$2 Trillion of Fun (Part II)....

If the first rule of Fight Club is you don’t talk about Fight Club, the first rule of blogging should be: make sure your rickety computer is operational before referencing the ETA of your next post. In case that last sentence didn’t tip you off: yes, my Dell Inspirion threw a tantrum last week. Hence the delay in this entry.

Now, back to our previously scheduled healthcare dialog…..

If political strategy were represented in a Venn diagram, the three overlapping circles would be “beliefs, ideas, and actions.” For example, a presidential hopeful might campaign against abortion due to his Christian beliefs. That same candidate might also tout his/her prior experience and how his actions affected a group of constituents. Finally, a candidate might state his/her plans to revamp certain governmental programs if elected (ideas).

All three Venn circles have political ramifications.

Occasionally an issue will reflect the intersection of two Venn circles. President Bush’s appointment of conservative judges, Roberts & Alito, to the Supreme Court is one such example: a belief which resulted in action. However, most political issues remain isolated, without Venn intersection (few proposals ever get made into law).

Healthcare is a perfect example of an isolated idea. A politician’s beliefs don’t really affect healthcare policy; every politician is theoretically “for” healthcare (similar to education).

Less obvious is the fact that healthcare doesn’t rub elbows with “actions.” Healthcare is all about ideas; 99 times out of 100, implementation of those ideas isn’t forthcoming.

And politicians know this on day one.

The million dollar question is “why.” Why aren’t lawmakers driven to change a $2 trillion system which begs for an overhaul? For my money, that is the only question worth shouting about. But in order to fully appreciate the answer, we must first recognize the dynamics at work in the sector.

The first challenge with healthcare is that it’s an inefficient market. And I mean that in literal terms: the manufacturer or provider (could be a drug company or a doctor) doesn’t have a direct “would you pay X amount of money for this product/service” relationship with the end consumer.

When a traditional commercial product comes to market, it’s because an entrepreneur believes they can deliver a product better or cheaper. When they succeed in doing so, they find a happy customer. Importantly, if that company continually makes products better and/or cheaper, they improve their chances of gaining additional clientele. This is an overly simplistic but important example of a supply/demand relationship working without impediment, in which the interests of the producer and the buyer are cohesively aligned.

In healthcare, there is always an intermediary between the end consumer and the producer/supplier. Actually, in healthcare there are intermediaries on the front-end, an insurer or the government which approves products for an insurance plan, and on the back-end, an administrator or insurer which processes claims. In turn, almost without exception, the consumer doesn’t know how much a medical product/service costs, and they have even less feel for competing products/services.

I’m no economist, but I know that when intermediaries get involved, consumers almost always pay more.

Complex, inefficient markets also give governmental leaders a place to hide. When systems are complex, accountability is easily masked. It’s hard to hold an elected official to a “buck stops here” mentality, if no one can find the buck.

Not only is healthcare an inefficient market with intermediaries which cloud the flow of information, but the interests of the key stakeholders (consumers, providers, and payors) are unaligned. Each stakeholder does their own version of “looking out for numero uno” in a way that distorts the supply/demand curve and distracts from the end game: making people healthier in a cost effective manner.

As eluded to in Part I, insurers profit when healthcare expenses rise from year to year. Insurers make oodles of money (interest) due to the lag time in between when an individual or corporation pays a health-insurance premium and when a claim gets paid (typically three months). Almost no one visits a doctor the first day they are enrolled on an insurance plan. Even if they do, the insurer won’t process payment to the doctor right away. Often, the insurer will wait as long as humanly possible, and then a little longer, to pay the claim.

Here’s a real life example. A large insurance company in Illinois might have three million members enrolled on fully-insured health plans. If, on average, those members pay $300 a month, that’s $900M in revenue the insurer will collect in month one against zero claims (remember the lag-time). In other words, $900M to earn interest on. In month two the insurer will pay some claims, but it will still be a fractional amount of the collected premium. The insurer might have $1.5B in float on which to earn interest. Not a bad chunk of change to have lying around.

This also helps to illustrate why insurers want consumers to pay as much as possible; they would make less money if healthcare were inexpensive. Keep in mind, insurers assess an additional “risk charge” to every dollar of insurance premium they collect (on average $.10 - $.15), which is their profit margin for taking on your risk. In short, more money for Mr. Insurer.

The same problem arises with the provider-to-patient relationship. Providers (doctors, hospitals, etc.) don’t get paid until someone has a health problem. Moreover, a hospital or doctor has an ingrained incentive to see that patient as often as possible and treat them for various (potential) ailments.

