House of Mirrors

By Greg Scandlen

So, you think the debate over ObamaCare was frustrating? You ain’t seen nothing yet.

Just as Massachusetts provided a preview of that debate, it is also debuting the coming argument over cost control. An article by Amy Goldstein in the Washington Post  tells us exactly how it will play out.  The internal contradictions are mind-boggling.

She begins by explaining that,

Massachusetts Gov. Deval L. Patrick (D) is trying to “shove,” as he put it, the health-care system here into a new era of cost control.

Yes, “shove,” — kind of like Obama shoved us into his version of Wonderland.

She explains,

The governor’s proposal builds on a surprising consensus among leaders from the state’s insurance and hospital industries, medical society, legislature and governor’s staff who served on a special state commission assigned to diagnose the culprit behind the soaring medical spending. Fee-for-service medicine “is a primary contributor to escalating costs and pervasive problems of uneven quality,” the commission unanimously concluded in 2009.

This, even though it is patently untrue.  Fee-for-service does not drive inflation in health care – or in any other sector of the economy. What drives inflation in health care is the one thing that makes it different from any other sector – third-party payment. Of course, all of those “consensus makers” benefit enormously from third-party payment, so they aren’t about to kill this golden-egg laying goose.

The article also disavows any responsibility the state may have for the unique cost increases in Massachusetts.  It says,

The spending per person on health care is 15 percent higher than the national average — even taking into account the comparatively high wages here and outsize role of medical research and training. The move to near-universal coverage, state figures show, accounts for a sliver of recent increases in insurance premiums, which have soared above inflation. The main reason has been a rapid escalation in prices.

The state is saying, “Don’t blame us, it is the ‘rapid escalation in prices’ that is to blame, not the universal health program.” But why is Massachusetts having a “rapid escalation in prices” that no other state is seeing? Golly. It’s a mystery!

What to do, what to do? I know! We will pay doctors more for doing less!! INSPIRATION! Blue Cross has already begun —

The arrangement is a version of the accountable care organizations that the federal government also is trying to encourage in Medicare. They pay teams of doctors or hospitals a lump sum or what is called a “global budget” for the patients assigned to them. If a team can provide care for less, it keeps some of the savings, assuming it also meets enough of 64 measures of quality that Blue Cross has defined. Today, about one-third of the primary care doctors in Blue Cross’s network are taking part. A half-million HMO patients have been put in them — but not told by the insurer.

The article goes on to say the arrangement is “voluntary,” but voluntary for whom? Apparently not the half-million people who have “been put into them” and not told about it. Is this part of the “shoving” the Governor was so proud of?

Another part of the shoving were the arbitrary denials of insurance rate increases the Governor directed the insurance commissioner to make. The article reports the commissioner rejected 235 of 274 proposed rate increases last year.  Not because costs weren’t going up. The article already said they are. But for crass political reasons, dictated by the Governor who was up for re-election.  What a swell way to run a health care system!

But the article also contains the seed of what a real solution could be. Ms. Goldstein writes:

Attorney General Martha Coakley used new subpoena power to produce a report laying out large disparities in hospitals’ prices and concluding that they are unrelated to the quality of their care, the sickness of their patients or whether the institution is a teaching hospital.

Well, golly, again. If there is a wide variety of hospital prices unrelated to the quality of the care provided, is it possible – just possible – that consumers spending their own money might be able to shop around for the best deal and thereby punish those hospitals that overcharge and reward the ones that provide value?

And is it possible – just possible – that what gets in the way of that is not “fee-for-service” but third-party payment?

Can anyone say – YOU BETCHA!?


GAO Report Insults Consumers, Attacks Agents

By Ross Schriftman, RHU, LUTCF, ACBC, MSAA

Tel. 215-682-7075,

“The great enemy of the truth is very often not the lie – deliberate, contrived and dishonest, but the myth, persistent, persuasive, and unrealistic. Belief in myths allows the comfort of opinion without the discomfort of thought.” – John F. Kennedy (1917-1963)

A report published recently by the Federal Government Accountability Office (GAO-11-392-R) shows a massive lack of understanding about economic markets, insults consumers and attacks health insurance agents.  On page 24 of the report it states, “Currently, insurers typically pay agents and brokers to sell health insurance through commissions based on the price of the product sold.  This may motivate them to sell higher cost products or products that may not best meet the needs of individuals.”  Although the report lists “experts” who provided information for the report, after requesting it GAO could not document how they made such a ridiculous statement.

