Doubling Down on Crony Medicine

The most central objections to the Affordable Care Act (Obamacare), are that it:

·         Was born behind closed doors in meetings with special interests;

·         Takes a medical system in which consumers only control 12 cents of every dollar spent¹ and further diminishes consumer control;

·         Puts government even more in charge of defining what health, health insurance, and medicine are;

·         And thereby increases the influence of special interests and corporate lobbyists on medicine.

There are other, more specific, objections as well:

·         Depending on specific regulations, ACA may eventually abolish high deductible health insurance policies, which give consumers the most choice and control.

·         ACA requirements will cost employers of 50 or more employees a minimum of $2.28 per hour per employee (and $5.89 an hour per employee if a family is included). This means that a minimum wage of $7.25 per hour will be increased to $9.53-$13.14 an hour or as much as $27,311 a year. This is a huge disincentive for small businesses to add a 50^th employee, and would further exacerbate if the minimum wage is raised to $9, as president Obama has proposed. Similar rules in France have led to a proliferation of 49-employee business. The same is already starting to happen in the US.

·         The definition of a 50-employee firm includes part-time employees counted on a full-time employee basis. But just to make it more complex, the employer penalty is based on full-time employees only. This has created incentives for firms to stop hiring full-time employees and reduce full-time employees to part time. It has also led to “work sharing.” One Burger King franchise will employ a former full-time employee part time and send him or her to another franchise for more part-time hours.

·         Among employers of 50 or more, the rule has also led to the elimination of minimum wage jobs, for example in drugstores where self-checkout machines are rapidly replacing counter clerks, a trend that picked up sharply after passage of the legislation. In the end, the combination of employer-mandated healthcare with other ACA requirements will prove to be a massive job disrupter and killer.²

·         Twenty new or higher taxes, fees and fines, in addition to the increase in direct employee costs, will drain money that might otherwise have gone into hiring a new employee. In this environment, employers will ask existing employees to work longer hours. They will try to avoid committing to a new full-time employee.

·         One of the biggest of the new taxes, an increase of the Medicare payroll tax from 2.9% to 3.8%, which applies to all taxable income, will not even be used to fund Medicare. Although called a Medicare tax, it will be used to fund other provisions of the ACA, even though Medicare is understood to be facing eventual bankruptcy as more and more retirees are supported by fewer and fewer younger workers.

·         A majority of the newly insured under the ACA have been brought into the Medicaid program. This makes little sense when existing Medicaid participants are often unable to find a doctor who will accept Medicaid payments, and when many states are ruthlessly cutting back on what Medicaid covers.  The Act also states that if you are eligible for Medicaid, you cannot buy any other insurance or supplementary insurance on the new official exchanges, and no insurance is available off the exchanges. Medicaid in effect is a government-mandated ghetto.

·         There is also a nonsensical anomaly about the Medicaid provisions of ACA.  If your state agrees to expand Medicaid as envisioned by the Act, everyone up to 138% of the poverty line is forced into Medicaid. If your state opts out, as the Supreme Court has made possible, and your income is from 100%-138% of the poverty line, you luck out, because you get private insurance at a highly subsidized rate, and only have to spend 2% of your income. If you are below the poverty line, only your children will definitely qualify for Medicaid, so you may continue to have no insurance.³

·         Another anomaly is that if you are not employed by someone else, and fall into the 100-138% of poverty income zone, you get the rich government subsidy, worth as much as $20,000. But if you are covered through an employer, your employer does not get the subsidy.⁴ That being the case, your employer will logically drop your insurance and pay a penalty.

·         ACA spells out exactly what each health insurer can offer in coverage. So how can an insurer try to tip the scales to ensure profitability? The answer is to attract patients who are in better health and avoid patients in chronically poor health. The system is essentially set up so that your insurer wants to get rid of you if you need a lot of services – not exactly a consumer friendly approach. Would you want to go to a grocery store or restaurant that you knew in advance did not want your business? Will this approach actually help those who need help the most? Of course not.⁵

·         The Act also requires that 80% of insurance fees go to patient care. But it doesn’t prevent some of the money going for services that will attract customers in better, rather than worse health, for example services that will appeal to upscale customers, who tend to be in better health, compared to downscale customers. So long as the 80% expenditure threshold is met, the insurance company is under no compunction to provide an excellent level of service for the sickest and neediest patients.

·         The 80% of expenditure threshold does not include any money spent on preventing fraud. So government, which is notoriously unable to detect or prevent fraud, will now discourage private companies from doing anything about it either.

·         The ACA requires insurers to offer a long list of so-called preventive medicine measures with no copayment or deductible, so that they are “free” for the patient. In many cases, the preventive measures are of dubious value. We have already mentioned some of the problems associated with mammograms. Another example is cholesterol screening for children and adolescents, a group who especially needs cholesterol, because it is the basic building block of hormones. Putting teenagers, whose diet may be poor, on statins, prescription drugs that may damage muscles and deplete CoQ10, essential for your body and heart, is only good for drug companies, not the teenagers. But this is what teenager cholesterol screening typically produces.

