Weekly Wrap

The President's signature earlier this week on the healthcare reform bill passed (finally) by Congress showed that he is a leftie in more ways than one. The bill will have far-reaching consequences, becoming evident only with time. I have said all along that the Democratic initiative, without a public option, is the status quo on steroids. It guarantees more business for private insurers. It mandates more spending for health coverage and maybe for health care, which are two different things. It will almost certainly raise the portion of GDP devoted to health services.

But private insurers, at first enamored of the prospect of a captive clientele compelled to buy their product, have thought twice about it. They have decided that they don't want the extra business after all. Their margins, which currently run in the 15-to-20-percent range, will get crushed as they take on sicker clients. It is bad enough already that they have to petition state regulators every year for hefty premium increases to keep up with soaring costs. Do you think they enjoy asking for 20-, 30-, even 40-percent hikes? It makes them look bad. Greedy. Cold-hearted. Unlike Wall Street banksters, they actually care about public perception.

Unfortunately for them, Barack Obama needed someone to campaign against in order to save his floundering reform effort. His problem was solved when he picked up a copy of the L.A. Times in early February and read that WellPoint's Anthem Blue Cross subsidiary had filed for a 39% increase in premiums paid on individual policies in California. (That even trumped the 23% hike sought by Anthem for its 11,000 HealthChoice policyholders here in Maine.) Obama immediately went after the nefarious insurers. "If we don't act, this is just a preview of coming attractions," he warned. "Premiums will continue to rise for folks with insurance."

He failed to add that even if we do act, premiums will rise. "Health insurance companies don't determine the cost of health care," pointed out WellPoint spokesman Jerry Slowey, "they reflect it." But Obama has a solution for that. It's called price-fixing. Government panels will be set up to review best practices, ration benefits, and regulate payments to providers. Markets will not be allowed to work because it is assumed that they cannot work.

The new mix of incentives and penalties will insure that there is greater demand for health services. The question is, who will pay? The newly insured, to the extent that they are able (income thresholds to be set by the government), will be forced to pay some. To the extent that they are unable, taxpayers will be forced to pay some. Existing policyholders and their sponsors will pay some (higher premiums). Insurers, becoming little more than regulated utilities, will give up some (lower margins). Providers will be asked to give up some (lower reimbursements). The end result? I predict a crowding out of private carriers, fewer providers per capita, and setbacks in health outcomes, with higher costs besides.

But it will happen so slowly that we will hardly notice. Makes me think of the frog in a kettle of gradually heated water. Unable to detect the change in temperature, it will succumb before jumping out.


update, 04-23-10--same message, this time from David Stockman, OMB Director in the Reagan Administration:

ObamaCare...will give the public sector huge new leverage to control the flow of dollars within the nation’s $2.3 trillion health spending system. The rather predictable outcome is a significant de-monetization of the system in the form of reduced provider incomes, longer cues (i.e. pushing spending into the future), reduced levels of care (i.e. less in-patient care, fewer tests) , and lower quality and availability of care ( i.e. fewer elective hip replacements). All of these forces of rationing and de-monetization will reduce hiring budgets and staff-patient ratios within the system.