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Let's lay out the parameters for a bill, a fairly-modest update to my two previous missives on this point here and here (note the dates) and which can be easily turned into formal legislative language:
Now let's look at what you could expect under such a system.
Let me first note that such changes would drop Medicare expenses in the budget by at least 75%. Again, 25% comes off from changing how we handle Type II diabetes alone; these are not "pie in the sky" numbers. This results in a complete deletion of the federal budget deficit on an instant and permanent forward basis and as a result everyone in the country becomes richer every year because their purchasing power of money stops going down and starts going up.
The CBO is out with their latest estimate on the detonation of our federal budget, and it's not pretty. They point out what I've said repeatedly on the budget and "entitlements": Social Security is not the problem and in fact will start declining in share of the budget in 2028; politicians speaking of "entitlements" lumping Social Security in with Medicare and Medicaid are lying. The entire problem is in medical spending and if current trends are not reversed -- not just "adjusted" over time -- will destroy the federal budget and economy. We will not get to 2037 before it happens either; in fact, if we do not act we'll be lucky to get through the next four years as the markets will figure out that neither political party will take this issue on and resolve it. Simply put we must solve this problem and we must do it now.
If we don't this is what the federal government will try to do with debt
That will fail because it must; infinite exponential expansion of debt is impossible to sustain and will result in a fiscal crisis. Since this is being entirely driven by health care spending the only means to avoid collapse of the government will be forced rationing or even collapse of both Medicare and Medicaid -- an immediate disaster for everyone dependent on them.
We must act now to stop this, and the above plan (or something substantially identical to it) is the only workable means to do so.
Let's take some pessimistic estimates of the result from enacting this set of changes -- that Medicare spending will go down by half and Medicaid by 60%. These are in fact very pessimistic, since a 25% reduction is simply from policy change rather than cost control. What does that do to the budget even if that's all we get?
Total spending goes from $3.85 trillion to $2.92 trillion in an afternoon.
In other words we go from a $587 billion dollar budget deficit last year (on "official" terms) to a $342 billion surplus; that is, from a 15.24% deficit (as a percentage of the budget) to an 11.70% surplus! This change in spending and the surplus is maintained forevermore into the future -- in short this change ends, permanently, the federal budget deficit.
At least as importantly for you, as a consumer, we take the destruction of purchasing power of your money caused by deficit spending and permanently reverse that. Over time this will eliminate the federal debt -- without cutting any discretionary (or military) spending.
Let me add to this: I have, since The Market Ticker began publication, said that Social Security is not going to blow up; the entire problem is in health care. Lawmakers and candidates love to either scare Grandma by saying their opponent will "cut" Social Security or threaten that we must address "entitlements" in which they include Social Security. Here's proof from the CBO that I'm right and they're lying: Social Security does not materially increase in budget load over the next 30 years, and more to the point it starts declining in impact ten years from now as the Boomers begin to pass on!
Fixing Health Care prevents the destruction of the Federal Budget and prevents you from losing access to medical care -- especially if you're a Senior Citizen or poor. If we do not pass this bill or something substantially identical to it and you are either a Senior Citizen or poor within the next five to ten years you will face forced rationing of your health care or the government will collapse.
This bill will materially increase access to doctors, clinics and similar by Medicare customers since there is no longer any discrimination between who does and doesn't take the program -- Medicare is simply an insurance payer just as any private program is, and will list its payable amounts for care just as will any private party insurance does. This also leaves the Medicare Advantage programs, for those who decide they like that program better, fully intact. For those Seniors who have medical expenses that exceed what Medicare will pay they will wind up with a tax lien just as will any other citizen.
This bill will make customer choice not just a function of price but also of outcomes. Today there is no accurate way for a person seeking a procedure to compare the success rate between various providers of a given procedure. This must be fixed immediately if we are to have true competition as some doctors are outstanding, some are excellent, many are average and some are poor. There is literally no way for a customer today to know, other than by anecdote, which category a physician falls into.
The bill will also destroy PBMs and the outrageous extraction of funds they commit by forcing price transparency and decoupling price from "insurance." You will be able to call or go online to look up drug prices from any pharmacy and they will in turn have to honor the same price for all retail buyers. Competition will return at the retail level and the practice of "gagging" pharmacists, which is arguably illegal as it is done for anti-competitive purposes, will end immediately.
