Obamacare’s Fuzzy Math

It is not really surprising that Congress is disinclined to spend another 200 billion dollars or so on the government-run portion of our healthcare insurance system and to rescind the major cut facing physician reimbursement for the care of patients on Medicare. Health care spending appears as a bottomless pit for the country and the country is quite insightful on this. Congressional elections are looming and there will be a Hobson’s choice of exacerbating a now frightening budget deficit and national debt or alienating most of America’s physicians who just might be forced to point out the problem to their 300 million or so patients. It will likely be easier to increase the debt than anger the physician or patient population so the “doc fix” is probably “in”.

For those who extol the greatness of Medicare, they need to remember that it is only an insurance plan, not a healthcare delivery system. Like any insurance plan, it has to collect premiums and pay bills. Unlike most insurance plans, it has no competition so it can pay what it wants and it can, through its parent company, the U.S. government, collect what it wants for premiums. Also, unlike most insurance companies, it really does not have to worry about going out of business. As one might expect of such an insurance company, it is unlikely to be all that concerned with either its customers (patients) or its suppliers (doctors and hospitals). All those physicians who wish for a “single payer system” need to remember all this. If they do not like Aetna or Cigna or United Health Care, they probably will not be that happy with an even bigger and less responsive system whose reimbursement rates are really not negotiable.

The “doc fix” is required since Congress looked to the Medicare system in 1997 to identify budget-cutting opportunities and realized that limiting what it paid to physicians would be pretty effective as a budget controlling tool. It figured that it could cut what was paid per patient encounter if the number of patient encounters rose and in this way control total expenditures. Like many simplistic ideas, it just did not work. Each year Congress realized that it would need to reduce physician payments by so much that it would be requiring the medical community to lose money in caring for Medicare patients. It also realized that since there were other payers available to physicians, some number could actually afford to stop seeing Medicare patients and still survive economically. This led to rescinding the planned cuts each year until the system was massively over its intended targets. Congress now has cut physician payments by some 21% (if only for a few days or weeks) as the payment limits, long ignored, automatically took effect when the “fix” was not enacted before the summer recess.

What does all this mean for Obamacare? While some temporary  “doc fix” will almost certainly be enacted, there is no question, given recent pronouncements from Secretary Sibelius, that increases in insurance premiums will be curtailed thereby leading to reduced physician and hospital payments. Cutting physician and hospital reimbursements as a means to controlling healthcare costs will lead to unintended consequences that will be at best, unfortunate and at worst, catastrophic. The costs of caring for patients has not dropped including malpractice insurance costs, staff costs, and all the overhead costs of running a medical practice. If Medicare reimbursement actually falls and other payers cannot make up the difference as Obamacare leads to price controls on insurance premiums, physicians will be forced to leave Medicare as a payer and perhaps forced to leave their practice or perhaps the entire practice of medicine. Hospitals, often the key employer in a community, will get into major financial trouble and many will close. As an example, over 20 hospitals have closed in the Delaware Valley region in the past decade.

Physicians and hospitals obviously need to embark on approaches that control the unsustainable inflation in healthcare costs. There are ways to do this. But Draconian shocks that seek to actually reduce reimbursement will lead to a massive undermining of American healthcare. As Obamacare rules prevent necessary increases in insurance premiums while the volume of services and costs of care both rise, healthcare chaos could ensue. The lesson of the “doc fix” problem is that trying to control healthcare costs through so-called insurance reforms just cannot work. This is why the trope that Obamacare will control healthcare spending is so flawed. It might do this with price controls like the system that created the need for a “doc fix”. But we will be back in this mess in a matter of months.