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Bad Medicine

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The Grand Central Caf? in midtown Manhattan is a bustling nexus of business travelers and tourists, the kind of transient crowd that makes for an ideal venue to meet contacts and share ideas over a cup of joe. That is how I came to visit the Caf? in January, to sit with Tom Kozera, president and CEO of SKCG Group, one of the country’s largest privately held agencies. SKCG serves various markets, including employee benefits and group health plans. Obamacare is on Kozera’s mind a lot these days, especially the impact it is having on the industry’s distribution system. On people like him, really.

Kozera is joined by David Parker, SKCG’s treasurer and a partner with the firm. I have been invited to meet with them to hear what they have to say about the deficiencies of Obamacare–a once-derogatory term for health care reform that seems to have stuck as the official slang for PPACA–and how it fails to deal with what SKCG feels are the underlying cost drivers of our increasingly expensive health care system.

While Kozera and Parker are both knowledgeable and earnest about the health care industry, there is also a sense of quiet desperation about them. They are not here to try to sell me on their firm, or to pass off their latest product as an industry trend. They have the demeanor of those civil engineers in New Orleans before the levees broke, looking for someone–anyone–to hear them out on what they see as an impending disaster. Their passion on the subject reminds me of how many National Underwriter readers have also criticized Obamacare, and that it might destroy their businesses.

Kozera and Parker start by saying something that a lot of Obamacare’s detractors seem reticent to admit–that the law is not going away any time soon. Efforts to repeal it will get no farther than the House of Representatives. The court battles will ultimately be decided by the Supreme Court, which historically is reluctant to overturn that which Congress has made law. Justice Roberts, the bench’s swing, seems to favor of letting the law stand. De-funding Obamacare in Congress is the third rail of opposition, but even that is a less-than-total solution and does nothing to stop the various legal requirements and penalties for standards of practice, going forward. “The chances of this going backwards to the way it was before is not going to happen,” Kozera states emphatically. “That boat has left the dock.”

According to Kozera and Parker, all Obamacare really did was bring to the surface an issue that was already coming to a head: runaway health care costs, driven by a variety of factors, including fraud, lawsuits, and heavy (even excessive) use of health insurance by the consumer. Add to that the 36 million or so uninsured who will go to the emergency room–the most expensive form of health care that there is–whether they have coverage or not, and you have a runaway train, economically. This, they add, is far more important than the constitutionality of the individual mandate, which is good political theatre, but fails to address the key issue with both Obamacare and health care itself: cost.

“There is a lot of debate as to how to pay for PPACA,” Parker tells me. “How do you pay for 36 million people getting coverage who didn’t have it before? How do you pay for all of the add-ons to coverage that didn’t exist before? It has to come from somewhere, and as politicians play with it, you’ll have real issues.”

Kozera goes even further. “The Obama administration says we should cover an additional 36 million people. We should add our children back on our policies until they are 26 years old. We should make preventative care free so there is no co-pay to arrange with the insurance companies. We should have mental health parity across the country. Morally, these are great things to do, but how are we supposed to do it, and how will it affect the overall cost of health care?”

Kozera and Parker see a grim scenario for all involved. Under fully fledged Obamacare, they suggest, two different kinds of physicians emerge: those who essentially work for the government for $90,000 to $150,000 a year, and those who opt out of the system and will work for cash or credit up front. This, in turn, they suggest will create a kind of medical class warfare, where those who can afford to, will pay top dollar for a medical concierge system while everybody else will stand in line not just to get worked on, but to handle the government reimbursement process.

In many ways, things are like that already, they say, but if fully implemented, Obamacare will make things far worse, perhaps even to the point where the United States will find itself importing doctors from abroad, since home-grown MDs will not be able to pay off their crushing medical education bills with what government work pays. (As for doctors making only $150,000 a year, how they are expected to pay for malpractice coverage remains to be seen.) “In the end,” Parker asks, “does that mean we really have better medical care, or more mediocre medical care for a greater number of people?”

And that is where the rubber meets the road on Obamacare. PPACA is not a horrible idea, Parker and Kozera say, but it has been poorly executed without regard to long-range implications. Case in point: Between medical loss ratios, coverage mandates and insurance exchanges, PPACA puts the squeeze on brokers and agents from different directions. And as it shifts costs back to the insurance industry, those costs in turn shift to the consumer, neither providing the better care that was promised nor giving the industry much room to maneuver. This, Parker and Kozera say, might have been the intent of PPACA all along: to simply phase out the health insurance industry altogether.

PPACA was sold on the premise that private industry was still running the delivery of health care, but when the system becomes easier and easier to mandate, Kozera says, eventually nobody really needs the insurance company anymore. The first sign of this is the diminishing role of the agent and broker.

“These mandates are giving insurance companies a reason to lower costs across the board and the agent and broker is on the front line of that,” Parker says. “When that happens, the consumer loses. The consumer needs an advocate and somebody to help people better understand the product they are buying. If you go to an 800 number or a website, you might not necessarily get an impartial opinion.”