If you're unable to pay or accrue medical expenses in your Senior years (or otherwise) that wind up being paid by Treasury then when you die they go "poof" (Treasury eats them) to the extent that your estate is unable to pay them off as ordinary debt prior to distribution through probate (will) or trust. If you're married then your spouse cannot be punished for said debt during their life should they survive you despite some (or all) of your assets being titled in common, but your joint assets cannot be shielded when the surviving spouse dies against your medical claims nor can you marry after incurring such expenses as a means to prevent recovery from your assets. This prevents "serial marriage" or late trust-creation gaming of the system yet also protects a surviving spouse, which will be particularly important for poor couples and will prevent some of the nastiest situations that occasionally arise today (where long-married couples are essentially compelled to divorce for economic reasons due to medical expenses and collection efforts.)
Medicaid goes away entirely on a formal basis however poor people actually acquire superior access to health care. The amount spent by Treasury would drop by at least 80% instantly. A fair amount of the remainder would be, in future years, recoverable as some people leave the ranks of the poor and if and when they do their accumulated medical debt would be recovered over time.
This bill stops the detonation of all of the state public pension fund budgets -- a catastrophe that has been driving property tax increases and threatens to destroy all of the state budgetary systems. That all ends in one day.
It deletes all state Medicaid spending immediately (the states may choose to use said funds,or some part of them, to pay for low-income clinics and similar for residents in their states, much as County Health Departments do today in the States.)
It makes bilking the government by submitting false or inflated bills to the Treasury a severe criminal offense. The poor and disabled are the least able to press their own claims and fraud is rife in both Medicare and Medicaid today. This puts real teeth in the anti-fraud provisions for those individuals who, most of the time, cannot reasonably bring their own suits. It also protects the poor and disabled from improper tax liens while at the same time recovers from them the cost of their care should their financial situation improve in the future.
An often-repeated claim is that medicine is "highly variable"; the person who presents to the hospital or ER has an unknown expectation for complications and follow-up requirements. But this is true for car repair as well. I remind you that it was not that long ago (if you're old enough you remember) that the practice in car repair was to put your car on the rack, get a blanket authorization, rip it apart and tell you what the bill was when they were done. This often led to vehicles being literally held hostage and outrageous bills that nobody would have agreed to in advance. That was made illegal and during the debate over these laws all the car dealers and repair shops said they "couldn't" accurately estimate and would go out business if forced to do so. They lied; the dealers are still there but the racketeering they used to engage in and the rabid screwing the consumer used to take is gone. Car dealers dealt with this by introducing a "flat rate" book. The "flat rate" for repairing your front brakes is $400. This includes a set of pads and rotors and the labor to install them along with a margin for expected and possible complications; the dealer has no idea what sort of condition the vehicle is in other than that it needs brakes when he takes it into the shop. The flat rate book gives him the expected time to perform the procedure including a margin for possible complications. In some cases the dealer will take less time to fix the car and in some cases more. That doesn't matter; what does matter is that on average that's what it will take with a reasonable profit for the dealer, and in addition the dealer typically adds a "shop charge" that is a flat 10% of his repair price for small and hard-to-itemize things like shop towels, grease and similar. If he gets it done faster and cheaper, he wins. If he runs into complications, he loses. The book gets released with each new model and can be updated as actual service history is fed back to the manufacturer.
The "must post a price" model, incidentally, does not mean that providers cannot differentiate between customers who have objectively-measurable differences in presentation. For example a provider could charge 25% more for someone who is morbidly obese but must do so for everyone who is, and must post that up front on their price list. There may well be a higher complication rate for such a person in that practice's history. If a provider is willing to come in at 3:00 AM to take care of something urgent but wants to charge double to do so rather than waiting until the morning they can, provided they disclose it up front in their price list. Likewise, perhaps some practice has a lot of available appointments in the afternoon and wishes to offer a 10% discount for appointments between 1-4 PM. No problem. Competition once again comes into play; if some provider figures out how to get rid of the additional complication rate caused by said obesity they can then undercut the other guys on price and gain that business. If one provider is more skilled than another and thus has a lower complication rate they can undercut their competitors which is good for everyone except the lesser-skilled provider. Who do you want practicing their medicine on you -- the better guy or the lesser one? This is how progress is made folks. It's also why the shop charge to change an alternator in one make and model of car is different than the same job done on a different make and model; one may have easy access from the top, the other does not.
