Nicholas Pandelidis, M.D.Orthopaedic and Spine Specialists York, PA knp16@comcast.net

The Health-Care Debate is Not Over

Sensible Health-care Reform:

A Framework for True and Viable Reform

Framing the debate

• Underlying motivators for reformo Uninsured and pre-existing medical

conditionso Clear need to control escalating costs

• Reform in current state expands access without first controlling costs

• The fundamental issue of unsustainable growth in the cost of health-care must be addressed first

• Result? More affordable health-care for all

The Uninsured

• CDC estimated 47 million uninsured (16% of U.S. population)o Found 24% of uninsured attributable to employment

change

• AHRQ study looked at statistics of uninsured from 1996 to 2008. In 2007, 39.9M uninsured < 65 years; includedo 5.9M children who qualified for government subsidy or

parents could afford health-care, and

o 12M illegal aliens

• Uninsured, age 18-24: 55% uninsured for ≥ 1 month, only 18% for a 2 year period

The Uninsured

• Baruch College study o 43% considered “voluntary uninsured”o 57% considered “involuntary uninsured”o The ENTIRE uninsured population still has

significant access to health-care services, but approximately 40% of services utilized by those with insurance

o Cancer screening rates 40% of those with insurance but similar to that for individuals in Canada’s single-payer system

Unsustainable growth in cost of health-care• 2008 CBO report for period 1965-1985

o Costs have increased by factor of 9 in inflation-adjusted dollars,o Health-care expenditure rose from 5% to 15% GDP

• 1970-2009 Federal outlays for Medicare and Medicaid rose 5 fold as percentage of GDP

• 2009 Medicare Trustees Reports estimates projected unfunded liability to $89 trillion.o Cut benefits or raise taxes

• Currently, 13% of Fed Tax revenues cover Medicare and S.S. deficits; 27% by 2020, and 49% by 2030

• What about defense, education, infrastructure maintenance, etc?

Unsustainable growth in the private sector• Costs have grown faster in private sector• Kaiser health benefits survey found employer-sponsored

costs increased 119% from 1999 to 2008. Consequences:o For workers, lower wages translates into less spending in the

economy and decreased savings

o For businesses, less capital to invest in business

• RAND Corporation study– among corporations that provide employee health-care benefits, increased health-care costs led to:o Greater unemployment

o Lower industrial output

Value-added drivers of health-care costs• Value-added costs of American health-care

system, include:o Most responsive health-care system in the worldo Unprecedented medical care and technological

advances

• Reform must control unsustainable cost growth, but should not: o Ration nor decrease access to health-care,o Nor discourage progress and innovation in health-

care

Key drivers of health-care costs

• 3rd party payer system• Injudicious government health-insurance

company regulationo Directly increasing premium costo Restraining healthy free market competitive

forces

• Federal tax policy• Medical malpractice issues

The third party payer system

• Disconnects the consumer from the cost of that care

o 5 out of every 6 health-care dollars spent is paid by a 3rd party payer

o Little or no incentive for consumer to use health-care dollars wisely– whether private or government-funded

The third party payer system

• Creates unlimited demand for health-care spending by nearly eliminating beneficial free market incentiveso “Certificate of need” laws to control costso More capacity for health-care services more services

are utilized greater expenditure

• Encourages increase expenditure for services and discourages competitive pricing

• Engenders little consumer demand for transparency or accountability regarding cost, quality, or appropriateness of service

Injudicious government insurance company regulation

Mandates – State legislated coverage

• Including for example: drug/alcohol rehab services, infertility, massage, etc

• Including for example: coverage extension to domestic partners, dependent family members

• Number of such mandates differs from state to state, ranging from 20 to 60

• These mandates estimated to increase premium cost from 20 to 50% in each state

• Many uninsured could afford simpler and more limited coverage

Injudicious government insurance company regulation

Mandates – Guaranteed Issue

• Requires insurers to issue policies regardless of person’s health status

• Increase expected medical care benefit costs for particular insurance pool and therefore overall premium cost of insurance for that same pool

Injudicious government insurance company regulation

Mandates – Community rating

Prevent insurance company from setting premium cost for an individual to reflect the risk that individual contributes to the overall pool

• Requires insurers to blend the utilization of services risk of a particular person with the risks of a broader group

Injudicious government insurance company regulation

• WellPoint Study effect of “guarantee issue” and “community rating”– premium cost for a healthy 25 year old will increase by 150%

• End result? o Young, healthy individuals will choose to opt out,…o Leaving less healthy individuals in the pool…o Which will further increase the cost of insuranceo Those who leave, now counted among the

uninsured

Injudicious government insurance company regulation

• Individuals and businesses must purchase health-care insurance within state boundaries.