At the moment, Parker and Kozera have more business than ever, mainly thanks to concerned clients who are trying to figure out their options as PPACA is implemented. But they realize that if the law is not significantly altered between now and 2014, they might not have a practice any more. In a world without brokers and agents, they say, what the consumer is left with is the medical equivalent of a trip to the DMV.

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“As consumers, we’ve all seen the end results of the DMV, the post office or your credit card company where you have to call up and press 15 different buttons and maybe get somebody on the phone who is articulate enough to answer your questions,” Kozera says. “You take the typical American consumer, and I don’t know how long a system like that can last.”

A traditional broker benefit, he points out, is in negotiating rates during renewals. While the industry is fully aware of how brokers can negotiate for lower rates, or at least for carriers to explain themselves over rate increases, the general public has no clue how to do such a thing, nor does it have the collective bargaining power to actually get a better rate. That goes double for resolving claims issues.

“When the system breaks down, you can either got to the DMV and get your license reinstated, or you can call people like us, and we can help you,” Parker says. But only if people like them are still around. They may not be, and the notion of a government 800 line as the alternative is less than compelling. But it might also be inevitable at this point.

Meanwhile, Kozera and Parker are seeing a watering down of the policies provided by carriers, thanks in part to medical loss ratio standards which throttle potential health insurance profits. As a result, higher deductibles, higher co-pays and lower reimbursements to the end user–doctors, hospitals and patients–are emerging across the board as carriers try to shift the economic risk away from themselves.

Eventually, however, Parker and Kozera are worried that carriers themselves might simply throw up their hands and seek better opportunities elsewhere, as Guardian did recently when it chose to leave the health insurance business. Those that don’t face the prospect of writing unprofitable business until they are forced to look to the government for a rescue. Or, they face the death-by-a-thousand-cuts prospect of working a line of business with too thin a profit margin to be worth the trouble, and leave the market as a result. And that, critics contend, seems to have been the plan all along, to slowly bleed the private health industry over to a government-run health plan.

All of this could have been avoided had Obama and the Democrats not rushed to push PPACA through, Parker and Kozera say. Had the White House assembled a think tank of industry and government officials to look at where health care costs are really coming from, perhaps a more palatable solution would have been devised.

What if there had been such a think tank, I asked them, and what if they had been part of it? What would a more workable solution to tackling health care have been? Not surprisingly, their answer came back to cost. Everybody wants health care; it is just that not everybody can afford it, so if the initial costs were addressed, the products could be made available to a wider audience just by market forces alone.

A first suggestion would be to value health insurance the way we value life insurance. Why, Kozera said, should somebody who is young and healthy pay the same health care cost as someone who is obese or a smoker? Some programs offer price cuts for those who do not engage in negative health behaviors, but there could be a lot more aggressive pricing to reward health and penalize unhealthy lifestyles.

There also needs to be a more level playing field. At present, Parker said, it is nearly impossible, he said, for a smaller company to enter the market because they do not have the clout to negotiate rates with the local hospital network that a behemoth such as United HealthCare does. Until that changes somehow, there will not be enough competition in health care, which gets in the way of lowering prices.

There is also the matter of $60-70 billion in health care fraud committed each year in this country. Were that reduced just by half, costs could be lowered significantly. True, but try selling that to the public. The average insurance consumer simply does not get that they pay for fraud in the end, and no public awareness campaign has ever dented that. It is hard to get people to sympathize for an industry perceived to have no soul and deep pockets.

What was interesting was that insurance profits were never held up as a major cost driver. The public likes to see when health insurance companies make $600 million in a year, Parker notes, but it overlooks that the $600 million only translates into a 4.2% profit margin–not exactly a king’s ransom in terms of ROI. Just the same, as with the fraud issue, it is hard to imagine getting the public to believe that the insurance component is not raking in a fortune off the back of hospital patients and denied long-term care claims.

The final problem to solve is the gross mismatch between the need for the insurance world to make a profit, and the need for society to have access to top-flight healthcare, regardless of if they can actually pay for it. “We are not a society that leaves people bleeding in the street,” Kozera said, but at the same time, the cost situation is out of hand, and as standards of care deteriorate as Obamacare is implemented, that might push people to a tipping point where, among other things, we simply decide to take matters into our own hands. This means taking our personal health seriously. Using medicine preventatively. And most of all, taking a more active role in the public debate over how health care is delivered, sold and administered.

In that regard, maybe that will be the great, big favor PPACA does for the industry. In creating so much collateral damage while trying to do the right thing, perhaps Obamacare might finally galvanize people and industry to do the heavy lifting themselves to overhaul the system and provide a fundamentally different and better form of health care to the public. Or maybe we’ll all be standing in line, forever more, waiting for our turn to told to turn to the right and cough. Time will tell.