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Monday, February 21, 2011

 

After ObamaCare Repeal - Then What

Our fans continue to cry out for the musings solution on health care, and where to go with ObamaCare (i.e. what should be put in its place after it crashes, either in the Courts or via Congressional repeal). It's well that people are finally considering the possibility, at this point maybe the probability, that PPACA will be put out of its and our misery. What originally may have sounded like a right wing pipe dream has been given considerably more credence by Federal Court decisions and by the dynamics of the 2010 and 2012 elections.

Having said all that, I must stipulate that a good solution to the economics and delivery of health care across our population that will make anybody and everybody happy has not been arrived at. I least I haven't heard one I'm ready to pump for. I have addressed entitlements many times here, including a lengthy series that is well back in the archives, for those who wish to review. At that time, my major message was that we had promised benefits already that we could not afford (this was before PPACA), especially in Medicare and Medicaid and we had better do something in terms of reining in those promised benefits since there was no way in the world we could raise the revenue to support them. So instead of doing that, Congress and the Obama administration larded on to the system an entitlement that threatens to dwarf them all in terms of fiscal irresponsibility, namely PPACA.

So how should we deliver and pay for medical care in this country? Rather than prescribe a system, because I and the other honest people out there haven't figured it out yet, for this post I would rather just lay down some principles that should govern our future efforts.

First, delivering health care is different from delivering health insurance. Frankly, what most of us have today is insurance only in the sense that if you meet up with a catastrophic expense, you won't have to pay it if you are in the right plan. However, very few actual insurance plans exist. Most large companies are "self-insured," which means they have taken over the expense themselves rather than outsource it to an insurance company. What they outsource is the recruitment of doctors and pricing negotiation with those doctors, and the bill paying. So if you think your company is insured by CIGNA or Wellpoint, it probably isn't. They are simply the service provider. This is because companies think their net losses for covering their workers will, in most years, be less than the premiums they would have to pay for real insurance. This is also why they don't have to go to the state insurance department to increase your copays and "premiums." Since there is no actual insurance, the state is not really regulating it, and they only have to comply with ERISA.

Under PPACA, these plans will eventually have to conform to the "insurance" requirements under ObamaCare, which will limit corporations' freedom to design their own plans of self insurance. Many would choose to dump their plans and employees into the state exchanges, pay their "fine" and just get out from under the headache. Obama's promise that you will be able to keep your own plan if you like it will be a non-starter.

The point of all this is to keep in mind that health care does not equal insurance.

In small companies, real insurance plans are purchased, or the employer today has the option to not offer employees insurance. The small employer plans again may collapse under ObamaCare, but small employers will be hurt either way since they will have to provide a stipend or pay a fine.

The degree of security confronting individuals and the self employed has been the most concerning depending on what state you are in. In New York, there is community rating so you can't be turned down or cancelled, but the cost for a typical couple is $2,200 per month. This is because true insurance cannot be profitably underwritten without adjustment (or declines) for pre-existing conditions. No legislation or executive order can change that; it is simple economics. Comprehensive insurance is simply an unaffordable solution for most.

There was quite a bit of experimentation going on in the years preceding PPACA that might have borne fruit but the academic left and the medical school community buried all of that nice work under PPACA. So we don't really know how much stress could be removed from the system by HSA's, high deductible plans, and other private sector initiatives.

I don't think any plan based on insurance can work unless the coverage is focused only on the very costly procedures resulting from illnesses and accidents. This is analogous to the major medical insurance approach of the 60's and 70's. This means that check-ups, routine medicines, and any voluntary treatments (abortion related, sterilizations, sterilization reversals, plastic surgery (except for repairs of damage caused by accident or illness)), and certain diagnostic testing (chosen to prevent malpractice lawsuits) would not be covered. Of course, malpractice awards would have to be all but eliminated. People will have to become smarter and more price conscious medical service shoppers. Hopefully, we would also be encouraging young people to build up HSA accounts so that their later expenses would be pre-funded.

