By Nurse JC Leahy
"100 Most Outstanding Nurses Award," 2009, Wash., DC
Make no mistake, health care has not failed in America. Nurses, doctors, hospitals, and drug technology companies have crafted the finest health care system in the world. We know this because the sickest from around the world fly to American hospitals and specialists when their personal chips are down.
Actually, what has failed is America's system for health care FINANCING. Health care financing’s failure, in turn, has created failures with health care distribution and delivery . These failures have killed numerous Americans, including my neighbor Bill. We know that the system has failed because it is collapsing under it’s own weight. Lee Iaccoca once stated that many American employers would go bankrupt unless health care were reformed. His words were prophetic. Health care financing weighs heavily on Americans and our employers. Why do you think Wal Mart is advertising for immediate health care reform?
Rather than you and I getting lost in the mind-numbing complexity of the current health-care financing system or President Obama's 1017-page proposal for changes, let's attempt to understand the system by understanding some broad, underlying fundamentals. Fundamentals define the system. Focus your attention. This is really important to you and your family.
The most important of these fundamentals is the principle of third-party reimbursement. Third-party reimbursement is the wellspring from which failure flows. Look at it this way: When folks buy a new automobile, 100% of them want to know how much it costs. They may haggle. They may shop around. They will consider the price, the automobile’s benefits, and their available funds. They will also consider other things on which they want to spend money, such as food, mortgage payments, clothing, recreation, etc. In the end, they may decide to buy a different kind of new car, or to buy a used car, or to keep using their existing car. They may even decide to rely on public transformation. That is why General Motors and Chrysler could not simply jack up prices to recover their bloated union health care costs. It’s called competition in a free market.
Despite what Obamacare reformers tell you, competition in health care has not failed. On the contrary, it has actually not been tried. For example, in my nursing career, including clinic, intensive-care, and medical/surgical hospital units, I have cared for approximately 9,000 patients. Unlike buyers of automobiles, fewer than 10 of my 9,000 patients or their families have ever even asked what their hospital services would cost! No, I don’t mean 10 percent; I mean 10. Only one of them, a desperate father, ever whipped out his VISA card and offered to pay. The reason for this is that most health care expenses in America are paid not by the patient/family buyer to the doctor/hospital seller. Instead, most expenses are paid by some third party – usually an insurance company or government program. Only 5% of hospitals’ income comes from patients or their families. At the time they make specific buying decision, most patients and families don’t shop around or haggle because they don’t much give a damn how much it costs!! This leads to over-consumption of health care. Over-consumption artificially raises demand leads to guaranteed rising prices, rising total costs, and rising health insurance premiums. Prices will tend to rise until the system collapses. We see this collapse in the General Motors and Chrysler bankruptcies and in Wal Mart’s urgent advertising for health care reform.
Another way to look at the problem of third-party reimbursement is to consider that, in principle, doctors and patients unconcerned about cost could spend an almost unlimited amount of money on every headache in America.. That would be a tremendous mis-allocation of resources. Here's a real-life example of how this works. I, myself, went to see an ear-nose-throat specialist and asked him to evaluate my persistent cough. He put a small endoscope down my throat to see what was there, and said to me: Don’t worry, JC. It is only a mild case of gastroesophageal reflux disease (GERD)! You need only stop eating dinner so late at night, cut the infernal coffee, and faithfully take these pills until you are better! I had imagined worse, so I was pleased with my good fortune. My primary physician, however, steeped in the tradition of malpractice lawsuits, was less than jubilant. He said, "It may, indeed be GERD, but there are other possibilities. Why not eliminate them? Why not have a chest x-ray? Why not a chest CT? Why not a pulmonary function test? Why not a cardiac consult and an echocardiogram? And, indeed, why not an esophagastroduodenoscopy? And in case the problem is just a simple case of GERD, why not redouble the number of pills you are taking? And, indeed, why not? I had health insurance. I was in-network. It would cost me nearly nothing to spend $10,000 of health care resources. And, just to be safe, I did. As it turned out, the problem was a simple case of GERD. This is the way health-care resources are spent in America.