The statement insults the buying public since people do not simply accept the most expensive insurance if they have an alternative.  Any agent that operates in such a way will soon lose his or her clients and quickly go out of business.  I know an agent who had a client that claimed he was gouging her because her price for her insurance was $1.43 per month more than her neighbor’s premium.

There is a paternalistic assumption among those in government that Americans are incapable of shopping for insurance. Therefore the government needs to create a massive system of state exchanges to help us. State Legislators and Governors have now been thrust into the role of creating health insurance markets and new entities that don’t exist currently. All of this is in the name of reform.  Who will pay for the cost of implementation, staffing and housing these exchanges?  We will.

Further evidence of a poor job by GAO in their report is this strange footnote on Page 19.

“Employers may be reluctant to bring insurance agents into the workplace or to adequately compensate them, and appropriate compensation mechanisms need to be developed to ensure employees are steered into the most suitable plans rather than those that maximize revenue for the brokers.”

Does our government really understand how health insurance is sold, enrolled and serviced?  An agent who is not on site meeting with employees and taking care of their needs will not be in business very long.

Why would employers be reluctant to have their agent take care of this function?  Most of my small business owner clients don’t want to be in the position of taking care of the enrollments and explaining benefits.  They have their businesses to run.  They “hired” me to handle this for them.  I earn my commission, which is the revenue to run my business by performing these important tasks for them.

GAO has done many excellent and professional reports in the past.  This report on how people acquire insurance and suggested alternatives is not one of them.  The entire concept of exchanges is based on an insulting myth that we Americans can’t make our own decisions.  The exchanges will be an expensive, unnecessary and bureaucratic addition to all the other costs of Obamacare implementation.  We taxpayers have already paid $105 billion for the government’s administrative costs for the “reform.”  Where are the savings they promised us?

Mandate Still Not Popular

By Greg Scandlen

A new survey by Harris Interactive finds that the individual mandate is still a loser – only 23% of respondents support it, while 50% oppose it.

Humphrey Taylor, the chairman of the Harris Poll, still tries to spin the results in the most favorable (to Obama) light.  The company press release says:

But certain arguments in favor of the mandate seem to sway opinion back toward support of the measure. For example, 71 percent of the more than 3,000 adults polled in mid-February agreed with the notion that “for health insurance to work, it is necessary to include people who are healthy in order to help pay for those who are sick.”

That seems to suggest that “while the individual mandate is still widely unpopular, indeed by far the most unpopular part of the Affordable Care Act [ACA], some arguments in favor of it are supported by most people,” said Humphrey Taylor, chairman of The Harris Poll Interactive.

No, Mr. Taylor’s conclusion does not follow from the statement above. The statement is absolutely true — “for health insurance to work, it is necessary to include people who are healthy in order to help pay for those who are sick.”  — but that has no bearing whatsoever on the mandate.

Every insurance pool has a mix of many healthy people and a few sick people.  That has always been and always will be the case. No one has to mandate anything for that to happen.

Unlike Mr. Taylor, most Americans are full of good sense. They know that it is good to be insured so that they will be covered when they need it. As with all insurance, we are much happier if we don’t have to use it, but we appreciate the security of having it, just in case.

We have never needed to be mandated to buy it. Even now, only some 15% of the population is uninsured. Pretty good considering how expensive and bureaucratic it is. Make it less expensive and bureaucratic and a whole lot more people will buy it.

By the way, the poll also found only 20% think the law is constitutional, while 50% think it is not.


Right of Contract

By Greg Scandlen

We have learned a lot recently about the Commerce Clause and the transformation that took place in the Roosevelt-era Supreme Court from 1937 to 1945.

Never mind the principal of “stare decisis” that says the courts should respect and uphold previous decisions of the Court. That only seems to apply when there is a conservative nominee who might change the interpretations of previous progressive justices.

When a radical Leftist judge throws out 200 years of established precedent, he (or she) is just enlightened. Once the new radical interpretation has been made, God help any judge who might think it was poorly decided.

