Tax Code Driving ObamaCare Implementation: California’s ACA Odyssey Preview

John M. Gonzales reporting for the California Healthcare Foundation Center for Health Reporting wrote a must read article called, How the U.S. tax code will drive Obamacare implementation, starting April 15. I strongly suggest all read it.
The negative effects of Obamacare on costs and care were immediate, and the ongoing negative effects are just starting to be disclosed and to build. Yesterday, I participated at a Health Care Summit put on by the Business Times. Panelists were the top healthcare professionals in CA and included; Bernard Tyson (incoming Chairman and CEO of Kaiser Permanente), Lloyd Dean (CEO Dignity Health), Darryl Cardoza (CEO of Hill Physicians Medical Group), Janet Widmann (EVP of Blue Shield of Ca), and Paul Fearer (Board Member of Covered California)–California’s new Health Exchange.
I will be writing an in depth article about the summit and the various areas discussed, in the next few days on my blog. This posting is to act as a summary. Each of these professionals agreed on the perceived benefits and mostly on the worries over implementation. One of the main theses was the need for collaboration in healthcare.
Overall my impression of the meeting was, while the panelists did a good job of describing some of the superficial issues of healthcare and the concerns they have about the approach Obamacare takes to solve them, they still are still working within the myths of the existing so-called healthcare system and not addressing the fundamental problems of the non-system we have today, nor did they discuss how Obamacare does not address one of the fundamental problems in the current non-system. Indirectly at least one of the panelists did allude to the issues in the existing structure when he said that if they were working from a clean slate this is not the system they would design.
One surprising revelation for me was that many of the quotes of historical context were simply wrong. They were repeats of many of the mythical justifications used during the debate. The discussion of the cost of care was noted but with no context applied. One panelist attributed the rise of Employer Sponsored Insurance from a change in tax code in 1943. This is not correct the rise in ESI came from a company founded by the same founder of a company chaired by another participant of the panel, Henry J. Kaiser—Kaiser Industries. IF not for the National Recovery Act Henry Kaiser would likely not have employed the idea he pioneered when building the Grand Cooley Dam. It was Henry J. Kaiser and his strong relationship with F.D.R. that led to the change in the tax code in the first place. While this may seem like a minor nit, it is the context of these changes that lead to many of the myths in the systems we have today. This is one brief example there were many more.
One participate mentioned that the cost to build a 500 bed hospital was in excess of $2 Billion. That equates to a cost of $2 million per bed. Assuming 100 percent fill of that bed over the 20 year initial life of the new hospital would equate to a payment on principal of $273.00 per day just for the construction and equipment. This does not include interest, personnel, licenses, insurance, utilities, maintenance, etc. To repay the cost of the bed over the 20 year life of the bed, the hospital will need to generate about $341,250.00 in services per year per bed. So every time we build beds we need to stimulate much more in services to pay for them and we wonder why the cost curve is not going down.
While another panelist did mention that Healthcare costs were equating to 20% of the Gross Domestic Product (GDP) and this was a rising problem. But once again the fundamental of the point was left aside. If you visualize healthcare costs/utilizations on one side of a teeter-totter, and our economy/business competitiveness on the other. You have an inverse relationship. As we stimulate more care, or better put as we stimulate the expectation for more free employer care on the one side, our ability to sell goods and services to other nations drop correspondingly. In fact our ability to sell the same goods and services to our own people drop just as precipitously without subsidies—which have the same effect. The more care we expect and are provided the less competitive we are, the bigger our international trade deficit grows, the less we can afford to buy, etc…
Most of the participants noted the concern over lack of available providers to deal with the influx of new covered patients, but they did not address the issues over Medicaid and Medicare reimbursements that are driving the current providers to stop seeing these patients. They did briefly note the issues of cost shifting as one reason why premiums are going up. Remember the Presidents new budget is counting on another $250 billion in Medicare savings. This is to come from reductions in reimbursements. This does not sound like much in the vacuum that is the healthcare debate in America. We need to recall that there is a $750 billion so called Medicare reduction that was once again postponed during the fiscal cliff fix. This is now a $1 trillion reduction in reimbursements if we are serious about the savings we count on to reduce the fiscal deficit. And do anyone believe that providers will shoulder a $1 trillion reduction and see these patients? It is a zero sum game here.
None addressed the problem with the current health care spend as to how the dollars are being used. Notably, they did not talk about the waste in the areas of fraud and abuse, and unnecessary or duplicated services or what was being done to address these issues. The discussion of collaboration could have been interpreted to alluding to how to deal with the 60 cents on the dollar wasted issue, and there was some discussion about the ACO model helping but I do not think the panel either addressed the fundamental problem nor any solution overall. It may be good to note that numerous studies both governmental and non-governmental all show that for every health care dollar spent, approximately 60 cents is lost to fraud and abuse and duplicated services, caused by defensive medicine on the one hand, and lack of real patient centered coordination of care and benefits across all providers on the other. The studies disagree on how it breaks down but that is irrelevant as a requirement for full coordination of care and benefits across all providers and payers would go a long way to eliminating a large part of both issues. The side benefit is it will not just eliminate cost but will free resources to see this large influx of newly covered patients.
Finally, the Member of the Board for Covered California unfortunately disturbed me the most. Much of his dialogue seemed to me to be way off the mark and filled with ideological myths as opposed to pragmatic reality. He spent a good bit of time reducing expectations as to how many people will be covered initially and perhaps at all. Some of his answers seemed misinformed as to how the ACA works but to be fair there was not an in depth discussion. One statement made was that Covered California would reduce the roles of the uninsured by 10%. This is a paltry realization of the goal as defined in the ACA.
According to the ACA we have between 35 and 50 million uninsured in the US today. California has a significant portion of them. The percentage of the population that is uninsured is between 10 and 12%. To reduce the 10% by 10% yields a 1% reduction in uninsured. We are spending north of $3 trillion for this? And remember the 35 to 50 million uninsured will soon become 50 to 75 million uninsured if what is being discussed in Immigration reform actually happens. Of course this is assuming that the population of undocumented aliens is not already getting the care (A big assumption despite the rhetoric.)
One participant said more than once that the current system is not the system we would design if we started from scratch. I wanted to yell, “Why the hell aren’t you designing from scratch?” as we do not have a system in the first place. This is exactly what is necessary for the industry to do, and they better begin it quickly. By 2015 the horse will be out of the barn and the industry will have no say in its own system under Obamacare. But due to the problems the government is having today with implementation of this disjointed, conflicting and agenda driven legislation there is a window for a real alternative. The industry still has a brief opportunity to redesign itself and get ahead of the train wreck that is coming.