Of course, third-party payers do not sit idly by while doctors and patients make such profligate spending decisions. In an effort to control health care costs, third-party payers resort to disguised rationing. This is the second fatal flaw of health care financing. Mind you, they don’t call it rationing. Folks wouldn’t stand for rationing! Third-party payers disguise rationing with complex rules, waiting lists, and health insurance claim denials. For another real-life example, take my neighbor Bill. Bill was a nice guy. He was fairly young. He had a wife and two sons, a shiny black car, and a pretty little house. He took reasonably good care of himself. When Bill got sick, his doctor said that what he really needed was a lung transplant. Bill believed that he had pretty fine health insurance. He had been paying money into it for years, and he felt that he was about due for a little payback. And so, he filed for insurance pre-approval of a lung transplant. To his surprise, his insurance company was very sorry, but it did not consider lung transplants, actually, to be health care at all! No, lung transplants were more like experimental procedures. Bill’s insurance didn’t cover experimental procedures. Sure, lots of lung transplants had been performed successfully. Bill could appeal, said the insurance company, but unfortunately, an appeal would take time and money. I visited Bill at home. He died waiting in his living room for health care. The cause of Bill’s death was health care rationing.
Health care financing’s third fatal flaw is restriction of fixed costs. As every accountant knows, before the first patient is even evaluated, there are certain costs that must be paid simply to have a hospital open and available with equipment and staff for patient care. Accountants call these "fixed costs." They include such things as the cost of the building, the cost of medical equipment, and the cost of a basic complement of administrative and clinical staff. As each patient is treated, the hospital must recover not only the direct cost of actually treating another patient and processing his insurance claims, but also fixed costs. If fixed costs are not recovered, the hospital eventually cannot continue to offer health care. This is a mathematical certainty.
Third-party payers restrict fixed costs in two ways: by regulation, and by simply refusing to pay for them. Yes, big players in the health care financing jungle can simply refuse to pay for legitimate fixed costs. The biggest gorilla in the jungle is Medicare-Medicaid. Having the muscle of government, Medicare-Medicaid simply sets reimbursement rates that are too low for health care providers to recover their fixed costs. The next biggest gorilla in the hierarchy of the jungle are the private insurance companies. They use their muscle to extract low reimbursement rates – not as low as those of Medicare-Medicaid, but still, not enough to recover the balance of fixed costs. What’s a poor hospital to do? It must recover all of its fixed costs to continue serving patients! Who will pay for the balance of fixed costs? The obvious answer is: all the little people of the jungle. Health care analysts refer to this phenomenon as "cost shifting."
The individual patient who comes to a health care provider expecting to pay a fair price for his own treatment is in for a rude shock. Take, for example, my friend Lisa. Lisa’s doctor suspected that she might have Lyme disease. He sent her to a medical lab company to have blood drawn and tested for Lyme disease plus some other basic tests. When the lab company sent the bill, it did not realize that Lisa had health insurance, and the bill was $950. After Lisa phoned and recited her insurance information, the lab company sent a revised bill based on her insurance company’s reimbursement rate: a total of $135, which insurance paid in full One can only imagine how low the Medicare-Medicaid rate would have been!!! The sad thing is that if Lisa did not have health insurance, the lab company would have wanted the full $950! It would have sicced its collection agency on her, ruined her credit, and taken every practical legal measure to extract $950. Even sadder is this: The average little person in this predicament is sufficiently torpid that she does not even realize she has just been raped by a large gorilla!!
Another way that third-party payers restrict fixed costs is by sheer regulatory fiat. This is often accomplished by the "certificate of need" process. Unlike most individuals who can simply go to the store and buy a loaf of bread, hospitals often need pre-approval to buy certain items. Approval is called a "certificate of need." If the third-party payer is a government, or a big enough gorilla to influence a government, it can restrict fixed costs by simply refusing to issue a certificate of need. If the certificate of need is denied, health care costs are aborted. What a scheme! The effect is to reduce health care costs by reducing health care availability, and then for those health care facilities which do exist, shift the costs to the little people!!
In summary, our current health care financing system must be changed because of the fundamental way it is set up. Consumers attempt to consume health care services with no point-of-sale concern for the price. This increases demand. As every economist knows, when demand increases, other things being equal, providers naturally want to raise prices. Third-party payers resist increases by regulatory fiat and low reimbursement rates. This has the effect of shifting costs to the little people, who may find their credit ruined, their wallets emptied, and their homes consumed by artificially high medical or long-term care bills. Meanwhile, health care providers are under siege by the powerful trial lawyers, constantly under threat of large malpractice lawsuits for the sin of honest human error. High malpractice awards and malpractice insurance premiums naturally have to be passed on. This, again, raises health care prices. Third party payers further attempt to control rising costs by rationing - delays, denials, and complexity. The resulting mismatch between needs and resources allows the healthy man to spend an extra $10,000 on a minor cough that has already been diagnosed, while his sick neighbor dies in his living room without care.