·         Another problem with the “free” preventive measures required under the ACA is that if everyone “took advantage” of them, it has been estimated that the average primary care physician would have to spend full time delivering these services alone, with zero time left over for people who are actually sick.⁶

·         The ACA proposes to control the growth of medical expenses by promoting demonstration projects or lessons from alleged exemplary practices such as the Cleveland Clinic or Mayo Clinic. But there is already no lack of demonstration projects, and none of them, nor the alleged exemplary practices, have demonstrated a replicable way to reduce the cost of medical services.

·         The Act also reduces fees paid to doctors under Medicare and mandates that future Medicare expenses grow no faster than overall GDP (Gross Domestic Product). These fee caps are price controls, and price controls do not work outside of a wartime environment. Controlling prices from on high just leads to a reduction in supply, so that prices rise rather than fall, or goods become unavailable at any price.

This is what happened when the government of the doomed monarch Louis XVI in 18^th century France tried to control the price of grain to help the poor. Its decrees backfired and led to mass starvation. Prices controls leading to price increases are already quite evident in the US healthcare sector, and price increases will only get worse as the government sets more and more prices in an effort to drive them down. The only effective way to get prices down is to increase supply, and this requires free prices. John Goodman explains this further:

Doctors are the only professionals in our society who are not free to repackage and re-price their services.  If demand changes, if technology changes, if new information becomes available, every other professional is free to offer a different bundle of services to the market and charge a different price. It is precisely this freedom that leads accountants, lawyers, engineers, architects, and—yes, even economists—to compete for customers based on price and quality (and in the process increase the availability of services).⁷

·         The philosophy behind the ACA not only rejects free prices; it also rejects their corollary, profits. In his October 3, 2012 televised debate against GOP presidential candidate Mitt Romney, President Obama said that government-provided medical insurance services, notably Medicare, are cheaper than private insurance. This is inaccurate.⁸ Even more importantly, the president said government-provided medical insurance should be cheaper than private medical insurance, because it does not have the added expense of profit margin. This shows a complete ignorance of economics. Even Karl Marx, the father of Communism, acknowledged (in the 1848 Communist Manifesto of all places) that profits do not increase cost. Instead they provide an incentive to drive costs lower and lower.

·         In general, the cost reduction ideas imbedded in the ACA are not just ineffective. They also depend on eliminating individual choice from medicine. As Dr. Richard Fogoros has said:

The entire structure of Obamacare is designed specifically to remove important (i.e. costly) medical decisions from the purview of the individual doctor and patient. The role of the doctor is now to relay expert-guided determinations of what is best for the herd down to the level of the individual patient, and to do in in such a way that their patients do not realize that the doctor’s recommendations are population-based, and not tailored to their own needs.

John Goodman expands on this:

It’s not just the Obama administration, by the way. Underlying an enormous amount of medical research is the idea that we are all alike.

To make up an example, think about a clinical trial in which one group drinks coffee and the other group abstains. Then let’s suppose the non-drinkers turn out to have a statistically significantly higher rate of colon cancer. So doctors respond by telling everyone to drink a cup of coffee every morning. This would be called “evidence-based” advice. What’s the implicit premise behind all this? That the two groups of people are alike in every important respect (other than their coffee consumption) and that the rest of us also are just alike the people who’ve just been tested. I’ve written before why clinical trials like the one I just described are absurd. At least the way the results are used is absurd.⁹

·         One of the principal cost control mechanisms under the ACA is the establishment of a so-called Independent Payment Advisory Board (IPAB) of 15 appointees. Starting this year, recommendations of the IPAB for controlling Medicare costs must be enacted into law by Congress each year. If Congress fails to do this, and fails to pass other cost saving approaches expected to yield an equivalent saving, the IPAB recommendations automatically become law.

Provisions governing the IPAB get even more interesting. Congress can repeal the IPAB provision only during a seven-month period in 2017 and only by a three-fifths vote. After that, it cannot be repealed, nor IPAB rulings altered. This in effect gives the IPAB law-making authority equal to Congress, which violates the Constitution, in addition to trying to control future Congresses, which would also seem to be illegal.¹⁰

We have a trial run for the IPAB in the eleven member commission set up in Massachusetts to mandate medical price controls. That body not only has the power to set prices. The law requires that a “medical provider” obtain board commission approval for “any material change to its operations or governance structure.”¹¹ This means, in effect, that the practice of medicine in Massachusetts is frozen without government approval.

It will be interesting to see how the phrase “material change” will be interpreted. It is a phrase that cannot really de defined for legal purposes. It will be whatever the state government says it is. It could be defined to mean even switching from one drug to another. And if a doctor guesses wrong and fails to get permission, he or she could be in serious legal trouble. Under these circumstances, would you want to practice in Massachusetts? Yet the same could be coming nationally through the federal IPAB.