Likewise insurance companies employ a whole bunch of actuaries for the purpose of figuring out the odds of a given thing happening and what it will cost if it does. To do this they analyze previous events. After this change in law hospitals will be no different; the hospital has access to fine-grained data on all of its previous procedures done, for example, to perform a coronary artery bypass. It knows on average how many sutures must be laid, how many scalpels are used, how many units of blood get consumed, what drugs and in what amounts are consumed, how many hours in the operating theater and so on. It knows that X% of the operations go without a hitch, Y% have some minor complication and Z% are a disaster requiring other major interventions because of unforeseen complications -- some of which are avoidable (e.g. infections acquired in the hospital) and some of which are not. From all of this data the hospital can compute an average and that's the price they set. Just like the car dealer does not know if your car has frozen bolts that will have to be chiseled off in order to change your brakes or a caliper that will have to be swapped out because when it is reset it starts leaking fluid the hospital does not know all of the possible complications that may arise from a procedure when you are admitted. By mandating a quoted pricing model competition comes into the game and the hospital now has an incentive to find ways to reduce the complication rate and waste. The complication rate is very important to you as a customer since avoidable complications (e.g. MRSA infections) are severe consequences that you suffer and a good part of the time it happens because they screwed up. It is utterly essential if we are to improve the quality of care that the incentives align for the provider and customer in this regard and if the hospital across town (or across the state!) can reduce the infection rate, for example, that also reduces its average cost for a given procedure and thus said provider can offer a cheaper price. That's called innovation or, if you prefer, productivity enhancement and it is the driver for progress in your quality of life both personally and economically.
One of the often-repeated claims is that much testing today is undertaken for the purpose of "defensive medicine" in the form of preventing malpractice lawsuits (or at least making them harder to win.) Forcing the doctor ordering said tests to present a price to the customer and obtaining their consent before the test is done ends this instantly. If the customer refuses to consent to spending the money on some diagnostic then the result of doing so is on him or her.
"Poof" goes the defensive medicine problem in a puff of smoke because the customer made the choice rather than the doctor! Physicians often claim we need "tort reform" and that they order tests by the bucket-full as a means to defray lawsuit risk. Various advocates, for their part, want to outlaw bringing such suits. The problem with so-called "tort reform" is that sometimes lawsuits are appropriate -- the classic example is when the doctor amputates the healthy foot or hand leaving the diseased one attached! The best, easiest and most-equitable reform when it comes to the "tort lottery" game played today is to replace the current "order 10 tests" paradigm with informed consent and shift consent along with the cost and potential benefit analysis to the customer. If the doc says "I want you to take a CT scan because I suspect X and it costs $200" and I say "No" because I don't want to spend the $200 then if it turns out that the bad thing would have been discovered by the CT I cannot sue because I was offered but refused the test! Customers need to become the decision point, not doctors; they must be presented both the cost of such procedures along with the expected benefits -- including the odds of either proving up or refuting a possible diagnosis. My ass, my choice, my expenditure, my risk. That permanently resolves the entire tort lottery problem yet leaves the legal system intact for the outrageous cases where consumers should have redress in the courts.
Now on to some personal examples of expected financial outcomes.
First, let's compare against an Obamacare policy that contains a high deductible for a reasonably-healthy, 40 year old person. That person is today charged approximately $400 a month and the policy has a $5,000 deductible.
This means they pay $4,800 a year for exactly nothing and if they use any health services at all there is no coverage until $5,000 in additional funds are expended, at which point the insurance covers 80% up to the "cap" (typically $7,000 or $8,000.)
Under this system that customer would (voluntarily) pay $300 for a catastrophic policy. Since they are nominally healthy they might decide to have an annual physical (at a cost of $150) If they remained healthy they would spend nothing more through the year on medical care.
Their cost of health care would go from $4,800 a year today to $450 for a reduction in cost of 93.7%.
Now let's take the person who is nominally ill. Their current expense, assuming they consume $5,000 of medical care under the current insurance system is $9,800 a year -- $4,800 for the "insurance" and $5,000 for the deductible.
What do they pay under this system? $300 for their catastrophic policy which does not cover their existing conditions but does cover an accident or new catastrophe not caused by their existing circumstance and all of their current treatment at a discount of 80-90% of today's pricing.
How much medical care can you buy for $9,500? Well, you can buy one of many operations at the Surgery Center of Oklahoma, should you require one (and not many people need more than one in a year!) You can buy a hell of a lot of pharmaceuticals when they're sold at outside-US prices, which they would be immediately -- in other words divide current drug prices by anywhere from 5 to 20 or more. Monthly "specialty" visits to the doctor to monitor your condition would run you $700 over the entire year.
Do you really think you'd spend more than $9,500? Probably not, and you might spend a hell of a lot less.
In fact, in many cases you might spend 80% less depending on exactly what's wrong with you. Further, if you go from "ill" to "well" during that year your expense immediately stops since the $400 a month otherwise extracted from you is gone.