Focus with me on two more related points, please. First, I want to tell you that I have been reading health care reform books for a number of years and I have noticed that some of. the words do not mean what you think they mean. This is important. For example, if I said to you that bread cost too much and I wanted to reduce the cost of bread, you would probably think that I wanted to reduce the price per loaf of bread. However, in the realm of health care financing, they don’t talk about price; they talk about cost. It’s not the same thing. In the health-care system analogy, the principal way of reducing the cost of bread is to either give you less bread or to make sure the supermarket only collects a dime for each loaf of bread it delivers to you. Either way, you get less bread. Key point: price and cost mean different things. Health care reformers talk about costs, not prices. Theoretically, the health care reformer could reduce the cost of your bread to zero by simply not giving you any bread! The problem is that when they reduce the cost, you eventually pay the price. Having learned from Marie Antoinette’s misfortune, however, the wise health care regulator would never say, "Let them eat cake!" but rather would provide just enough bread to avoid revolution.
Secondly, Democratic health care reform plans are not revolutionary. Au contraire! They are sooo reactionary! They are a stubborn blast from the past!! This is because they base their reforms on propping up the failed idea of third-party payment. In fact, their STATED ultimate goal is to have a single, third-party payer: the government, itself!!! The most crucial problem with today's health care system is that third-parties are responsible for most of the payments while doctors and patients attempt to make the buying decisions without concern for price. It is from this wellspring that nearly all of the other problems I outlined above cascade. Rather than changing this paradigm, Democratic health care reform proposals merely tinker with catastrophe by placing the biggest gorilla – the Federal Government – in charge. The goal, as Hillary Clinton will cheerfully tell you, is to have a "single payer system," in which the Federal government is the third-party payer. You've probably seen the video of Barack Obama on TV, so you know that this is his ultimate goal, too. Sheer, stupid muscle will not change the health care financing paradigm. As with the General Motors and Chrysler "rescues", Barack Obama and Nancy Pelosi are attempting to prop up and prolong systems that have already failed. If it has failed, let it go, so that exciting things of the future may blossom! As they say about life in general, what got us here won’t get us there!!
We the People want a more sustainable health care system that gives us fair service for a fair price! We want a health care system that lets each of us, with the advice of our doctors and families, control our own health care destinies!!
THE PLAN -- Your humble nurse recommends a health-care revolution of the little people. I recommend that each of us throw off our Clark Kent suits and become individual super heroes fighting, non-violently, for this just cause. Here’s the plan. For want of a better name, I’ll call this the Leahy Manifesto:
1. Reform Health Care Cafeteria Plans – Congress already allows employees to save pre-tax money for their health care expenses through what they call "cafeteria plans." Money is simply withheld from your paycheck and never gets taxed - ever. It goes into a savings account that you may spend. This reduces your income taxes and gives you tax-free savings to pay medical bills. Many employers make these plans available. There is little or no cost to the employers. At my work, for example, I can sock away $5,000 per year tax-free. The Lex Luthors of Congress, however, have embedded a poison pill. It is that if I don’t spend all of my $5,000 by the end of each year, it is confiscated!! I lose it!! What a ripoff!! Step one is to remove the use-it-or-lose-it provisions of health care cafeteria plans! Let unused balances carry forward with no more poison pills, and let them be managed by the employees just like they manage their 401k’s.
2. Create Corresponding Plans for the Self Employed - Set up health savings plans for the self employed which correspond to the health care cafeteria plans for employees. Money deposited to such a plan may be deposited with any of the institutions that can be IRA custodians, including banks. The savings balances will be a powerful shot in the arm to banking and the rest of the beleaguered financial sector. To the extent that the self-employed person has a profit, money deposited to such a plan will be a deductible expense that will appear on the business page of the tax return – the Schedule C. Thus, the self-employed entrepreneur will save on state and federal income taxes and also self-employment taxes. Don’t believe anyone who tells you we have tried this before. Nothing like this has ever been tried! This will be a powerful shot in the arm to the small-business sector. Because small business provides the vast majority of jobs, it will be a shot in the arm to employment in America.
4. Provide for Management and Expenditure of Health Care Savings - We will be free to manage and invest our Neighbor Bill Account funds just like 401k’s. If we die, the funds will pass to our heirs. If we wish to spend money for health care, we will use a special VISA debit card. This VISA debit card will be spendable exclusively at places that exclusively sell health care services or products. For example, your VISA debit card could be used at a hospital, a doctor’s office, a healthcare-only website, or a healthcare-only counter at a local pharmacy. Using a simple VISA card will free doctors and hospitals of their claims-processing nightmare. Insurance administration costs will fall to near zero.