• Mandates and regulations vary from state to state, variably complicating the business environment for insurance companies.

• In any state, few providers large enough to operate profitably in the varied regulatory environment

• Fewer providers competing to sell policies – premium prices are higher and customer service is inferior.

Injudicious government insurance company regulation

• Current insurance regulations also make it difficult for individuals or groups of individuals to band together to form “association health plans” that would result in increased purchasing power and resultant lower premium costs

Federal tax policy

• Tax advantage of employer provided health-care insurance has unintentionally and indirectly exacerbated health-care costs crisiso As insurance benefit cost have climbed actual take-home

wages have falleno Encourages maximal consumption of health-care services

• Tax advantage of employer provided health-care insurance has tied health insurance coverage to employment and exacerbated uninsured problemo Loss of employment = Loss of health-care insurance

Medical malpractice issues

• New England Journal study reviewed 1,254 random medical malpractice litigation cases; found:o 40% involved no injury or medical errorso For claims awarded, 54% went to administrative costs

• CBO (2009) estimate direct medical malpractice expenses only 2% ($35 B) of all health-care expenditure, however

• Cost of practicing “defensive medicine” between $190 to $239 billion annually

• Package of tort reform with cap on non-economic damages would decrease Federal health-care outlays by $54 billion over next 10 years

Ramifications of malpractice litigation expenses– A case example

• As a result of tort lawyer-friendly state laws, Texas had lost all but 4 insurers who wrote medical malpractice policies, and premiums for these policies had doubled

• From 2001-2003, 99 of 254 counties had lost ≤ 1 high risk specialists– includingo 26 counties lost obstetricians,

o 6 counties lost ALL obstetricians,

o 5 counties lost ALL thoracic surgeons

Results of tort reform in TexasIn 2003 Texas enacted tort reform including

$750,000 cap on non-economic damages and increased standards for “expert” witnesses. Results dramatic:

• Malpractice premiums fell by 27%• From 2004-2008, physicians including specialists

flowed back into the state• 125 counties added high risk specialists• 52 counties added obstetricians – 10 that had

none before the malpractice reform

The Passed Health-Care Bill– Why It Can’t Work

Since we know:• Medicare has an $89 trillion unfunded

liability• Medicaid costs continue to skyrocket –

significant contributor to state deficits• Medicare/Medicaid fraud estimated $40-

100 billion annually• Government now pays nearly 60% of all

health-care expenditure

How could turning over the other 40% to the government possibly be the solution?

The Passed Health-Care Bill– Why It Can’t Work

Does not address the prime driver of HC costs – the 3rd party payer system!

• Instead, the new bill adds an estimated 32 million more people e.g. uninsured and those with pre-existing conditions, into the same faulty 3rd party payer system

The Passed Health-Care Bill– Why It Can’t Work

Does not address other cost drivers

• Adds additional insurance regulations and mandates

• Has no provisions for substantive tort reform

• Does not change the Federal tax policy that promotes employer-provided insurance over individually purchased insurance

The Passed Health-Care Bill – Will Worsen the Federal Deficit

• CBO estimated that the passed bill will result in $181 billion reduction over the first 10 years

• Sounds good but that estimate is based on outright unreasonable assumptions

The Passed Health-Care Bill – Will Worsen the Federal Deficit

CBO assumptions:• Budgeting for 6 years of new health-care

spending with 10 years new taxes collection

• $52 billion projected revenues already assigned to Social Security and $78 billion of premiums for the CLASS long term care program also counted toward this new entitlement

• Assume shifting $500 billion of Medicare savings into new entitlement

The Passed Health-Care Bill – Will Worsen the Federal Deficit

Recalculating estimate based on reasonable assumptions – the bill expands the deficit by $460 billion over 1st 10 years and by $1.4 trillion the 2nd ten years

The Passed Health-Care Bill – Will Worsen the Federal Deficit

Government notoriously inaccurate in predicting HC entitlement costs:

o During its first year, 1987, Medicaid was expected to cost $238 million but wound up costing over $ 1 billion.

o In 1965, the CBO estimated that Medicare costs would be $12 billion in 1990. Turns out the “reality” number was $90 billion, off by more than a factor of 7.

