It’s painful to hear clueless politicians tout Medicare for all as if it were a panacea.
Don’t they understand that Medicare coverage standing alone doesn’t compare to the better employer sponsored health insurance plans? Indeed, even with the purchase of supplemental insurance and the requisite drug plan, Medicare is still not as good as the coverage I once had through my employer.
Then there is the cost. It must be remembered that Medicare is not funded by insurance premiums; it’s really a form of gross income tax. It might surprise many to learn that over the course of a forty-year long earning career, amounts paid into the fund can aggregate sums in excess of six and even seven figures. However, it doesn’t end there. After retirement, in addition to a base annual amount, further sums may be payable, based on gross annual income.
The added cost of needed supplemental insurance and drug coverage is also meaningful. Frankly, for a program that is supposed to assure ample health coverage for retirees at little cost, it cost a lot for much less coverage than I had.
There is also the hidden cost of the Medicare and Medicaid programs. In essence, most of us are paying substantially more for healthcare as an indirect subsidy of these programs. This is because hospitals are typically reimbursed for less than their costs when it comes to Medicare and Medicaid patients. They make up for it by charging more to private insurers, like those under employer sponsored plans. If there were no longer any private health insurance, as proposed under the single-payor Medicare for all plan, then perforce the amounts charged to Medicare and Medicaid would have to rise. Otherwise, hospitals could not reasonably be expected to sustain the losses. Indeed, unless the losses are covered, many hospitals would be forced to close and others to curtail services, creating real gaps in healthcare for everyone.
Medicare for all, like many appealing slogans, appears to promise much; but in reality offers no genuine solution. Consider the issue of the relatively small segment of the population, who are presently uninsured. Solving the problem does not require discarding our existing system, including eliminating all private healthcare insurance and impairing the existing Medicare program.
A more targeted and less costly solution, without all the collateral damage, is just extending Medicaid to this demographic. The cost can also be offset in part, because as contemplated by the original Affordable Care Act, many of the uninsured can objectively afford to pay something for healthcare coverage; otherwise they would already be eligible for Medicaid. This might be accomplished by imposing a minimum healthcare tax, on income above the maximum amount presently eligible for Medicaid, subject to a full credit for those already having employer-sponsored, Medicare, or other coverage. This would cover, in part, the cost of extending Medicaid to this demographic.
As to the overarching problem of how to contain costs for the vast majority of people who have healthcare coverage, through employer sponsored or other private insurance program, the answer is not to reduce the quality of coverage or healthcare. As discussed in a prior post, even Denmark’s universal health care program, lauded by many, does not compare favorably to the typical employer or union sponsored plan. Denmark’s system provides significantly less coverage and then rations it. It is also not single-payer. Approximately sixty percent of the people obtain additional private insurance, as might be expected, given the deficiencies in the government controlled system.
The real-life lesson of government control of healthcare to be derived from Canada, the UK, and Denmark is that, in practice, it does not work as well as our own system. Reinstating the free-market in healthcare has the very real promise of lowering healthcare costs. This can be facilitated by re-empowering doctors as a competitive force in the marketplace.
Once upon a time, most physicians practiced medicine in their own independently owned private practices. I remember well, more than forty years ago, shopping for a pediatrician for our newly born child in Brooklyn. We did have major medical insurance, which we had purchased as a part of a group plan organized through our synagogue. However, paying for regular doctor’s office visits was our personal responsibility.
As a young couple, working our way through college and professional school, we had a very limited budget and had to be extremely careful about spending. We inquired among our friends about the pediatricians they used and set out to find the best we could afford. Imagine, shopping for a doctor today based on price. However, like buying most things then that were paid for out of pocket, it was a natural part of life.
There were many wonderful pediatricians in Brooklyn and there was real competition among them. We eventually selected a small group practice of excellent doctors. They not only boasted better coverage for late night emergencies, they also offered a payment plan option best suited to our needs. Instead of paying per visit, they offered an annual fee program, which fit our budget, as well as, those of many of our friends. It was the free market in healthcare at its best; providing very high quality services for less.
A lot has changed since then. The overwhelming majority of people in the United States now have much better health insurance coverage than we did then. Shopping for a physician based on price considerations is mostly a thing of the past. I can’t help but wonder if most know or even care what is actually being paid to the doctor they count on for the highest quality care. Setting the price for services rendered is now virtually the sole province of third-party payors, such as insurance companies, Medicare, and Medicaid. Individual consumers, for the most part, have been displaced from assuming this otherwise vital role in the free-market system.
At the same time, the old-fashioned single practitioner or small group practice is a diminishing presence in many locales. A majority of doctors are now employees, including of hospitals, other doctors and urgent care chains. It shouldn’t be surprising that costs are increasing as a result of these consolidations?
This non-competitive trend is intensifying as doctors and independent physician practices are absorbed by hospitals at an accelerating rate. This reinforces the monopolistic market share hospitals enjoy and increases the cost of healthcare. Just compare how significantly more it cost to have a cardiogram or endoscopy in the hospital versus a doctor’s office or endoscopy suite, respectively. This is because hospitals have negotiated reimbursement arrangements with insurers and government payors that favor themselves over doctors. This is readily apparent when breaking down the total reimbursable cost of many procedures over time. The facility fee component has often increased in relation to the medical fee component, which has decreased over time. Acquiring doctors who practice at the hospital, therefore, usually translates into more facility fees earned by the hospital and, as noted above, typically at higher overall costs to the consumer.
Doctors should be freed so as to be able to act as an independent competitive force in the marketplace. Consider, if a new organizational structure was permitted that allowed doctors to partner with private equity. This would enable them to have the capital and expert staff needed to compete in the healthcare marketplace. They could then bid on a menu of medical and surgical services and procedures in a local market and provide more favorable all-inclusive prices. This would level the playing field and do much to eliminate the artificial separate facility fees pricing model, which, as noted above, often inflates the cost of healthcare and favors so-called non-profit hospital establishments.
To enable this kind of competitive environment, structural changes are required to the laws, regulations, and practices, which favor and preserve the existing predominant role of hospitals. Many states have laws, like those in New York, which prohibit non-doctors from having ownership interests in doctors’ medical practices or so-called fee splitting arrangements; and similarly under federal programs such as Medicaid. Hospitals are virtually exempt from many of these restrictions; why not apply similar standards for private equity? This requires these laws and regulations to be amended to permit private equity to partner with doctors and foster the substantial investment required in order to construct and equip efficient state of the art treatment facilities, able to compete with hospitals. This includes ambulatory surgery, diagnostic, and other treatment facilities, which can provide many of the medical and surgical treatments and services traditionally associated with hospitals.
It’s time to restore the free market to healthcare. Noble sounding single-payer Medicare for all is not the answer. The secret to America’s success is fostering a genuine free-market economy, while providing a social welfare safety net for those in need. We should do no less for healthcare.
Leonard Grunstein, a retired attorney and banker, founded and served as Chairman of Metropolitan National Bank and then Israel Discount Bank of NY. He also founded Project Ezrah and serves on the Board of Revel at Yeshiva University and the AIPAC National Council. He has published articles in the Banking Law Journal, Real Estate Finance Journal, and other fine publications. To read more of his reports — Click Here Now.
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