5. Provide for Control by the Little People - At their owners’ discretion, Neighbor Bill Accounts may be used to pay for one’s own health care expenses – or one’s spouse, or child, or brother, or niece, or mother-in-law, or lover, or significant other, or even for the health care expenses of a neighbor. The only restrictions will be that (1) funds may only be used for health care, (2) with an important exception I’ll detail below, funds may not be used to pay health insurance premiums, and (3) the owner of the funds may not receive any sort of goods, services, tax deductions, or other kickbacks for paying others’ health care expenses. The reward for such payments is simply not to be in this world.
6 Tax Employer-Provided Health Insurance - Currently, if an employer provides health insurance to employees, the employer is allowed a tax writeoff for 100% of the insurance cost; and, the employee does not have to include the corresponding amount in his taxable income. This asymmetry is unusual in the tax code and amounts to a special subsidy of employer provided third-party-reimbursement-type health care. This subsidy has created the current societal reliance on employer-provided health insurance. Remove the subsidy. This will gradually free employers of their nightmarish burden of health care costs In the meantime, it will also generate tax revenues.
7 Mandatory Catastrophic Health Care Insurance - Every man, woman, and child in America who has a Neighbor Bill Account must pay for private catastrophic health care insurance. This is the only type of insurance premium that may be paid out of Neighbor Bill Accont funds. People with families must have policies that cover their children and non-working spouses. Health care expenses in excess of a high deductible amount will be covered in full by these insurance policies. The annual deductible amount will be $10,000 per person or 5% of the beginning-of-year balance of their Neighbor Bill Account, whichever is higher. The $10,000 amount will be indexed for inflation each year. This universal, mandatory private catastrophic health care insurance will be a shot in the arm to the beleaguered insurance industry while protecting the little people from financial wipe-out. The cost to Government will be around zero.
9. Restrict Employer Writeoff of Health Insurance Expenses - Currently, certain business expenses are not fully deductible for income taxes. For example, business meals generally are only 50% deductible. In like way, make the employer’s expense for employee health insurance only 50% deductible. This will produce tax revenues and gradually encourage the shift away from employer-provided third-party-payment plans to individually-controlled-and-safeguarded Neighbor Bill Accounts.
10 Abolish the Self Employed Health Insurance Deduction - The Neighbor Bill Account deduction replaces the Self Employed Health Insurance Deduction. The former encourages third-party-payment plans, while the latter is individually controlled.
11 Maintain and Strengthen Medicare-Medicaid - Medicare and Medicaid must continue to be the safety nets for those who need them. However, Medicare and Medicaid are ripe for eventual collapse because (1) the population is aging, and (2) they are third-party-payment plans. We can save Medicare and Medicaid with the following just and simple rule: Anyone who has a balance in a Neighbor Bill Account must use those funds before tapping Medicare or Medicaid. This will relieve pressure on Medicare-Medicaid resources, and save the safety nets for those who need them.
Implementation of the Leahy Manifesto will gently sweep away our failed health-care financing system. The royalty of the health care financing will be de-throned. The future will be free to blossom. Vast sums of money will be set aside for health care and safeguarded by vigilant owners. Catastrophic health insurance will protect us from financial wipe-out. Medicare and Medicaid will protect the poor and the elderly. Most payment processing will be as simple as swiping a VISA card. The little people will spend or save health care resources as they think wise. They will never again be told that treatment they desperately need is not covered by the plan, or can only be obtained by lengthy waiting for complicated appeals. Employers will no longer stagger under the burden of health care costs. Job-creating small employers will get their second wind from a reduction of their income and self-employment taxes. Large employers, over time, will have the crushing burden of employee health care expenses lifted from their shoulders. Medicare and Medicaid will be secured. Doctors and hospitals will be cured of the expensive headache of filing and collecting insurance claims. They will, however, need to produce price estimates and bills that patients can understand and accept.
The future is exciting!! It only requires is that you – personally – somehow, in your own way, with your own talents, stop masquerading Clark Kent, get off your haunches and make it happen – starting now, starting today. To Nancy Pelosi, Barack Obama and Hillary Clinton, we must say: YES WE CAN!!!!
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Nurse JC Leahy
RN, BSN, MA, ACLS
"100 Most Outstanding Nurses Award," 2009, Wash., DC