The Current Unprecedented Economic Decline

Considering:• Unsustainable Federal government fiscal

condition• Brutal unemployment levels• Increasing citizenry dependence on

government subsidy

We find ourselves in the midst of an historic and unprecedented economic downturn.

Unsustainable Federal Fiscal Condition

• Federal debt held by the public jumped from 41% of GDP in 2008 to 60% in 2009 and is projected to climb to 100% of GDP by 2029 and 468% of GDP by 2060.

• Ongoing debt growth beyond growth of the economy is inherently unstable

Brutal Unemployment Levels

• 4.2 million jobs lost in 2009

• In February, the Bureau of Labor and Statistics] estimated the underemployment rate at 17%.

• For workers under the age of 25 unemployment stands at 20%.

• The “long-term” jobless rate” in February 2009 was 25% of all the unemployed and by this past February had increased to 44% of the unemployed.

Citizenry Dependence on the Government

• 60.8 million persons now depend on government for housing, health-care, and subsistence.

• The Index of Dependence on Government has increased 31% since 2001.

• 36% of tax filers paid no income tax in 2008

Citizenry Dependence on the Government

The expansion of the number of citizens dependent on government and the ensuing contraction of tax paying citizens threatens the very foundation of our democratic republican system of government.

The Passed Health-Care Bill – Will Worsen the Economic Decline

The bill imposes a new 3.8% on tax on investment income

The Passed Health-Care Bill – Will Worsen the Economic Decline

Heritage estimates this tax will:• Result in an average of 115,000 lost job

opportunities per year• Reduce productivity by an average 0.01

percentage points per year• Cause a loss of $1.37 in gross domestic

product (GDP) for every dollar of additional revenue collected

• Reduce household disposable income by $17.3 billion per year

• Reduce the stock of household real net wealth by an average $267 billion per year

The Passed Health-Care Bill – Will Worsen the Economic Decline

The passed health-care reform bill levies new taxes on medical device manufacturers and pharmaceutical companies

Medtronic estimated that the new tax would spur layoffs of 1000 workers

The passed health-care bill imposes new mandates and taxes on business

For businesses with > 50 employees:• Must provide an “approved policy” and

pay for 60% of the premium or pay $2000 for every employee after the 1st 30 employees

• If hire an employee from a lower income household who qualifies for Government health-care premium, the employer pays $3000 for each such employee

The passed health-care bill imposes new mandates and taxes on business

These 2 mandates will result in:

• Encouraging businesses to stay below or get below 50 employees

• Discouraging employers from hiring individuals from lower income households

• Encouraging businesses to opt out of providing health-care by paying the $2000/employee tax and shifting the cost of their health-care to the Federal government

Components for True Health-Care Reform

There is an alternative, a better way

While not an all encompassing solution to our health-care system’s shortcomings and not without some difficulties that would need to be worked out, the following framework for reform would bring us a long way to more affordable and responsive health-care for all.

Components for actual health-care reform

• Restructure health-care insurance payment system from 3rd party payer to a more patient-centered system

• Encourage insurance company competition

• Allow insurance companies to fairly price risk of utilization of health-care services into their premiums

• Tax reform to eliminate dependence of health-care coverage on employment status

• Implement tort reform for medical malpractice

• For chronically uninsured, institute a simple Federal voucher program, for those who qualify, to purchase private health-care insurance

Patient-centered health-care insurance payment system

Does not simply mean being financially responsible for utilized health-care services, but rather financially in control of health-care service expenditure.

