Healthcare Reform -- Is it a dream or a reality?

As an auditor working at a Regional firm I have a diverse spectrum of client from local governments, to not-for-profit organizations, to for profit entities. In my (albeit somewhat limited) years of experience (4 years in public accounting) I have seen one consistent trait in most of my clients; except for churches and healthcare entities, everyone is cutting costs. The spending of churches is well out of the spectrum of this discussion (maybe a later day). Healthcare, however, is a subject I'm willing to broach.

You ever wonder why it is that your Explanation of Benefits (EOB) shows an amount for charges not allowed or why when you accidentally get billed instead of your insurance company (assuming you have an insurance company), your bill is outrageously more expensive than what is actually billed to your insurer? It's because healthcare is a necessity and at some point you must pay for it or die. And, as with anything in a capitalist country, the better the doctor/healthcare, the greater the demand. The greater the demand, the higher the price. Therefore, those who can afford it will get the best healthcare and those who cannot afford it will receive poor and inadequate healthcare.

So how does the insurance company get to pay less money than you do for services? Simple, the insurer says to the doctor, "We won't pay more than this amount." Simple because the insurance company has the power of numbers on its size. The doctor gets the security of knowing that payment for services will be collectible and that he will have many new patient oppuurtunities as there "x" number people in the plan and only "y" number of doctors where "x" is much greater than "y". So if the doctor didn't go with the insurer he will be assured not to get those potential customers.

Now, each insurance company is in the business of collecting a small fee from individuals and investing this money. The money that is invested is used to pay out claims. The idea is that claims will be paid primarily by the earnings on the investments with the original fees remaining to collateralize new patients and growth. The theory being that claims expenses should be less than claims revenue. We've already concluded that the doctors and health system form an oligopoly. As the doctors and healthsystem increase prices, the insurance company loses profits. As the insurer loses profits it can either increase rates charged to customers or it can attempt to force the doctors to reduce their prices. The insurers use both tactics to improve financial performance. So in the end what we have is the insurer telling the doctor how much it will pay. The doctor may or may not drop the plan, the same is true for raising rates to customers, some may pay and some may leave. But the insurance companies have wielded enough power and influence in the system to allow them to apply a great force to the prices charged to them which ultimately benefits the customer (think about the EOB differences discussed above). So the insurer plays an important role in keeping the oligopoly from exerting too much price influence.

Now there are some differences in the way insurance companies want to pay doctors and the way doctors want to be paid. Insurance companies want to pay on a per member basis. Essentially the insurer collects each individual's premium and they want to pass a portion of that premium along to the doctor each month regardless of the services the doctor actually performs. The doctor, however, wants to receive money each time he/she performs a service for someone. This is a difference that an intermediary organization can solve. The intermediary organization can receive the monthly fees from the insurer and then pay the doctor for each time he/she performs a service for a fee. Now a third organization has stepped in and allowed both the doctors and the insurers to share their risk with the organization (the intermediary charges a small fee of course). So now you have three organizations (insurer, intermediary, and healthcare system) working together to provide services for a fixed fee to the consumer (insurance rate). The intermediary can provide other services too, such as datamining claims to identify patterns and educate the doctors on appropriate preventative measures. All in all this system works pretty well. . . . except for the constantly rising rates to the customers and lack of availability of insurance to customer who cannot afford it. Insurance is outrageously expensive unless your employer foots a significant portion of the bill.

So now why is such a bad idea if the largest insurer in the country steps in and interrupts this perfect model of capitalism gone awry? Why is it so bad to have government sponsored healthcare? Now, yes I am a huge proponent of duplicitous waste existing in governments of all sizes and not to mention 'good ole boy' tactics to boot. But, if done right, government sponsored healthcare reform could be one of the greatest achievements this country accomplishes this century. Is the O'Bama plan, the best plan. Probably not, but it's a start. Will we ever have a perfect healthcare system? No. So why would it be so bad to have the government step in? Extra tax dollars you say? No new taxes, you say? Well I'm sure that it won't be free to the people but if the right measures and forces are pushed onto the healthcare system then the system will be forced to reform. With the right reform, the tax burden on society could be greatkly reduced. For one, what about the current cost to society of people who cannot afford healthcare and so are not treated preventatively but instead are treated only after becoming severely ill and then there is no one to pay for the healthcare that they received? Who pays this cost now? You do.

Now, something that you may not think about is that a huge cost to healthcare is drug costs. Everyone sees the revenues of drug companies but few stop to think about how their earnings are used to perform research and development for new drugs. Many drugs take 20+ years to develop and get approved without earning any revenue against the expense. Then, the company has a limited time before alternative drugs are able to flood the market. So it's natural that drug companies will have to charge a lot for their drugs to finance the research and development. Wouldn't it make sense to have this cost passed on to all Americans? The cost of developing a drug that you may or may not need. It may sound unfair to pay for the cost of developing a drug that you don't ever need. But what about the drug you do need? Isn't it just as unfair to the people helping to pay for the development of the drug you need.

So, do I support the O'Bama plan? Not really. Do I support healthcare reform? Yes, who doesn't. I say you have to start somewhere or you will never get anywhere.

Here is the link to the article that started this posting: http://www.whitehouse.gov/omb/blog/09/11/24/An-Insightful-Article-on-Health-Care-Costs/