4th Quarter 2009 Benefits Corner

by Al Horan, CRA's Benefits Chairperson

Legislation has been proposed and the debates have begun. However, I believe we're involved with the details of proposed modifications without a clear understanding of the primary problem and the issues and consequences of a decision to reform or not to reform. The only thing we understand for sure is if nothing is done, the problem associated with health insurance will get worse. I appreciate we are all concerned about how these proposed changes can affect our medical coverage and how the legislation can impact us. In this article I will attempt to provide background and a high level view of the driving forces related to any change in health insurance.

I believe the Primary Problem we face as a nation is the amount we spend on healthcare. It represents an ever increasing share of our Gross Domestic Product. The increase is caused by escalating medical costs that are greater than inflation rates. In quantitative terms, whereas medical costs have been increasing at an annual rate of approximately 6.1 %, the inflation rate per annum since 1999 has been about 2.2 %, i.e., the former increasing more than twice the latter. To balance the U.S. budget we are faced with the choice of tightening our belts in many areas or accepting the consequences of inaction. The consequences of inaction could include deficit financing. Deficit financing could contribute to hyperinflation and even the possible devaluation of the U.S. Dollar. We have seen the effects of hyperinflation and devalued currencies in some other countries.

In 2007 the U.S. spent approximately $7,400 per person on health care. This is nearly twice the average of other developed nations. Further, Americans typically spend more on health care than on food and housing. If our spending pattern for health care does not change, it is estimated our health care costs will go up from the current level of 16 % ($2.2 trillion) of GDP to 20 % in 2018 and 25 % by 2025.

Having defined the Primary Problem I now would like to briefly cover the causes of the Problem. These issues are important collectively because of their impact on the GDP. Please note the following items are not covered in any particular order.

- Provide Health Insurance for Everyone: While not everyone has health insurance, hospitals are typically obliged to provide emergency treatment to everyone, irrespective of their ability to pay. Many times Emergency Room treatment of non-life threatening conditions is an expensive way of providing primary care. Where costs are not recovered from the patient, hospitals generally try to recover these costs over time from other patients. This practice is usually referred to as "balance billing." It can be argued that universal insurance should address the issue of "balance billing," but we must recognize it could result in increased usage of medical care. The increased usage could come from pent up demand by the consumer. We saw this happen when Medicare was introduced in the 1960's. Currently, there are approximately 46 million individuals who are uninsured (While this is about 15 % of the population, please note this figure may include illegal aliens as well as individuals who made conscious decisions to forego insurance coverage).

- Efficiency of Medical Care: How often have we experienced or read about duplication of medical tests or a doctor being overly cautious by ordering excessive medical tests. Perhaps this situation could be improved by better coordination of care by the doctors treating the patient. As a start it may be helpful if patient records were made available centrally to the treating physicians. (Assumes doctors would be able to rely on results of tests ordered by other physicians without increasing the risk of malpractice.) It could also be more efficient if an individual has a primary care physician who could arrange for and coordinate the referral and evaluation of the patient by a specialist. Ongoing treatment, where possible, could perhaps be handled by the primary care physician. (I can remember a time when I would only see my doctor, primary care physician, and if I needed a specialist he had to refer me otherwise the specialist would not see me.)

- Quality of Medical Care: This is an area of great concern to all. In spite of the huge amount spent on health care in the U.S., our medical outcomes aren't any better than the outcomes in countries that spend less. With any health insurance reform I believe it's important we maintain high standards for medical care and we seek improvements in medical outcomes. It probably also makes sense to provide for research for medical conditions especially debilitating conditions where treatment may not be commercially viable, e.g., Lou Gehrig's disease. Also included in the area of quality care are indirect issues like malpractice and medical ethics. Medical providers should be held to higher ethical standards and they should also be able to practice medicine without fear of groundless malpractice suits. I believe we should question relationships between doctors and pharmaceutical companies, laboratories, etc. so there aren't conflicts of interest. We should also question the practice of pharmaceutical companies advertising prescription medications. (Intuitively, I feel this practice has been responsible for an increase in prescription usage which has contributed to an increase in healthcare costs.) Lastly, quality of medical care should address issues like retreatment of a patient because of oversight by a medical provider. This is especially the case where a patient requires readmission to a hospital to correct an error. In the unlikely event readmission is required, I believe the medical provider should absorb any added expense. Unless there is gross negligence the readmission should not form the basis of a malpractice claim. I also believe it would be appropriate to limit malpractice judgments, provided healthcare professionals are required to maintain their skills and provided they are periodically retested to retain their medical licenses.