A poor person would enjoy dramatically improved access to care over what we have today since there would be no "Medicaid provider lists." They could access any physician or other treatment option that was medically indicated and there would be no discriminatory pricing for or against, nor any discrimination in access. Both access and outcomes would improve dramatically for poor people while cost to the government would be dramatically slashed.
How about the person "covered" through their employment, which is most of the population? Your employer would see thousands of dollars a year in cost reduction, and even more in his liability insurance premiums would disappear. For the average family of four the premiums covered by your employer are likely close to $10,000 a year. That is salary that you will receive.
To put this in perspective the average family makes some $50,000 a year. That "average" family would see an immediate 20% increase in spendable income; roughly $10,000 each and every year forevermore into the future. That's huge; there is no other way to have such a large impact on consumer income and wealth in this country on an aggregate basis than this.
Let's assume that "average family" has a kid during the year -- a routine, uncomplicated pregnancy. Today that's about $10,000 worth of expense, but if you have "good insurance" you don't see any of it directly. The cost of having that child as a matter of routine vaginal childbirth would drop to about $1,000. You'd get $10,000 more in salary and spend $1,000 of it; the other $9,000 would be yours. If something goes wrong then your $200 catastrophic policy would cover it, perhaps with a $3,000 deductible. You'd spend $1,000 for the routine part of the birth, $3,000 on deductible, the cat policy would cover the rest of the emergency and you'd be $6,000 net positive -- with a complex childbirth in the mix.
Now let's assume under this system you're nominally well and have a heart attack. What do you pay? The $300 you paid for the catastrophic policy, and perhaps a $2,000 deductible. The bypass you need to resolve the problem is $10,700 instead of over $100,000 because the local hospital has to compete with places like the Surgery Center, and that's what they charge. If they don't then they sell exactly zero bypass surgeries to anyone who isn't having a heart attack right now, and they're not going to give up the income. They'll compete because the alternative is that they have almost no business at all, never mind that you will probably choose to have the $10,000 procedure before you have the heart attack (saving you from the risk of dying during the heart attack outright!)
Ok, who gets hurt?
1. The lobbyists. They lose big. In fact virtually all of them wind up out of business entirely.
2. The administrators who aren't needed and are very expensive. Many, maybe most, get fired. The hospital becomes a place full of doctors and nurses but damn few administrators since now their cost can't be shoved off on others -- it's overhead, and is subject to competition from the hospital across town or in the next town over. Not only does this reduce employee cost at said hospital dramatically it also reduces the space the hospital uses for overhead which makes their per-person cost for actual procedures go down further since a larger percentage of their space goes to actually treating customers. Yes, those former administrators will lose their jobs. The good news is that the economy will expand due to greatly improved cost structures, so there will be new jobs in other fields available to them.
3. The drug reps. Gee, what happens when you can't be a pusher any more and have to price on a level basis? The rest of the world's prices go up some (there's many billions of "them") while ours fall like a stone (because there are only 330 million of "us")! That's math; take the amount of revenue necessary to make the drug and a profit and divide by the number of users; there's the price. Guess what -- forcing the US consumer to pay for the development cost of drugs used worldwide ends in a day. This costs us hundreds of billions of dollars a year today.
4. The PBMs. All gone. These organizations are all quite-arguably committing unlawful acts on a daily basis in any event under 15 USC Chapter 1; using market power to restrain trade and fix prices is per-se illegal. These firms appear to be nothing more than a racket -- and one that was tested in 1979 at the US Supreme Court with the drug firms losing their appeal.
5. Anyone who refuses to change their lifestyle and instead demands everyone else cover their willful acts. That's a tough nut to swallow, but it must be swallowed. If you can control a condition for zero cost you have no right to demand someone else pay tens of thousands of dollars a year to you every single year because you refuse. There are millions of Americans who do exactly that costing upwards of $350 billion every year just between Medicare and Medicaid and every penny of that expense must end right now.
That's a good start.
The problem isn't that health care is "expensive." The problem is that it's a rip-off and is laced through with fraud, theft and arguably even racketeering from top to bottom. You can find myriad examples of what competitive prices look like for health services and products if you bother to look around, even in the United States, and since we know what those prices look like what I laid out up above isn't a fantasy-land dream -- it's a reality we can have right now and forevermore into the future.
To do it we must demand that the politicians put a stop to the scam and back that demand up with whatever political and economic action is necessary until and unless they do so.
Perhaps we should all start showing up at town hall and campaign events with a simple plastic spork and wave 'em in the air from start to finish. They're obviously not weapons but the message ought to be pretty clear when it comes to what the people might, at the point the economic and political system collapses due to all the fraud and theft the political class is enabling through medical scams, choose to eat first.
What will implementation look like? Read here.
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