We have 50 laboratories in the various states to test alternative approaches. Surely, we could find a few things that work. We already can see in Massachusetts what doesn't work (and it's alarmingly similar to PPACA), and we see in Canada and Europe the mess that occurs under single payer socialized approaches. Inevitably, you get less medical delivery, worse outcomes, long waiting lists, and sharply reduced incentive for people to go into medicine as a career.

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Of course, the hardest nut to crack is Medicaid. Medicaid as currently constituted is a state - federal partnership, and the states and the federal government are both bleeding red ink. The tip off on the bankruptcy of PPACA should have been its description as an expansion of Medicaid. Medicaid is doomed because our aging population is counting on it paying for their long term care expenses. Not enough people are buying long term care insurance, which is admittedly expensive, and the result is that once these elderly have had their assets stripped, they are medicaid eligible. On top of that intractable problem is that medicaid is a highly inefficient provider of services to the poor, who proceed to the emergency room at the first inclination.

When you point out that taxpayers and governments can not afford the level of care they have promised under this system, the Left responds that it is a moral obligation, that we should cut everything else (presumably including defense) to pay for it, whatever it costs. Frankly, that has been Europe's answer. As a society, it would be useful to begin a wide ranging discussion about the level of care that must be provided as a moral obligation. We also need to consider what to do if our economy cannot produce the wealth it will take to pay for that. Part of that consideration is the friction that reduces business productivity when entitlements take over the budget.
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It would be bad enough if we only had to deal with middle class entitlements and the Medicaid eligible, but apparently, the Left believes we also have to support the high fallutin' lifestyles and political biases of our public employees and their union leaders. At least that is the inference we can make from the reaction to the demonstrations by teachers (who abandoned their classes) and other Wisconsin public employees. To show their allegiance, Democrats in the state Senate took off for parts unknown, out of state, to avoid fulfilling their sworn responsibilities and frustrating those who were hoping for a quorum to conduct official business. This is because they want to avoid a vote they know they will lose on the Governor's proposal to curtail the collective bargaining "rights" for those unions (but not the uniformed services, it should be pointed out, though the Obama people pretended to be ignorant of that). Of course how and why public unions should have these "rights" when their employers are the taxpayers they are supposed to be serving is another question.

As we have discussed here previously, what this is really about is the need to break the viscious cycle that has these unions negotiating with the very (Democratic, usually) politicians they provide campaign funds for. In effect, those politicians sit on both sides of the table and willingly hand the public's tax money to the unions in the form of generous overtime pay and benefits, only to have it come back to them in the form of campaign contributions to help maintain them in office. The GOP wins in 2010 gave some states the rare opportunity to bust this cycle and the time is now. As for the poor schlubs in NY, California, Connecticut and the other states that did not elect Republicans, you can believe you will stop being fleeced when you see it.
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Saw the Birdland Big band again last Friday night, as they performed their rare Philly Funk sets. The capacity house loved it right from the opening number, Cannonball Adderly's (and later the Buckinghams of Chicago) Mercy, Mercy, Mercy. This is one of those rare great opportunities when you can see a "house band" hitting on all cylinders, and there's nothing better. The Big Band plays from 5:15 to 7 and you usually need a reservation to get a table.
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On Wednesday, we bought 400 shares of Newpark Resources (NR), one of our Tulane portfolio stocks, for 6.06, a value buy. On Friday, we sold 200 shares of Safeguard Scientific (SFE) at 19.28. We had bought 100 on 10/14/2002 for 5.82 and the other 100 on 1/27/03 for 8.22. It's been quite a comeback for this stock from the company's near-death experience following the 2000 Tech Wreck.

We have had a tremendous run so it should not surprise musings followers to see us do some formula driven selling. Newer readers can search the early archives for a description of our investment formula, which will help our hit meter on its inexorable march to 5000 and beyond. I hope to have a printed version of the archives at some point, so I could direct these searches more efficiently, but, alas, I don't as yet.

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