill will have to be written so that both the progressives and the conservatives can be convinced that the bill honors their views (or, at least, gives them sufficient political cover, if not sufficient pork, to assure reelection).

Obviously, creating such a bill will be difficult if not impossible. So most likely, when the Democratic leaders write that final bill, they will have to obfuscate.

The bill will have to be written in such a way as to be fundamentally obscure, so that everyone can see what they want in it, and can assure their constituents that their wishes are being honored. Each faction of the Democratic party will be assured in private meetings that the bill actually accedes to their demands – but that this result cannot be spelled out in so many words, because the bill still needs to be sold to the opposite faction. (To see how this can be accomplished, simply read HR 3200, a masterful work that actually says whatever you want it to say.)

Obviously, this same obscurity will also allow critics of the bill to find in it whatever they want – from death panels to puppy mills – then to stir up the great unwashed masses, so it will be important to keep critics from seeing the bill before the final vote. Thus it will be necessary for the Democratic leadership, once the bill is written, to invoke once again the now-standard “dire emergency,” which of course makes time of the essence, in order to force a vote before anyone has a chance to read it. This procedure has now become commonplace in the tradition of our American Congress, and should not produce too much heartburn. It has also become standard practice to rely on the American press not to notice that a few days or weeks delay would not really make much difference in a bill whose implementation will likely not take place until at least 2013. (Implementing it any earlier will put the election of 2012 in grave jeopardy.)

The Bottom Line

As long as we pretend we don’t have to ration our healthcare, any reforms we invent – whether we do it as Republicans or Democrats – will merely add to the confusion, inefficiency, waste, inequity, and ineffectiveness of our healthcare system. How anyone can think that a process so fundamentally grounded in obfuscation and deception as the one we’re now witnessing will result in anything good is quite beyond DrRich’s comprehension.

Real reform would require us to:

A) Minimize the necessity of imposed rationing by having patients themselves make as many of the spending decisions as possible, using their own money. (Subsidies could be provided to people who don’t have enough of their own money to pay for routine healthcare.)

B) Provide everyone with a high-deductible, catastrophic insurance product to cover non-routine medical expenses. This is where the necessary rationing would take place, but the rationing would be open, transparent, and determined through a public process.

C) Create a private market for “extra” health insurance for those who choose to supplement the universal catastrophic plan with their own funds.

But of course, any plan that relies on both personal responsibility and open rationing is a non-starter. Which is why we are going to get what we are going to get.

*This blog post was originally published at The Covert Rationing Blog*


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