The Good, the Bad, and the Ugly: A Southland Physician looks at The Affordable Care Act ("Obama Care")

In honor of Clint Eastwood's bizarre presentation to the Republican National Convention last night, I will title my three-part blog about the Affordable Care Act--”The Good, the Bad, and the Ugly.” Of course, I'll start off with “The Good.” (And not to be too coy about this, in general I support the ACA. And as a physician in the Southland area, I thought my point of view might hold some insights.)

The Affordable Care Act (aka “Obama Care”) has been vilified from both ends of the political spectrum—goes too far, doesn't go far enough. Yet, it is a reasonable attempt to try to solve a major problem--the plight of the uninsured. Many millions of our fellow citizens have their health threatened as well as their financial futures at risk because their only recourse is to go to emergency departments when they are suffering an illness. I can even think like an Ayn Randian, self-serving political operator. My personal self interest is that when uninsured people end up very sick in the emergency department, then specialists like me have to take care of them--for free--at great personal effort. We don't like this. If these people had insurance, they might get their antibiotics for their strep throats at the start of the illness and not wait until their lymph nodes are bulging with pus into their necks before they decide to get help--from me—usually at 2 AM.

Before we get into the Good, (and then in later blogs, the Bad and the Ugly) about the ACA, I'll try some definitions. “Socialized Medicine” is something that is practiced in the United States. Yes, really! But it's mostly practiced in the Veterans Health Administration. There, the US government employs all the physicians and they earn a salary to take care of the veterans. The British National Health Service is a similar, far more extensive example—it covers the whole nation. A second component of the US health system is “Single-payer.” This is an accurate description of traditional Medicare—the government health-care program for the elderly. There the federal government collects premiums and also pulls money from general government funds to pay physicians who are independent. The elderly patients choose their physicians and the physicians bill the government which pays physicians fees per each service they provide. Medicaid, the program for the poor (and also the program for nursing-home care for the elderly without resources) is similar except that the states and the federal government combine funding (50-50) to pay the independent physicians. The payments are so low that there are far fewer physicians that accept these patients. Finally, we have a system of Private Insurance. Here, patients contract with independent, though regulated, insurance companies which pay independent physicians fees for the services that they provide to the patients.

Actually, we also have the Uninsured as part of the American health care system. These uninsured have the right, by law, to receive emergency services with no up-front fees. Still, the ultimate expenses are typically far too high to finance out of pocket for the uninsured. The hospitals must shift these costs to insured patients (or pull these funds from investments, endowments, donations, etc.). Physicians don't have the luxury of shifting costs since our fees for the insured patients are really specified to us by the insurance companies and the governmental programs. We just eat any fees that could be charged to uninsured patients. (Sure, occasionally patients have a credit record that they want to preserve so they will make payments.  Usually, one doesn’t hold one’s breath for payments from the uninsured.)  And, of course, we can't deduct these “losses” from our taxes.  That would be the equivalent of the government paying us for the care (to some extent) which it certainly doesn’t want to do.

So how did the ACA cover these uninsured? Did it hire physicians to do this (Socialized Medicine)? Did it form its own insurance entity to enroll patients and pay physicians (Single Payer)? No and No. Obama Care subsidizes patients so that they can purchase their own private insurance. This is not done through a federal entity, but through state-run insurance exchanges where insurance companies can bid for the business. (The feds can backstop an exchange if a state refuses to set one up.) The other way that more impoverished people gain insurance is through expansion of Medicaid. And unlike the typical 50-50 split between the Federal and State funding for Medicaid, the Federal Government will pay 100% of the expansion for the first three years and 90% for years afterward.

How is this paid for? First, there is an expansion of the amount of money that can be taxed for Medicare in the top tax brackets as well as expansion of the tax to interest, dividends and capital gains. (Could this be why high-roller Republicans hate Obama Care? Hmmm.) Second, the ACA reallocates money away from the expected increase in Medicare payments to providers, like hospitals and insurance companies. (It takes some of this money and uses it to fill the doughnut hole for Medicare prescription coverage.) When it does this, it actually expands the viability of Medicare. But this “taking $712 billion from Medicare” over the next 10 years is highly demagogued by the Republican ticket to the frightened, offended elderly who now think that “moochers” are getting the care that should be given to the Medicare population.

Maybe this example below will be easier to understand. (It was inspired when I mistyped the “Affordable Car Act” in an email.) Let's say there were a federal “Mensch-a-Car” program where people would pay premiums and get subsidized taxi services. But let's say the program were going broke, and the feds told the taxi companies via the “Affordable Car Act,” “We are going to pay you $712 billion less over ten years for your taxi services”—not changing the taxi meters for the drivers or the services for the riders--but decreased subsidies to the companies that provide them.  And therefore the “Mensch-a-Car” program would stay viable for another eight years beyond projections.  And the riders would even get free donut holes to snack on when they rode.  Should the riders complain that the government is “stealing from” the “Mensch-a-Car” program? Of course not! They should say, “Wow, you've strengthened the “Mensch-a-Car” program and even filled our donuts.”

Now substitute, Medicare for the Mensch-a-Car; Obama Care for the Affordable Car Act; and physicians for the drivers who still get paid by the metered rate. But won't the taxi companies (hospitals) be peeved with this? Not really.  The Affordable Car Act also requires that there will be no more obligate “free riders” getting emergency taxi rides without paying premiums.  They just show up at their company garages (i.e., uninsured that have to be cared for in emergency departments). So, directly, the government takes from the hospitals and insurance companies in this manner but indirectly gives back to them by requiring “free riders,” the people who could buy health insurance but choose to buy a bigger house instead, to subsidize the system. They no longer can rely on the emergency departments to be their free insurer of first resort. A famous presidential candidate (who happened to make an acceptance speech last night) made just this point about his Massachusetts program in 2006.  And the donut hole treats for the riders in the Mensch-a-Car program represent the fact that the Medicare prescription program “donut hole” (a gap in coverage) is filled by some of the money withheld from providers through Obama Care.

The final way the Affordable Car Act pays for the increased insurance coverage is via taxing the so-called “Cadillac” insurance plans (costing more than $10,200 for individuals or $27,500 for families).

If I were practicing in Naperville where the poverty rate is 3% and many people might have Cadillac plans that would pay me higher fees, then I might think that a hard-nosed evaluation of Obama Care would find me to be disadvantaged by the law.  But I live in the Southland where neighborhoods with a higher poverty rate bump up right against the wealthier communities.  Hospitals in the area, which are the major businesses of the region and take a big hit by providing care for the uninsured, are better off with a massive decrease in the uninsured.  So the Affordable Care Act would be a boon to the area.  And the Congressional Budget Office states that it will lower the deficit.  Is it perfect? Not close! It’s just a first step on a long journey toward getting some sanity into our health care system.  I’ll discuss the Bad and the Ugly of the ACA next week.  But here is a relevant thought from the fine economist Herb Stein "If something cannot go on forever, it will stop."