Consideration on the Healthcare Reform Debate

By Richard A. McGrath, CIC, LIA

Healthcare reform is needed, but the 1,990-page bill approved by the House of Representatives recently would be hazardous to your health.

The proposed legislation would increase costs, reduce consumer choice, reduce the quality of healthcare and make healthcare even more bureaucratic.

Some are trying to shape the healthcare debate as being about the healthcare industry making outrageous profits, with the government stepping in to help out by providing a “public option” to compete with the private sector.  In reality, the healthcare industry is barely profitable, while the federal government has been largely responsible for increasing the cost of healthcare.

Hospitals, which are mostly non-profit, are struggling to survive and the health insurance industry is among the least profitable industries.  According to the Associated Press; profit margins for health insurers typically are about 6 percent, but were only 2.2 percent last year.

The federal government, meanwhile, already operates a large segment of the healthcare industry at an enormous cost.  Consider the cost of Medicaid, which covers low-income people.  Estimated to cost $238 million in its first year, the actual cost was $1 billion.  After adjusting for inflation, Medicaid costs 37 times its initial cost and this year alone will cost $251 billion.  The initial cost of Medicare was $4 billion, but it now costs $428 billion and its annual costs continue to increase far faster than the rate of inflation.

The Congressional Budget Office estimates that the latest version of healthcare reform would cost $1.05 trillion.  Given the federal government’s track record, it’s likely to cost much, much more – at a time when federal spending has already increased by trillions of dollars and is running a $1.4 trillion deficit for this year alone.

If the federal government were a for-profit corporation, there would be a huge outcry over its lack of efficiency and out-of-control spending.  Instead it is accepted, even though it will eventually mean much higher taxes.

Keep in mind that the ultimate goal was supposed to be to control costs without compromising the quality of care.  If healthcare were more affordable, more people and employers would buy it, reducing the number of people who are uninsured.  How is adding at least a trillion dollars in new costs making health insurance more affordable?

Impact On Business, Hospitals, Consumers

Healthcare reform may help those who are currently without insurance, but at what price?  Consider the impact it will have on the rest of us:

Small Businesses.  Small businesses already pay much more for health insurance than large businesses.  Health-insurance premiums for single workers rose 74% for small businesses from 2001 to 2008, the latest year data are available, according to the Kaiser Family Foundation, a nonprofit research group.

The average cost of health insurance in Massachusetts is $13,788 per family, the highest cost in the country, according to the Kaiser Family Foundation.  Many small businesses, which pay above-average amounts, are faced with either dropping coverage or going out of business.

Under the proposed legislation, businesses that fail to provide coverage will pay fines of 2% of payroll for those with payrolls of $500,000 to $750,000 a year or 8% for those with payrolls exceeding $750,000.  The bill would also impose a 5.4% tax on individuals earning more than $500,000 a year and families earning more than $1 million.

Businesses that can afford health insurance typically offer it; otherwise, they would not be able to attract quality employees.  When these businesses are forced to require it or pay a tax, many will go out of business.  Others will lay off employees.  At the least, saddling business owners with increased taxes will stifle business growth, leading to fewer jobs.

Hospitals.  Medicare and Medicaid both underpay healthcare providers, resulting in higher charges and higher premiums for others who use the system.  Cost shifting by Medicare alone was responsible for 12.3% of the increase in private health insurance costs from 1997 to 2001, according to a study in Health Affairs.

Health Affairs found that for every dollar of costs hospitals incur, they receive $1.22 from private payers, but only 95 cents from Medicare.  Shifting more care to the federal government through the “public option” will force hospitals to charge even more for private care.  Either hospitals will be financially squeezed or private insurance premiums will be forced to increase even further.  Wasn’t a key purpose of reform to control the costs of health insurance?

Doctors.  Doctors, hospitals and drug companies may face deep cuts in Medicare payments, even though they are already paid at below cost.  One version of reform legislation called for cutting Medicare reimbursements for doctors by 21.5% next years and even more after that.  The latest version would increase reimbursement rates for hospitals, but, given the desire of Congress to keep the overall estimated cost below $1 trillion, reimbursement rates could be cut in the final legislation.

A group of physicians from the American Medical Association, in testimony before Congress, stated that government-imposed treatment guidelines in Congressional proposals would compromise the quality of care and even prevent them from fulfilling their professional responsibility to their patients as their highest priority.

Baby boomers.  Medicare is already in poor financial shape, even though it spends nearly a half trillion dollars a year.  Imagine the financial stress it will be under as 77 million baby boomers retire.

Yet the healthcare reform being proposed by Congress (the House version) would cut Medicare spending by $426 billion over the next decade, while expanding Medicaid, the Children’s Health Insurance Program and subsidies for low- and middle-income Americans through government-run exchanges by more than $1 trillion.

How can Medicare be cut by that much as demand increases?  Either Congressional estimates for healthcare reform are inaccurate or boomers will see a tremendous decrease in the quality of care being provided.

Consumers.  The U.S. Small Business Administration estimates that small businesses, defined as companies with 500 employees or fewer, created three out of four new jobs in the U.S. over the past 20 years.

When small businesses are forced to pay more for taxes and health insurance, many will either close down or lay off employees, increasing unemployment.  Employees may be forced to forego pay raises.

While reform would provide coverage for the uninsured, it would be paid for by all of us in the form of higher taxes.  The top marginal tax rate would increase to 45% in 2011 if the proposed reform is approved, but taxes are likely to increase for everyone.  And, because coverage would be required for pre-existing conditions, premium costs would also increase.

Something must be done to control the rising costs of health insurance premiums, but the proposed healthcare reform would, at best, be a significant burden for American taxpayers while adding greatly to an already fiscally irresponsible government system.

The currently proposed version of healthcare reform would make a bad situation even worse.


Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass.  He can be reached at rmcgrath@mgrathinsurance.com.

This article is written for informational purposes only and should not be construed as providing legal advice.

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