Now Reason Magazine reminds us of a similar radical change the Court imposed in 1937 – the complete abandonment of the fundamental and ancient principle of freedom of contract. This says that when two people willingly enter into a voluntary contract, the government’s only role is to enforce the terms of the contract.

In the Reason article Brian Doherty quotes David Mayer’s new book, “Liberty of Contract: Rediscovering a Lost Constitutional Right,” describing the right of contract as:

… a fundamental right, one aspect of the basic right to liberty safeguarded under the Constitution’s due process clauses, which prohibit government—the federal government, under the Fifth Amendment, and states, under the Fourteenth Amendment –from depriving persons of ‘life, liberty, or property without due process of law’…[but] following its ‘New Deal Revolution’ of 1937, it ceased protecting liberty of contract.

In an interview, Mayer explains that prior to 1937 the Court overturned a large number of laws involving such topics as minimum wage, state segregation laws, and laws requiring public school attendance and prohibiting parochial schools. These were tossed, not because the Court found the laws distasteful, but because they violated the freedom of contract.

Mayer argues that the current affection by the courts for “privacy” is too narrow and should really be expanded to freedom of contract. He says,

(T)he modern court’s protection of privacy rights from a libertarian perspective is too narrowly focused on issues about procreation and love. Why is it not equally fundamental to decide how many hours we work or our wage levels? There are all sorts of government regulation of our lives [in the world of business and economics] that interfere with the right to privacy too.

Certainly the current raft of suits over ObamaCare should include a freedom of contract argument. Why should I not be allowed to freely enter into a contract with an insurance company to provide the benefits of my choosing in exchange for willingly paying the premiums it requires.

How is that arrangement any business of the government?

Who Pays?

By Ross Schriftman, RHU, LUTCF, ACBC, MSAA

Horsham, PA

Tel. 215-682-7075


The argument that everyone must have health insurance so that we who are insured don’t end up paying the medical bills for those who aren’t insured has been repeated by so many people so many times that it has become an irrefutable truth. That is why Obamacare’s linchpin provision requires all of us to have health insurance by 2014. In fact we will be mandated to purchase only the kind of coverage designed by the Secretary of Health and Human Services in Washington.

Interestingly, the fact is that uncompensated care, although a serious problem, is a small part of our overall healthcare costs.  In 2008 it represented an estimated $43 billion of our $2 trillion healthcare bill or about 2%.  I have not seen a study that shows how much of uncompensated care is for health care services received by people who already have insurance but refuse to pay a deductible or copayment or for services excluded by the insurance plan and not paid by the individual who received them.

When did it become one individual’s responsibility to pay for someone else’s expenses? If someone doesn’t have life insurance and dies does everyone who has life insurance have to pay for his funeral and support his family?  If someone doesn’t have disability income insurance and becomes sick do the rest of us get stuck paying his mortgage and utility bills?  Of course not.

So why would it be any different with health insurance.  Whether or not we have health insurance we ultimately are personally responsible for our medical bills being paid.  Over the years the share of out of pocket expenses people pay for health care in our nation has gone from 10.5% in 1970 to only 4.3% in 2009 according to a recent report by the Centers for Medicare and Medicaid Services.  When did we begin to think that our health insurance is supposed to pay for all of our healthcare needs?

Last week a second federal judge ruled that mandating that everyone purchase health insurance is unconstitutional and he voided the entire new law using the government’s own argument that the mandate was a key provision of the legislation and not severable from the rest of the law.

Eventually our highest court will render a decision as the government has appealed the judge’s ruling. If the individual mandate is ruled constitutional by the Supreme Court then why wouldn’t the next step be that everyone is required to purchase long term care insurance?  Using the Obama Administration’s same logic of “public good” could then be applied to this kind of insurance. After all right now the taxpayers get stuck for more than 50% of the cost of long term care services through the Medicaid program.  The vast majority of people receiving benefits under this program failed to purchase private long term care insurance.  The Medicaid program is helping to bankrupt the states and drive the Federal government into deeper debt.

