Health Care Reform Not Reigning in Costs
Written by Bay Park Insurance Agency, LLC dba: ISU Encircle Insurance, Encircle Insurance Services on May 19, 2011
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Survey shows costs rose 7% in last year.</div>
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Most American students studying the Great Depression come away with the notion that the root cause of the economic turmoil was a failure of “free markets.” However, a serious inquiry and review reveals that the use of the Federal Reserve’s monetary policy to help our Allies pay off their debts from the first World War resulted in an expansion of our money supply and much speculation in the stock market as businesses expanded with the increase in the money supply; the “boom,” followed by the inevitable “bust,” was further aggravated by the Smoot-Hawley tariffs which chilled international trade and harmed the global economy. Yet, many textbooks characterized the Great Depression as a failure of a market-based economy and called for more government involvement when in reality that was the root cause.</p>
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As Yogi Berra once said, “It’s déjà vu all over again.” That expression aptly applies after the first year of health care reform. Consulting firm Milliman just released its annual Milliman Medical Index which provides sobering details on the past year’s costs of health care. In fact, the report notes that for the fourth straight year, costs rose by at least 7%.</p>
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The MMI found that for 2011, the average cost of health care for a family of four covered by a preferred provider plan now stands at $19,393, up from $18,074 in 2010. The 2011 tally reflects the steady rise charted in health costs over the last decade. By way of comparison, the MMI for 2002 was $9,235.</p>
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Pharmacy costs were another source of cost inflation, rising 8%. Although a quarter of that increase came from broader usage of pharmaceuticals, most of the change came from higher average prices. Given the fact that under the Patient Protection and Affordable Care Act (PPACA) health insurance plans cannot have any annual or lifetime plan maximum limits and that children up to age 26 can be covered under their parent’s policies, is there any real doubt that health care costs would continue to climb?</p>
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Other experiments in government intervention into health care such as “Romney Care” and New York state’s community rating requirements of the early 1990s have resulted in the highest health care costs in the nation, not less expensive health care. Approaches like High Deductible Health Plans (HDHPs) have lessened the rate of health care inflation, but this approach, which provides incentives to watch health care expenditures by allowing people to accumulate balances and roll them over to future years, is not embraced by PPACA.</p>
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Lastly, continuing with the gloomy health care news, the Trustees for Medicare also released its annual report on the financial health of the Medicare program. According to the report, Medicare Part A will only remain solvent until 2024, five years earlier than reported last year. The report attributed the five-year change to a slowdown in the U.S. economy, which resulted in a decline in tax revenues and higher real projected expenditures.</p>
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If PPACA does not reign in health care costs, there will be many people calling for a government run single payer system of health care. Rather than acknowledge that it was government interference that led to this outcome and that planning design flexibility, real and unfettered competition and favorable tax treatment could lead to real cost savings, uninformed Americans will accept the conventional wisdom that more government intervention is required. Under the Minimum Loss Ratio (MLR) rules of PPACA, agent compensation has already been singled out as one of the culprits even though agents have helped businesses control costs by evaluating plan design, carriers/TPAs and other avenues to mitigate the overall rising cost of health care. The Big "I" will continue to work to change the MLR rules as it pertains to agent compensation but ultimately it requires an informed public and Congress to develop sound public policy in a complicated area.<span _fck_bookmark="1" style="display: none;"> </span></p>
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