This speaks to reader Sarah Ray’s incredibly (!) valid point (and a huge problem), our healthcare system doesn’t offer incentives for wellness. Employers don’t reward employees who are healthy. Doctors get paid less when they keep their patients healthy. Drug makers aren’t in the business of short-term solutions (how about a lifetime supply/crutch instead). And insurers traditionally make more money when the cost of care goes up.

All the while, federal officials are able to shirk responsibility for the system's dysfunctional ways and pander to special interests because most voters are either passive consumers or don't know how/where to assign blame.

In the 1960s GOP Senate Leader Everett Dirkson supposedly referenced a pork bill by saying, “a few billion here, a few billion there, pretty soon you’re talking about real money.” Healthcare would be Dirkson’s present-day poster child. It’s a runaway train without any tracks at the end of the line, but while the gettin’ is good, hog farmers are going to grab a few (hundred) billion.

Take the $550B (yes, that’s ten zeros) prescription drug bill that passed through Congress in 2004. The pharmaceutical lobby projected the cost to be around $350B, but Medicare’s chief actuary was prepared to value the bill at $534 billion. He was told to withhold the new numbers if he wanted to keep his job.

An unorthodox roll call in the middle of the night brought the bill to the House floor, long after the nation had gone to sleep. As CBS reported on 60 Minutes, the only witnesses were “congressional staffers, hundreds of lobbyists, and U.S. representatives, like Dan Burton, R-Ind., and Walter Jones, R-N.C.”

"The pharmaceutical lobbyists wrote the bill," says Jones. "The bill was over 1,000 pages. And it got to the members of the House that morning, and we voted for it at about 3 a.m. in the morning," remembers Jones.

Why did the vote finally take place at 3 a.m.?

"Well, I think a lot of the shenanigans that were going on that night, they didn't want on national TV in primetime," said Burton.

"I've been in politics for 22 years," says Jones, "and it was the ugliest night I have ever seen.”

Fifteen legislators or staffers that delivered the passage of the prescription drug bill have since quit and gone to work for the pharmaceutical industry, including Congressman Billy Tauzin (R-LA), who steered it through the House. Tauzin left Congress and took a two-million dollar salary as the President of PhRMA, the main lobbying association for the industry.

A couple million bucks for an ex-Congressman who delivered a $550B bill -- that should be referenced in the dictionary next to "chump change."

In truth, I shouldn’t expect anything less. Sadly, half-trillion dollar prescription drug bills aren’t a priority for most voters. Iraq, gay rights, the economy, and energy independence all rank above healthcare in importance this election season.

Which is the underlying point of this entry: we’re not there yet. Unfortunately, as much as it hurts to admit, the point of pain isn’t palatable enough for the majority of Americans. Not yet.

As a populace we’re not yet tuned into the healthcare music, but trust me, it’s playing in the background. Before long it will be the annoying elevator song that you can’t get out of your head. It’s coming, but that day isn’t today or tomorrow.

Employers are still shelling out bucks and the government is still a decade or so from watching the Medicare ratio go down the tubes (Medicare taxes collected divided by obligatory expenses). But when the baby boomers stop paying taxes and live on the government’s tab for another three decades, then we’re in trouble. Trouble in the muy, muy grande sense of the word.

Forty years from now an average 70 year-old is likely to have more than $100,000 in annual healthcare expenses. Meanwhile, Medicare is guaranteed to be under funded (or a gargantuan tax hike will be required). That rainy-day eventuality is coming to a town a near everyone, so get your vitals in working order now: there’s no telling what Lipitor will cost in 2047.

The good news: now I care. Having a glimpse of the road ahead, now I care about the system. I want improvements. I want mandatory health screenings for everyone. I want consumers to understand the cost of care and take responsibility for its future course. I want consumers (and doctors) to be focused on, and offered incentives, around wellness. I want the focus to be on "health" and "care" -- not the countless, market deterrents.

In reality, it won’t shock me if doctors and patients eventually go around the system. If they blow off insurers and intermediaries and build direct relationships: “I will pay you X amount of money for your services on an annual basis.” That relationship might even spur a lot of creativity. It could be a fine thing.

But in the interim, with trepidation, I will also admit that I think the government would do a better job managing the system. The private market has too many conflicts of interest. Plus, having fewer, profit-based intermediaries has to be a good place to start.

Then I could cast votes in federal elections in response to the government’s actions, not their ideas. In my own way, I could say where the buck stops and encourage others to do the same.

Right now, in the current system, it’s hard to even find the buck.