Now, just wait a minute.

You knew it had to happen. Obama has steamrolled many other items in his first few months, now, according to his latest plea, it's now or never for health care. He reminds me of a little boy that has to urinate, jumping up and down and holding his genitals. But let's think about this for a minute before we start "reforming",about 20% or so of the entire US economy.



There are multiple facets to the question of health care costs, many stake holders, many many different functions. Most points of view, payers, providers, hospitals, technology firms, medical equipment suppliers, and on and on. As an opinionated jerk, I know little about all of these points of view..........but, I spent thirty-three years of my life making a living selling, underwriting, servicing and paying claims for benefits of health insurance. I've met with provider groups, been in on the creation of two aspects of cost-containment benefits, built networks and been the President of CNA Ins Federal Markets Division. I took a book of business of 145 million dollars of premium to over 2 billion dollars when I left in 1997. I should point out that 10 years in the health care industry is a lifetime of changes so many things are different then and now. Therefore I'm going to keep my comments simple and focused on the basics, the "truths" about funding health insurance that are timeless.




As I understand it, the President's goal is to reduce health care costs while insuring everyone. Right off the bat that goal shows the naivety of rhetoric written to supposedly allow the masses to understand the policy and political goals of the administration. The old sound bite approach. How can overall health care costs decrease if we're adding approximately 46 million new people? Just for kicks let's assume there are 200 million people in the USA if we subtract the 46 million without insurance we come up with a total of 154 million insured. The costs of that 154 million would have to reduce by (46/154=29.8%) almost 30 percent to add the 46 million uninsured and just stay even. Let me put that number in perspective. An insurance company in the health care field rarely is allowed to keep more than ten percent of the premium for expenses and profit. There is one glaring exception HMOs, but I"ll get to those bastards later(remember...opinionated). Let's assume there we're no expenses and profit........impossible I know, but I want to keep the math simple. That reduces all costs by ten percent. Boy are we on our way or what! However, there is that pesky 20% of the costs of 154 million people we still have to deal with. The first thing that we have to do is see how much that is, as a percentage of all costs, when spread over all insureds. I won't bore you with the math but 20% of the costs of 77% (154/200 the total population) is 15%. So every persons health care costs, once everyone is insured, and we've eliminated expenses and profit, has to decrease 15% to stay even for adding the costs of 46 million uninsured.



To reduce all costs by 15% is a Herculean task, but nothing is impossible for Obama. OK, lets start, first we get rid of all fraud, that's worth about 3%. Then comes the prices of drugs, overall a 5% reduction is doable without gutting R&D. Tort reform, capping liability claims , is probably worth at least another 2 % and that reduces the 15% to a 5% reduction in all health care costs. Hell, man, we are there. You can't tell me that we can't find 5%, fewer unnecessary procedures, more stringent cost controls, reduce elective procedures, there's lot's of places to look. Remember this 5% just gets us back to where we were before we added 46 million uninsured. We still haven't really addressed reducing costs....... we're just getting rid of the cost increase from adding the uninsured.



Only thing is it's all assumptions. Real cost reductions would not only take further assumptions............assumptions of the assumptions............but a bunch of wishful thinking while we're at it. Further, much of the data to quantify these assumptions doesn't exist, the assumptions are all inter-related, change one and all the others probably have to move, in other words it's a big house of cards on over 20% of the nations GDP. If it's wrong on the low side the architects are genuises, if its wrong on the high side, there is no going back, the commitment has been made, it will bring a whole new definition of deficit spending.



But, hurry, hurry, hurry, it's gotta go, hurry fast. I don't know man, maybe we ought to stand back and take it a little slower. Make sure we got one part right before we take on another segment. Huh?



Just for the hell of it I'd like to discuss two other complications of all of this. Why health care costs increase annually and will forever, and, preventative care.



There are five separate areas that contribute to normal annual increases in health care costs.

1. Inflation. This one is pretty much self explanatory, if every other part of the economy is raising their costs to make up for increased costs or decreased dollar value, so will every one in this sector of the economy. Health Care isn't immune.


2. Increased frequency of loss. As the population gets older they use more services, seeing the doctor more often is an example.


3. Increase in claim severity......as we get older not only do we use more services we use more expensive services. Inpatient surgery rather than outpatient, heart bypass rather than stints, etc.


4. Technology progresses every year and it is generally more expensive than the technology that it replaced. This cost has to be paid and it increases overall costs.


5. Advances in technology tend to generate new treatments for diseases that were untreatable before adding to the overall cost of health care.

There are many more things that add to costs but, usually, they'll fit into one of the categories above. I should make another point here, as health care gets better and better it will solve more and more problems. This, of course, will result in a better quality of life and, probably, longer life. Both of these will increase the cost of health care. A bunch.

Another twist, as supply (number of Docs, etc) costs increase rather than decrease. This is caused by two phenomenons, the first is that even if the demand doesn't increase the community of doc's will raise their fees so that the current Doc's keep their income and the new guy's make a living as well. If the demand increase, it usually does as supply increases, then just overall cost increases occur due to the added services delivered by the new guys. It's sort of circular, but the point is that supply and demand don't work the same way in health care as they do in other area's of the economy. It revolves around a necessary increase in supply in order to generate new providers to take over from retiring providers and, apparently, a bottomless pit of demand.

One of my pet peeves is the unabashed claim, the true mantra, the unquestioned statement that increased preventative care equals lower health care costs. This is total bullshit on so many levels that I'm a sputtering blob of humanity seeping into the keys of my computer whenever I try to address it. But, I'm going to give it one more go.

Even if you buy that preventative measures (notice I didn't say health care, you'll see the difference in a while) increase the health of an individual it's pretty damned hard to add up the costs of forty or fifty years of preventative expenses (I didn't say health care care expenses) and come up with a cost reduction based on lower than expected health care costs associated with the last several years of an extended life . Firstly what is a preventative expense, exercise over your life makes you more healthy, let's assume that is true although no one has ever proven it in a controlled sample using a statistically valid approach, so are health club expenses "preventative". Running is healthy, does the plan pay for the shorts and the shoes? "Lean Cuisine low fat dinners are good for you, does the plan reimburse you for food? When you think about it any reasonably intelligent adult could easily charge off 10% or so of his normal monthly expenses, especially if he's physically active. How are you going to show savings by avoiding a bottle of beta blockers and an avoided bypass surgery (my last one cost the insurance company, thanks to network discounts, $12,000).

See my point, I think a more valid and truthful approach to preventative expenses would be to disallow them in all health insurance plans. The human body is a machine, like all machines it requires maintenance, that's preventative care. Nobody but the owner is in charge of maintenance, and the owner is responsible for it's cost as well.

I don't buy for a minute that Obama or any other politician can significantly effect the cost of health care in the USA short of destroying it with rationing, mandated payments per procedure, in other words cost and frequency controls as law.......then they'll be no care, no costs, no jobs, no company cars, no hotel stays, airline trips, on and on...............hell ofa plan Obama, hell ofa plan Reid and Pelosi. Man are you guy's on it or what?

Real reform, creating a totally redesigned system capable of handling today's market rather than carrying the costly historical baggage of addressing the evolution of health care in the US over the last two centuries, will take an interdisciplinary approach, carefully monitoring the installation of each phase of reform probably over three decades. No politician ever born can think beyond the time of his hopeful re-election at the end of his current term. It takes a non political body comprised of all stake holders acting without lobbying or political interference to have any chance at really making a difference.

So, if it were up to me, I am afraid Obama would just have to wet his pants.