By Richard A. McGrath, CIC, LIA
Why do attempts to fix our healthcare system always seem to make it even worse? At every turn, costs increase, quality often decreases and the process starts again.
As a result of the healthcare reform that took place a few years ago under Governor Romney, Massachusetts health insurance premiums are the highest in the country. It was considered good news this year that rate increases were kept below 10 percent, even though the average increase far exceeds the overall inflation rate.
Costs of the Massachusetts program are, in fact, so high that Governor Patrick has announced plans for a whole new reform package.
On a federal level, the Patient Protection and Affordable Care Act, widely known as Obamacare, was supposed to make healthcare more affordable while providing access to all Americans, but it has a projected cost of $1.39 trillion over its first eight years, according to the Congressional Budget Office (CBO) and some cost estimates are much higher.
Of course, no one will know for certain what the real cost will be until it is fully implemented, but historically federal healthcare programs cost much more than projected.
Medicare was initially projected to cost $1 billion a year. Today, its cost has soared to half a trillion dollars a year, and the cost will increase significantly in coming years as 77 million baby boomers retire.
Even with spending at that rate, Medicare has an unfunded liability of $38 trillion. Many are rightly concerned about the national debt accumulated from federal government spending, but at $14 trillion, it is a fraction of the size of the Medicare shortfall. It should be noted that Obamacare will add to that shortfall, as it cuts $500 billion from Medicare over the next decade.
Medicaid is also a problem. Created to fund healthcare for poor people, it now covers 53 million people at a combined state and federal cost of $373.9 billion. Instead of attempting to control costs by tightening eligibility requirements, Obamacare relaxes eligibility requirements and will add an estimated 16 million more people to Medicaid. States have sued the federal government because this provision will add to their Medicaid costs.
Combined, Medicare, Medicaid and Social Security have become so expensive, they will absorb the entire budget by 2025 unless drastic changes are made, according to the National Commission on Fiscal Responsibility and Reform, a bipartisan commission appointed by President Obama to study the deficit. Every other activity, including national defense, education and highway construction, will have to be paid for with borrowed money, which will further increase our debt.
Runaway costs are not the only problem caused by healthcare regulations.
Because millions of Americans lack health insurance, Obamacare addresses the problem by mandating that they buy it. However, 26 states are challenging whether the Constitution allows the federal government to force Americans to buy insurance.
Judges in Florida and Virginia recently agreed that the requirement is unconstitutional, while the Florida judge ruled that the entire law needed to be repealed because it is written so that the individual mandate is “not severable” from the rest of the law. The case is expected to be decided by the U.S. Supreme Court.
Obamacare also gives the federal government an enormous amount of power, creating 68 grant programs, 47 bureaucratic entities, 29 demonstration programs, six regulatory systems, six compliance standards and two new entitlements. In addition, it grants the Health and Human Services Secretary authority to make judgments that cannot be challenged either administratively or through the courts.
The federal law also adds new mandates that will increase the cost of insurance. As many as 117 million Americans will have to change their coverage to meet the mandated requirements, according to the administration’s calculations.
The Obamacare requirement that insurers accept all patients, regardless of their current health status, is already resulting in higher premiums and lower payments to hospitals and doctors. Profit margins were already thin in the health insurance industry and the added cost of selling insurance to unhealthy people will force smaller insurers to be sold or go out of business, reducing competition.
There is much more to Obamacare, of course, and further details will become more evident in years to come as the 2,700-page law is enacted.
More Massachusetts Reform
Meanwhile, Governor Patrick’s plan for another round of healthcare reform may also have an impact. Details have not been announced, but it would:
- Shift from “fee-for-service” payments for healthcare providers to reimbursement based on health outcomes.
- Give the commissioner of insurance greater power to determine provider rates.
- Create an advisory council to monitor implementation of payment reform.
- Seek to reform the medical malpractice system.
It is promising that the administration is taking on medical malpractice, which is in great need of reform, but how tough the reform would be has yet to be determined.
Will Governor Patrick’s reform, unlike other reforms, actually make healthcare more affordable? It’s too early to say, but how meaningful and how effective can the proposed new reform be when Massachusetts still has to meet the requirements of Obamacare?
Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass. He can be reached at firstname.lastname@example.org.
This article is written for informational purposes only and should not be construed as providing legal advice.