Then take into account that only about 20% of American workers have any kind of disability income insurance and then realize that about 60 million adult Americans have no life insurance.  An individual mandate on health insurance is just the first step of our government mandating that we purchase all kinds of goods and services that could be determined to be “Necessary and Proper” for the public good.  If this first step is successful than the whole concept of our democracy in which free people make their own decisions and are personally responsible for those decisions is gone.  We will no longer be the nation of freedom that we were founded upon


Your Agent Can’t Sell You Insurance

By Ross Schriftman, RHU, LUTCF, ACBC, MSAA

“The bitterness of poor quality remains long after the sweetness of low price is forgotten” (Author unknown)

Ask yourself this question.  Do you want your agent to sell you health insurance with a company that is profitable or with an insurance company that is losing money?  As they say this should be a “no brainer.”

However, you don’t really need to ask your agent this question. Most likely your agent must sell you insurance from a profitable company.    That is because in order to be appointed to sell their products insurance companies require insurance agents contracting with them to be covered by a form of malpractice insurance called Errors and Omissions (E & O).  A provision of this insurance covers insolvency of insurance companies; but only if the company was in a strong financial condition when the client bought the insurance from their agent.  The standard used for this provision is usually an A- rating from A.M. Best; one of the financial rating services.  The malpractice insurance company will not issue coverage to an insurance agent that represents below par insurance carriers.  An agent must also have a high degree of integrity and competence in order to get E & O insurance.  If an agent can’t get the coverage they basically can’t sell insurance.  This is a strong consumer protection similar to the state licensing and training requirements for a person to be in our business.

Sadly there may come a day soon when your agent may not be able to sell you any of the health insurance you want and need. Why is that? Well along comes Obamacare containing provisions reflecting its wild theories.  The most recent thrust of the President and his Administration is that the rate increase for the insurance premiums we all pay must be reigned in by force of Federal government regulation.  The law contains a provision that sets an arbitrary percentage of how much companies can spend on administrative costs and maintain as profits. In theory this sounds like a good idea that will lower premiums.  In fact in practice it will actually increase premiums so that companies can cover all their necessary administrative functions and still show a profit.

To mitigate this bad provision from having the real life result I just mentioned our government has put forth another bad regulation. Now the Secretary of Health and Human Services has proposed a rule that will give the Federal government authority to cancel “unreasonable” rate increases.  With the health insurance industry working on a profit of $12 billion in 2009 for the top 13 companies and private health insurance paying out $800 billion in benefits that year it is obvious that they are still profitable even though the margins are small.  (Drug company profits were $64 billion in 2009.) However, it would take only one epidemic or terrorist attack to wipe out those profits.  Even a slight miscalculation by actuaries or government regulators could have a negative effect on the financial strength of a company. When liquidity and claim paying ability is diminished the rating services downgrade an insurance company.  What happens if the downgrade results in a rating of less than A- by A.M. Best?  Your agent can no longer sell you insurance from that company.

Two states; California and Massachusetts have already experienced regulatory attempts to stop rate increases.  Companies started losing money and the regulators have now backed off to some degree.  No one wants a significant rate increases.  However, delaying a legitimate increase will result in only two scenarios.  The first is an even bigger rate increase next time to make up for the loss.  The second is insolvency.  I would rather be unhappy with my rate increase than find out that my insurance company isn’t going to pay my claim or, more likely, have to wait for regulators to deem the company insolvent and hope that the State Guarantee Fund will step in and pay my claim.

Preventing health insurance rate increases to lower healthcare costs will be one of the biggest failures of Obamacare.  Sandy Prager, Kansas Insurance Commissioner and President of the National Association of Insurance Commissioners said it best, “I think we’re chasing the wrong tail here. It’s really about health care costs…In most cases, the companies have been able to justify them (rate increases), because of the economic situation. The book of business is probably getting sicker because healthier people are dropping out.

Now what happens if your agent can’t sell you a particular insurance company’s product anymore because their financial status forced a downgrade of their rating?  Not to worry. Under Obamacare starting in 2014 Americans will be buying health insurance coverage through State Exchanges. The employees of these new organizations will have no experience and little training.  They most likely will recommend that you purchase the lowest premium plan since the entire untested theory of the exchanges is to drive down premiums.  The lowest premium plans usually mean the least financially strong insurance carriers.  There are many examples from past experience of companies under pricing their insurance products.  The results are insolvencies, huge rate increases or termination of the block of business and the company leaving people with no insurance.  This is the future for America unless the so called Affordable Care Act is repealed and replaced with true market driven competitive reforms; ones that increase competition, attract young and healthy people to insure and not force everyone to buy insurance designed and dictated by Washington bureaucrats.



