Saturday, December 27, 2014

Why 'Obamacare' is here to stay

"Few want to go back" to a time when insurers rationed who gets healthcare coverage, writes investor Jim Meyer

Why 'Obamacare' is here to stay

Conservatives fought hard against the weekend, Social Security and Medicare when they were proposed. But once enacted, both Republican and Democratic Presidents and Congresses have embraced all three as they became part of American life.

So we can expect Obama's complex, compromised health care reforms -- which transfer responsibility for paying for uninsured people's health care, from hospitals and doctors, who passed costs to the public through higher fees, to taxpayers, who will pay for expanded health insurance -- will continue, even if Republican Mitt Romney is elected President.

Veteran Philadelphia investor James M. Meyer, of TowerBridge Advisors, wrote a thoughtful account of the costs, purpose and likely durability of "Obamacare," in a note sent this morning to clients of West Conshohocken-based investment brokerage Boenning & Scattergood. Highlights:

"For the supporters of ObamaCare, [Thursday's Supreme Court decision upholding the law] was a big victory. Essentially they got what they wanted... To us, the legal issues are an interesting curiosity but the more important implications are the economic consequences.

"In the short term, the fact that the law stands means that the tax surcharge on investment-related income for higher-income individuals kicks in on January 1. So does the tax for medical device manufacturers," despite attempts of Congressmen whose districts include medical-device factories, like US Rep. Jim Gerlach, R-Chester-Montgomery-Berks, to erase the tax.

"Over the next decade, ObamaCare is estimated to add an additional $2 trillion to our [tax-funded] health care bill. Most of that cost will be to cover Medicaid expansion and to subsidize the insurance exchanges that will be established to offer insurance to those who don’t get it through their employers or through some other mechanism.

"The law was all about expanding coverage, not reducing costs. It does set up trial ways to try and deal with costs but mandates little or nothing. Now that the law has passed muster with the Court, Washington has to begin attacking costs.

"Republicans want to repeal the law. Indeed, the House will vote on or about July 11 to try and do just that. Almost certainly a repeal bill will pass but just as certain it will die a quick death in the Senate.

"Mitt Romney has suggested that repeal of ObamaCare would be his first Presidential initiative if elected. But that is probably just rhetoric.

"Outright repeal without a realistic alternative isn’t going to sit well with the public. Few want to go back to a world where insurers can simply reject high risk patients, where people can’t move jobs for fear of losing coverage, or where children under 26 can no longer be covered on their parent’s policies.

"Instead, what are needed are mechanisms to make our health care system more cost efficient. That requirement is going to be the same whether Obama or Romney is elected.

"Any proper program has three requirements. First, payments have to be outcomes based. The current cost-plus system simply rewards suppliers to offer more and more services.

"Second, the patient needs to have an economic stake in the decision to spend money on health care. In Medicare Part D, one chooses a drug plan that best suits [one's] needs. It is an annual decision. It has proven to be a very efficient program and can be a model for others. Voucher systems work. There is no one right answer other than to say that cost-plus doesn’t work. Third, individual efforts to stay healthy (e.g. exercising or losing weight) should be rewarded.

"The medical ecosystem is going to push back. Doctors don’t make money if they don’t see you, hospitals don’t make money if you don’t go, and drug companies make more money if you pop more pills.

"Proponents of high cost medicine will use fear terms like “rationing” to scare us all. But we all know that effective health care isn’t the same as more care. Nor is it necessary to do in a hospital what can be done in a doctor’s office," as throways tests and online data-sharing and other cheaper decentralized methods start to proliferate.

"We can save trillions if we try. We have to. And we are going to move in that direction no matter who is elected President because it is it is the only possible way to regain fiscal control of our economy. Both Romney and Obama understand that."    [Emphases added]

-- Other views: I  "This is a big win for families in this country," says Wendell Potter, former spokesman for Philadelphia-based commercial health insurer Cigna, and now an industry critic.

"Millions of people can't buy insurance coverage at any price" due to "a preexisting condition" or past sickness, while others "simply have not been able to afford the premiums," especially women. "That will change now that the law has been upheld," Potter told me.

"By 2014, it wil be unlawful for insurers to refuse to sell coverage to anyone of any age or gender," and there will be limits to "how much more" older people have to pay than young people. States will speed up "insurance exchanges" making it easier to shop for "affordable coverage" with taxpayer-subsidized premiums.

But the decision "doesn't mean that it will be implemented as soon as possible," Potter added. "Insurers don't like the new restrictions and consumer protections, so they will be working behind the scenes to get them striped out by Congress. The industry will also be spending a lot of money on political campaigns... The industry would like to have Repub;icans take control of the Senate and White House" and strip consumer protections from the law.

"But rest assured, they will keep the indidiual mandate in place, despite what they say publicly," Potter concluded. "They, or at least the GOP leaderhip, know that the mandate is necessary" or more and more young people who can afford to pay will risk going without coverage.

-- Other views; II "The hospital industry is taking a positive spin on the news based on the premise of the Act: that 97% of people in the Untied States will have coverage," says Joseph W. "Chip" Marshall 3d, vice chairman at Valley Forge investment bank and consultant Griffin Holdings and onetime head of Temple University hospitals. That's why you saw for-profit hospital shares rising Friday.

"It's going to be more expensive in the midterm. Will that drive small employers out? What will the penalties (for non-participation) be?

"And if 25 states say they're not going to expand Medicaid," hospitals won't get the boost they're looking for, Marshall added. "Hospitals have a growing problem of under-compensated care," including low Medicaid payment rates to hospitals like Temple whose patients tend not to be insured.

"Federal dollars are supposed to pay for Obama's Medicaid expansion, but it's not clear whether or how soon states will sign up. "Pennsylvania will look to Gov. Corbett to make that decision. In New Jersey there's been a great deal of concern. Maybe after the (November) election's done there'll be time for everyone to figure it out. It's too soon to be certain about anything." 

The "real question," he added, "is how to cut costs?" He expects more employers will start issuing vouchers for people to buy their own health insurance and services. His remote hope is that society will find a fair way to acknowledge, and fairly pay for, the "20% of patients who are responsible for 80% of health care" needs.

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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