·         ACA also requires that patient records become electronic. This might seem like a good idea until one discovers that up to 800,000 parties may have legal access to your most personal conversations with your doctor. This is mandated under the Federal HIPPA Act of 1996, ostensibly passed to protect patient privacy, but actually removing previous patient privacy protections. It has already been demonstrated how easy it is for hackers to steal electronic records or for “authorized” users to release them inadvertently. Will someone concerned about privacy, ever again confide in the doctor? FBI questionnaires, which must be filled out in order to apply for many federal jobs, already ask if the applicant has seen a psychiatrist in the prior five years. Will the government now verify your answer online?

·         Electronic medical records are presented in ACA as a cost-saving device. But it has become increasingly evident that these systems, which include billing and well as patient records, make it easier for doctors and hospitals to increase their billing of Medicare, Medicaid, and the Veteran’s Administration. In some instances, as soon as the electronic system has gone in, claims have jumped by as much as 40%. For example, the percentage of the highest-paying claims at Baptist Hospital in Nashville climbed 82 percent in 2010—one year after it began using a software system for its emergency room records. In general, hospitals that received government incentives to adopt EMR showed a 47% rise in Medicare payments from 2006 to 2010, compared with a 32% rise at hospitals that did not receive any government incentives.¹²

·         Electronic billing also facilitates fraudulent as well as legitimate billing. An extensive case history of a nonexistent patient can be created in minutes.¹³

·         The federal government is mandating and in, any cases subsidizing the installation of the new systems, but also making no effort whatever to verify that the systems are working properly, are achieving the desired outcome, and are not being used to defraud the government. A recent Department of Health and Human Services Inspector General report acknowledged as much. Many doctors even report that the new federal requirements are greatly increasing their paperwork, not decreasing it.

·         The electronic medical records (EMR) industry pushed for a $25 billion subsidy for their product from the 2009 stimulus bill and got $19 billion. These funds and subsequent Obamacare EMR mandate particularly benefited three large EMR companies. The annual sales of Allscripts and Epic doubled in 2009-2010 while Cerner’s increased 60%. The first two companies are close to the Obama administration; the last is not. The then-CEO of Allscripts, Glen E. Tullman, served as the health technology advisor to the Obama campaign in 2008. In 2009, as the stimulus package was being constructed, he visited the president at least seven times, and personally donated over $225,000 to the campaigns of legislators like Sen. Max Baucus (chairman of the Senate Finance Committee) and Jay D. Rockefeller (chairman of the Commerce Committee).¹⁴

Judith Faulkner, founder and CEO of Epic Systems, a company that stores 40% of the US population’s medical data, is described by columnist Michelle Malkin is “[President] Obama’s… billionaire… medical information czar… who just happens to be… a major Democratic contributor.”¹⁵ Critics of her firm’s platform insist that it represents an outmoded technology and that federal rules are just freezing medical information technology in place, to the advantage of established firms.¹⁶

·         At the present time, it appears that the ACA, with its numerous mandates, has already increased the cost of private health insurance by thousands of dollars per policy.

·         If the Act does cut Medicare reimbursements, as legislated, to levels even lower than Medicaid’s, it will drive even more doctors to refuse Medicare patients.

·         If the Act does succeed in insuring more people, many of them will be unable to find a doctor, because supply will not have kept pace with demand.¹⁷

·         The Act forces insurers to treat young and old alike. Since young people use relatively few and cheaper medical services, this represents a massive transfer of money from young people, who typically have little money and who must now buy health insurance, to old people, who are on average much better off, and in many cases are actually rich. This is in addition to the diversion of Medicare tax proceeds out of Medicare to fund other provisions of the ACA, which means that younger people will face an even bigger shortfall of Medicare funding when they reach retirement age.

¹George Will, Washington Post (May 12, 2011).

²Goodman, http://healthblog.ncpa.org (July 16, 2012).

³Ibid., (July 30, 2012).

⁴Ibid., (April 18, 2012).

⁵Ibid., (June 25, 2012).

⁶Ibid., (September 5, 2012).

⁷Ibid., (August 8, 2012).

⁸Ibid., (January 11, 2012).

⁹Ibid., (October 1, 2012).

¹⁰ George Will, Washington Post (October 4, 2012).

¹¹Ibid., (November 9, 2012).

¹²Craig Smith, http://www.anh-usa.org (February 26, 2013).

¹³Medicare Bills Rise as Records Turn Electronic, New York Times (September 21, 2012).

¹⁴Smith, http://www.anh-usa.org (February 26, 2013).

¹⁵Malkin, Washington Times (December 14, 2012).

¹⁶Malkin, http://www.townhall.com (December 14, 2012).