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No Free Lunch

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Many questions are being raised regarding the precise agenda(s) the current administration is pursuing. There seems to be a consensus building that much that is being labeled economic recovery conceals a much larger agenda that is not altogether clear at this point. However, most analysts surmise that it is more about structural and social change than economic stimulation.

Too often legislation results from crisis situations or in response to the “horrible example.” Perhaps there is no area more susceptible to this scenario than healthcare. On more than one occasion when I testified before Congress on behalf of the National Association of Life Underwriters (now NAIFA) on the subject of national health insurance, the halls were lined with iron lungs, gurneys with seriously ill patients and examples of the most tragic situations. It was hard not to be sympathetic to these desperate pleas. I do not believe we as a nation should present a deaf ear to these cries for help, as some families and individuals bear enormous burdens through no fault of their own. However, I believe such relief should come more from a form of welfare assistance rather than saddling the already over-burdened healthcare system with such costs.

One of the reasons health insurance and healthcare costs are so high is the mandated benefits that have been heaped on the system. A good example is maternity coverage. Maternity is not really an insurable risk, as it does not meet the criteria needed. In the early days of health insurance, maternity benefits of $100 or $150 were added to plans as a loading factor–something for young employees to offset the costs of illness of older employees. It was further assumed that in the case of a maternity claim, parents had at least 7 months to plan for the expense.

After mandates were put in place there was notable rise in costs associated with maternity claims. A recent report cited the fact that today one-third of all births are by the more expensive C-section delivery. Other mandated coverages have had a similar effect upon the system.

There are indications that some of the key players in this issue favor the creation of an optional federal program similar to Medicare that would operate parallel to the current private system. This is just a step away from an all-federal system, as the two cannot co-exist. Federal programs such as Medicare and Medicaid set prices on services and restrict some coverages. To the extent their price controls are inadequate to cover provider costs, excess costs are effectively shifted to the private sector, thereby raising premiums. If private premiums become higher than the government plan, employers will eliminate private plans and allow employees to move to the government program. Thus private plans will disappear–exactly what some wish to happen.

Much of the discussion, and wishful thinking, centers around cost control. Some of the ideas regarding better use of available technology may well be beneficial, but the greatest cost-saving opportunity is being totally ignored. I refer to the relentless assault on all aspects of the healthcare delivery system by aggressive law firms. Night after night on TV, a parade of advertisements by personal injury lawyers encourages lawsuits against various parts of the system. Such lawsuits create both direct and indirect costs, which no other system in the world has to bear. Indirect costs include the cost of litigation and, most importantly, the added burden of defensive medicine along with the astronomical charges for malpractice insurance.

When people are harmed by the system, either accidentally or by negligence, they are entitled to redress. But there must be a better way and one that does not support the cost of a horde of lawyers. I continue to believe that a system similar to workmen’s compensation could do the job. Providers would pay premiums into the program that would be far less than present malpractice insurance. Providers could be experience-rated, creating an incentive for higher quality. Claimants would be compensated fairly and evenly rather than rewarded by the variances handed down by juries. I believe this is a viable solution, but the likelihood of it coming to pass so long as many, if not most, of the key players are lawyers, is virtually nil.

Healthcare costs are particularly difficult for older established companies like General Motors. They have more long-term employees and retirees creating larger costs than newer competitors. But, eventually, as the new companies age, they will also feel this cumulative effect. So the problem is there, it is real, and I believe the most important dimension to correct is cost. Tort reform is essential and, like it or not, Congress needs to face up to it rather than just railing against drug firms and providers.

I am sure that as the debate continues there will be some who point to systems in other countries as the better model to follow. This is of course ironic as the British and a few other countries are trying to reverse their systems into a more private type. Some years ago while at a meeting in Canada the CEO of a large Canadian company said to me, “Our system would not work if we did not have the U.S. system as a back-up.”

When our son was in high school we hosted a German exchange student for a year. When he arrived his teeth were in terrible shape so we sent him to our dentist to correct the problem. When the treatments were over he expressed the shock at the bill we paid, exclaiming that in Germany it would have been “free.” I asked him why he had not taken care of his teeth before he left home. He replied that it took months to get an appointment and only a little could be done each time. He also did not factor in the taxes his parents paid for this not so available “free” service.

There is no free lunch!


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