Chronic Failure

By Greg Scandlen

Every federal initiative that I can think of in health care has been a failure. Maybe you can think of some that have worked as promised. I can’t.

This is not an ideological critique, but a practical one. Most Americans are practical people. We like to do what works and avoid repeating our mistakes. This country is famous for “second acts” and “second chances.” We don’t condemn people for making mistakes, but we expect them to learn from the error and do better the next time. But that assumes that the second act is not an exact repeat of the first one.

Unfortunately, today we are repeating all of the things that have been proven failures in the past. Managed Care was soundly rejected by most of the public, so now we are doing it all over again with a new name – “Accountable Care Organizations.” Much like today, we tried to lower health care costs by reducing the supply of health care services with the massive federal Health Planning Act in the 1970s. It had the exact opposite effect. Hospital rate setting was tried by 30 states in the 1980s and repealed in all but one (Maryland.) But today there is new talk of a new round of hospital rate setting. Community Rating and Guaranteed Issue have been tried with horrendous results, but today it is national policy with one small twist – everyone will be required to buy whether they want to or not.

Even the much-touted Medicare program is a failure by any standard. Yes, it is popular and defended by the elderly. Of course it is. The “beneficiaries” pay a mere fraction of what the program costs. Of course they like it. And there no longer exists any alternative in the market. Of course they defend it. That does not make it a success.

As John Goodman writes in Forbes, Medicare’s unfunded liabilities are $89 trillion on top of any expected premiums and dedicated taxes. Or, he adds, if we froze the program today and just looked at what is owed to today’s worker’s and retirees the unfunded amount would equal $33 trillion. That is – 33,000 billion dollars, or about $100,000 for every man, woman, and child alive in the United States today.

More recently, writing on the From Forum, Bruce Bartlett looked at an obscure federal report, “The Financial Report of the U.S. Government,” that takes an accrual approach to obligations, rather than the cash flow approach of the federal budget. Every private corporation in the United States is required to use accrual accounting in its financial statements, says Bartlett.  He reports that Medicare liabilities over the next 75 years were $38 trillion at the end of 2009, but were cut by $15 trillion in 2010 because of the health reform law. Of course, that $15 trillion “cut” was just being transferred from Medicare to the other programs within ObamaCare, so it isn’t really saving money at all.

So, the program is massively insolvent. But it is also a lousy insurance program. You would not be able to sell this program as a private benefit plan. It has a bewildering array of deductibles, coinsurance, and limits on covered benefits. In fact there is absolutely no limit on the out-of-pocket liability for beneficiaries, so that most people on the program also have to buy an expensive supplemental policy to cover all the coverage gaps.

The list of failures is so long it would take a book (which I am currently writing) to list them all. The SCHIP program was supposed to ensure that all low-income children would have insurance coverage. It didn’t. Hillary Clinton’s federal vaccine program was supposed to ensure that all kids could be vaccinated at low cost. The doses rotted in warehouses.

It is not the opponents of these programs that are ideological, but the supporters. In most cases the skeptics were willing to give the ideas a chance to succeed even while doubting that they would. But the supporters are unwilling to ever admit failure and keep pushing the same ideas in spite of all the empirical evidence.


7 Responses

  1. If you want to closely examine just how ineffective Medicare really is, consider its performance relative to fraud involving medical equipment. The conventional wisdom is that there are fraudulent “fronts” which bill bogus claims and that amounts to billions in fraud. It must be true because CMS is always feeding stories to 60 minutes or other friendly publications about a raid or investigation.
    Yet, CMS does nothing when it comes to patient fraud. We own a DME and are vigilant about compliance. We frequently see patients attempt to get equipment that Medicare has already provided. If there is enough time to check, we catch it. But since Medicare call centers close at 4 pm Pacific time, and are closed on the weekends, some of these orders get through. We have not recourse to charge the patient. How come there is no investigation of this?

    it does not fit the template. Medicare is incompetent at doing anything about fraud and instead relies upon public relations efforts to make it look like they are competent.

    • Wow, Greg. Great insight. As long as it is just a big ol’ pile of other people’s money, the incentive is there on everybody to grab as much of it as possible. Why not? Nobody really gets hurt, do they? Nobody but the taxpayer, that is.

      • Its not limited to lack of enforcement on beneficiaries either. CMS right now is awarding contracts in the competitive bidding program to companies that have committed medicare fraud! Why require a company to pay tens of thousands of dollars to be accredited and then still choose companies that have committed fraud?

        CMS really only wants to make it look like they are policing fraud.

  2. Greg, HSAs and HDHPs are also a “federal initiative” of sorts. Trying to be introspective about something I obviously support, what needs to be done (beyond broader adoption) to assure that these do not fail as well?

    • It’s a fair point, Jon. Perhaps I should have used “program” instead. As for what else needs to be done, I think HSAs are just a first baby step. I hope the insurance side of the program will evolve into something more like an indemnity program and less like a PPO. Plus, a lot more competition on the insurance side.

      • Greg,
        Even though HSA’s and other forms of tax favored programs are effective and increasingly popular, they are still products of the tax code. i.e coercion to do the something.
        Therefore I agree that the indemnity approach will gain favor.
        As I have said before the command and control folks do not see the future coming. We are becoming a more and more bottom-up society and world. The information genie is out of the bottle and they are collectively clueless.
        Gen’s X, Y, and the ‘millennials’ do more on their own little portable computers than was even imagined ten years ago.
        Want to find out if a car repair shop is good? Point your iPhone at it and ask for ratings and price info. Same for restaurants, colleges, and even medical providers!
        Entrepreneurs will go to work on true insurance solutions soon, as the affordable care act crashes down around the DC command and controllers.
        I remain optimistic and enthusiastic about the future.

  3. Greg, the blog is great, you have aced this project quickly. Let me know if oyu need help with widgets

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