Helping the Medically Needy, Part One

By Greg Scandlen

In an earlier posting I said that health reform needs to be broken out into several discrete topics, with each one debated on its own. I listed them as –

— Medicare payment reform
— Insurance regulation
— Assistance to the needy
— Management technology upgrades
— Workforce initiatives
— Quality improvement initiatives
— Professional liability reform

These are just top of the head. There are certainly other topics that need discussion. But these are a pretty good beginning. It was nonsensical for the Democrats in Congress to lump them all together in a single package, and think there could be any rational understanding or even discussion of the proposal. As I said, ObamaCare was simply too big to ever succeed.

Now that we’ve spent some time on the last item on the list, professional liability, let’s introduce a new topic – assistance to the needy.

In my opinion, by far the most elegant idea was developed by John Goodman and written about in many places but perhaps most comprehensively ten years ago in Characteristics Of An Ideal Health Care System.

I call it elegant because it is simple to understand, can be applied universally with a minimum of administration, and will actually get the job done.

The two basic ideas are these:

  1. People should be insured if at all possible, but they cannot really be required  (“mandated”) to do so. All that can be done is fine them if they fail to do it. Let’s assume the fine is $2,000 per person. Fining non-compliers $2,000 is precisely the same as rewarding compliers $2,000. So giving a voucher in the amount of $2,000 for every person who has health insurance is exactly the same as placing a $2,000 fine on those who fail to have it. In either case, non-compliers are $2,000 worse off than compliers.
  2. We already know how much our society values health coverage. We know that by how much our society spends to provide care to the uninsured. This isn’t part of John’s argument, but I would add we also know by how much we currently subsidize those with employer-based coverage. Curiously that number is about the same in both cases. In 2007, the Congress’s Joint Committee on Taxation reported that the value of the exclusion for employer-based coverage was $143.3 billion in foregone income taxes and $100.7 billion in foregone payroll taxes, or $244 billion in that year alone. Assuming 160 million people receiving employer-sponsored benefits, that is $1,525 per person in 2007. Goodman estimated that in Texas in 2001, each uninsured person received about $1,000 in free care. So, our ballpark estimate of $2,000 per person today is probably not far off the mark.

So, John’s proposal is to provide a voucher of $2,000 (or so) to every person who buys health insurance. Those who do not choose to buy it would have their voucher deposited in a safety net program. This would be financed by eliminating the employer exclusion, as well as other existing free-care programs for the uninsured.

Before we get into the politics (winners and losers) of this idea, let’s supplement it with some additional thoughts.

  1. It is clear (at least to me) that some not-small number of people cannot handle coping with any kind of insurance program. They may be mentally ill, drug addicted, illiterate, or in some other way dysfunctional. There are people with poor impulse control who are simply unable to plan ahead even for a few weeks. They don’t keep appointments, don’t fill prescriptions, don’t understand the difference between an optometrist and an ophthalmologist. It is simplistic to think that sticking an insurance card in their wallet will do anything positive for them. It will not. These folks need the direct provision of services, not insurance of any kind. The Goodman proposal is the only idea out there that accounts for their needs.
  2. Very low-income people’s needs could be supplemented with state funds, especially if this idea supplanted Medicaid – and it should. Medicaid is a very poor insurance program that looks great on paper but pays so poorly that many enrollees can’t find a doctor to see them. Hence, about one-third of the uninsured are already eligible but haven’t bothered to enroll. Rather than corralling people into a Medicaid ghetto, this proposal would enable them to have real insurance, just like their neighbors. It also accounts for frequent changes in eligibility, as people get and lose jobs.
  3. Similarly for SCHIP. It has never made sense to divorce children from their parents to obtain health insurance. One policy is hard enough to understand without having several different programs for different family members. It would also be more affordable for children to be covered as dependents on their parents policy than to farm them out to a state program. I mean, ObamaCare is allowing independent “children” to age 26 to stay on their parents’ policies. Why in the world should an 8-year old be treated differently?
  4. The current punitive approach in ObamaCare is so full of holes that it will never actually work. Most of the uninsured are too poor to pay taxes, so a tax penalty will have absolutely no effect on them. Goodman’s approach rewards everyone equally, regardless of their income level.

I’m going to leave it there for now, but there will be much more to say about all this in future postings.