Healthcare Reform Explained

The Short Version…

Healthcare costs have doubled over the last ten years. The primary drivers of this unrestrained cost inflation are massive uninsurance and dysfunctional profit-making schemes for private health insurers. The ‘market’, so-called, is not really a market, because instead of lowering costs and increasing quality, it has driven costs up while reducing quality. This is what the currently proposed reforms seek to correct.

Reforms proposed by Pres. Obama and the Congressional Democrats aim to:

  1. help private insurers cover more people, by increasing choice, spreading risk, and making plans more affordable;
  2. bar insurers from rejecting treatment or coverage due to “pre-existing conditions”;
  3. make Medicare stronger, by cutting waste, expanding benefits and putting patients’ needs first;
  4. make sure the doctor-patient relationship is always the priority;
  5. include more people in Medicaid, up to 133% of the official “poverty” classification;
  6. create a low-cost exchange that helps those who still can’t get covered buy cheap, quality insurance.

The dysfunctional healthcare market can be fixed, if everyone were able to afford or receive care. The current reforms are designed to expand the private health insurance market, shore up Medicare and Medicaid, and help subsidize those who are still too poor to buy private insurance but not poor enough for Medicaid. That’s all. It’s a lot, it’s complicated, but it’s nothing more than that.

The Long Version…

Right now, 52 million Americans have no health insurance of any kind. That’s roughly 17% of the population, or one in every six people. (Recent estimates for the number of people who’ve lost healthcare since the recession began could put the total closer to 57 million, or one in five.) Every time someone with no insurance visits an emergency room, they incur massive costs that can never be paid, causing health service providers to find compensation by increasing charges for everything else.

Over the last two years, one in every three Americans has spent some period of time with no health insurance coverage of any kind. This is everyone’s problem, not a problem of people unwilling to pay their way. Fixing the problem requires a significant improvement in the functioning of the existing hybrid public-private health insurance marketplace.

The California Nurses Association has found that over a seven year period, through June of this year, the state’s six largest insurers rejected fully 22% of all healthcare treatments required by their paying customers. The private sector is, in fact, rationing care at an unprecedented rate. Currently pending reform proposals aim to stop this practice and ensure that patients get the treatment they need.

Rising costs is the chief reason such practices are spreading, and becoming more severe in their impact on patients. Reducing costs requires genuine success in making sure all potential patients have some form of insurance coverage, to spread risk and avoid the negative impact of expensive, uncompensated care, on prices across the entire system.

The redirection of existing subsidies into helping millions of people purchase low-cost health insurance from the private sector, will cover part of the population of those with no insurance. Expanding Medicaid to cover anyone whose income level is 133% or less of the official poverty line will also help to cover some of that population. Redirecting Medicare-related subsidies to private insurers to make Medicare more sustainable and more robust will also help.

But all such plans leave a certain number of millions (anywhere from 3 to 18 million) still too not-affluent to buy private insurance, even with the subsidies and tax credits, and too not-poor to qualify for Medicaid. Those millions mean there will still be a significant uncompensated care distortion in the pricing of the entire marketplace.

The sole function of the so-called “public option” would be for those people who fit this precise description to buy a plan guaranteed to be affordable, and not deny treatment to the ill or needy, because it is legislated to meet those standards, has no profit motive and yet is large enough to adequately spread risk and be sustainable. Private insurers would be encouraged to provide similar plans so that they could in fact also take over this part of the marketplace.

The result would be a more efficient and effective marketplace, in which competition drives prices down, but also pushes all players to raise the standards of coverage and treatment. This is what a private insurance marketplace is supposed to do, yet in the current climate, the American private health insurance industry is doing exactly the opposite.

In short, the Obama plan, as expressed in the various Democratic proposals in Congress, is intended to expand the market for private insurance, and expand the reach of public plans like Medicare and Medicaid, by making healthcare in general more affordable. As costs for everyone come down, the system itself becomes more sustainable and health professionals have more stable reimbursement in-flows, removing another significant driver of price increases.

Simultaneously, as insurers are able to not only cover more people, but compete in a wider market, they become more sustainable by doing more of what insurers were originally designed to do: spread the risk. They will also be able to dramatically reduce their administrative overhead, by not having to spend tens of millions of dollars per year on finding legal arguments for denying treatment or denying coverage.


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