- Cost of Medical Care: Central to the medical care dilemma is cost. In its basic form cost should reflect the interaction of supply and demand in a free economy. Unfortunately, our healthcare system has overriding factors that impede the natural ebb and flow of supply and demand. These factors include restrictions on the number of new physicians, and price controls that are imposed on the healthcare community by Medicare. If the government takes a more active role in offering health insurance to non-Medicare eligible individuals I feel our price problem can only worsen. By assuming a larger share of the health insurance market and imposing Medicare-like price controls we most likely will see a further shifting of cost to the private insurance sector. (Please note, Medicare members represent about 15 % of the population but their medical costs represent about 40 % of total medical care costs.)

Cost also is a reflection of the inefficiency of how medical care is rendered as well as the general lack of emphasis on preventative care. Delivery of care has not kept pace with changes in our communities, like two working parents. Unlike the past, typically doctors do not have evening appointments nor make house calls. Consequently, we have seen the over utilization of more expensive forms of delivery, like hospital emergency rooms. More recently, I've seen stand alone emergency care facilities and surgical centers opening where I live. The concept is to provide the proper level of care at a reasonable price. Rather than concentrate on treating sick people, the healthcare community should also concentrate on preventative care and wellness. The government should probably start by covering annual physicals under Medicare. The strategy is to shift emphasis to prevention, very much like the dental community did some years ago. Finally, I believe the government should address what level of care should be provided to illegal aliens.

It's been mentioned the government would like to see employers remain as the conduit for providing health insurance. However, it is important employers still be allowed to claim their share of the cost of the health insurance as a deductible expense under IRS rules and regulations. If employers were to lose the deduction, they may consider discontinuing their insurance. In that case the cost burden would most likely be transferred to the employee/retiree or the government. Under current tax rules employers absorb approximately 70 % of the cost and the government absorbs the balance in the form of a tax deduction.

As you can see the issue of Health Insurance Reform is complex and multifaceted. Since it took years for us to create our intricate and expensive healthcare system, I believe it also will take time to unwind and correct the system. I could very well see changes being phased in over several years. Perhaps the first order of business could be to establish a universal minimum standard level of insurance coverage. (Somewhat like the way auto insurance is handled.) Next, I think it could be helpful in controlling medical care costs if, at least temporarily, uniform price controls were applied universally and not just for Medicare. Also it's in our best interests if the employer tax deduction is retained. Finally, I believe we need to train and license more primary care physicians; change the paradigm for care by emphasizing preventative and wellness, and look to primary care physicians to deliver most of the care; and adopt rules and regulations that would ensure quality standards of care and would limit malpractice.

However, irrespective of Health Insurance Reform, change must also take place with each of us. Each of us should start by taking ownership of our health. This means watching our diet, controlling our weight, exercising, getting proper rest, dealing with stress, taking our medication regularly and following our doctor's orders regarding these activities as well as any other advice. By taking charge of our lives we should be happier and healthier. Remember, it is never too late to change. Studies have shown that genetics influence about 20 % to 30 % of our health, while we control the remaining 70 % to 80 %! Changes in lifestyle should also translate into reduced medical costs.

Reduced medical costs could alleviate the need for expensive forms of health insurance. Health insurance that is designed to provide catastrophic coverage is generally more reasonably priced than comprehensive coverage that typically provides nearly full reimbursement. By contrast, catastrophic coverage usually has high deductibles and co-payments but the premiums are lower.

Next, we each need to get involved by taking a more active role in Health Insurance Reform by attending town-hall-meetings, any other related meetings and contacting our government representatives to make our opinions known. Other areas of concern that contribute to the high cost of health care include torts (malpractice suits), duplicate/unneeded medical tests and x-rays, access to medical records, expensive medical care, the number of practicing primary care physicians, elimination of an employer's tax deduction for health insurance, the cost and availability of non-group medical insurance, the ability to purchase out-of-state coverage, etc.

Our overall aim should be to provide the appropriate level of care to everyone at a reasonable cost. In its simplest form this means better matching the medical delivery method and the patient's need, e.g., where feasible, use small satellite facilities, like surgical emergency care centers, to treat non-life threatening medical conditions. After all is said and done medical care costs must be reduced while maintaining or, ideally, even substantially improving the quality of health care. You may wish to consider starting by contacting your Senator and/or your House Representative to make your feelings are known to them about Health Insurance Reform, especially about retaining the employer tax deduction.

- Al Horan, Chairman, CRA Benefits Committee
Please note, these are my thoughts which are not necessarily shared by Chevron.