Patient-centered health-care insurance payment system

Employing a combination of tax credits and tax deductions along with eliminating the Federal bias for employer-provided insurance would return the funds currently being transferred to the 3rd party payers – private thru wage reduction for health-care benefit and governmental thru taxes – to the individual consumer to fund high deductible policies and associated health savings accounts (HSAs).

Patient-centered health-care insurance payment system

• Financial control will stimulate patients to be better informed in their utilization and choosing of health-care services.

• Patient demand for more information will bring significant competitive forces to bear on providers of those services.

• Competetive forces will lead to increased transparency with regard to indications for health-care services; and with regard to cost, quality, and customer satisfaction.

Patient-centered health-care insurance payment system

• The various medical societies would be motivated to formulate guidelines outlining indications and expected outcome measures for diagnostic tests, and medical and surgical interventions.

• Such information would significantly inform

consumer utilization of health-care services but would still depend on the expertise, ethics, and professionalism of a person’s physicians

Patient-centered health-care insurance payment system

• In such a system, individuals, just like for their automobiles and homes, would be primarily financially responsible for routine medical care.

• For non-maintenance health-care issues, high deductable policies in conjunction with HSAs would similarly help contain costs, improve service, and discourage waste.

Consumer-centered health-care insurance payment system

• For more extraordinary conditions and expenses, medical services payment should be structures so that 3rd party payers progressively assume more and more of the cost, but ideally never all of the cost.

• Always maintaining some consumer responsibility will maintain disincentive for excessive health-care utilization.

Patient-centered health-care utilization

In contrast to a person demanding an MRI in the 3rd party system, in consumer-centered system, when MRI is recommended:

• Person would want assurance from MD the MRI necessary for treating their condition

• Would choose physician recommended to them or based on information from an internet physician rating site

• Would select an MRI provider on the basis of available transparent costs and quality measures

• MRI provider competing with other providers (the more, the better) for their business

Tort reform

Tort reform - including capping of non-economic damageso Decrease private and governmental

expenditureo Decrease health-care insurance premium costs o Decrease medical malpractice premium costs

• Improved access to physicians particularly specialists

Increased Insurance Company Competition

Encourage competition

o Decrease the number of mandated covered services

o Open insurance sales across state lineso Simplifying regulation resulting in more

companies entering the market – to improve service and decrease premium

o Allow individuals and groups to pool together to negotiate premium price

Allow insurance companies to fairly price risk

• Lifestyle choices e.g. smoking, obesity, sedentary lifestyle, etc lead to disproportionate amount of health-care expenditureo Should be reflected in price of premiumo Would encourage reassessment of those choices

• Fair pricing would allow many more young families and individuals to afford health-care insurance

Pre-existing or significant medical conditions

• For those with pre-existing conditions or elderlyo Fairly priced premiums for all risk pools

would encourage more insurance providers to enter market, encourage competition, and result in best pricing for all risk pools

o Federal subsidy program for state-based or national high risk pools

Tax Reform

• Equalize tax treatment for individual-purchased (owned) health-care insurance with employer provided benefito Change in employment will no longer = loss of health-

care insurance

• Health-savings accounts with generous tax-free contributionso Encourage savings for health-care expenditures

Tax Reform – Stimulating the economy

Promoting individual-owned health-care insurance not only would decrease the numbers of the uninsured but would also significantly decrease costs for small and large businesses, making them more competitive and giving them more resources to invest in the business

For the chronically uninsured

• Institute simple Federal voucher program, for those who qualify, to purchase private insurance

• Government agency to help consumers navigate more consumer-involved system

• Far better than current Medicaid system that provides poor care and causes massive state and Federal budget overruns

Return to traditional American free market principles

True reform utilizing traditional American free market principles and personal freedoms would:o Truly bend the health-care costs curve down o Reverse historic deficits by controlling state and

Federal entitlement spendingo Would help restore a vibrant economy and the

individual’s unalienable human dignity and right to work and support themselves and their families, and to make their own decisions

Thank you.

The Health-Care Debate is Not Over

• Please visit Nick Pandelidis – Dr Right at http://nickpandelidis-drright.blogspot.com/

• If you would like a copy of this presentation or the underlying document please contact me at knp16@comcast.net.

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