The Health Care Disaster
Okay, I'm about to make everyone reading this newsletter angry -- Democrats, Republicans, and Tea Party members. And for those of you living in Europe, China, South Korea, and Japan, you might as well get upset too. I'm going to talk briefly about the healthcare bill now being reconciled in Congress. Everybody has a different position on this bill, so you would naturally think that at least one of them had to be correct. Unfortunately not! As it turns out, everyone is wrong and heading for a world of hurt. And for those of you living overseas who are not directly affected by the bill, you are nevertheless screwed by the same demographics that undermine things here in the U.S. -- probably even more so.
Since I can't win here, let's just jump into the fire. I obviously can't cover the bill in detail (the Senate version alone is over a 1,000 pages), and for similar reasons, I can't cover the arguments of all parties involved. But I can identify the key features of the healthcare solutions being proffered, and highlight the key arguments pro and con of the parties involved. Since the Senate looks to be the dominant bill in any reconciliation, I will start by focusing on the features found in that bill:
Key features of the Democratic healthcare bill
- Every single citizen who is financially able will be required to buy into a "qualified" private insurer health plan. Willful failure to do so will be punished by fines of up to 2% of income. Families of four earning up to $88,000 would be subsidized by the Federal Government.
- States will set up exchanges to make shopping for an "affordable" plan easier.
- Every business in America (with 50 employees or more) will be required to provide a "qualified" plan for employees and pay upwards of 72% of the cost. Failure to do so will result in an 8% increase in payroll tax.
- Theoretically, the above measures would extend coverage to an additional 31 million Americans and provide healthcare coverage for approximately 94% of all Americans.
- Insurers would no longer be able to deny coverage for pre-existing conditions. However, it appears this will not be fully implemented until 2014. Insurers would, however, be allowed to charge more for senior citizens.
- Some of the costs will be offset by a 40 percent tax on insurance companies that provide "Cadillac" health plans valued at more than $8,500 for individuals and $23,000 for families. In addition, there would also be a hike in Medicare payroll taxes on families earning over $250,000.
- Insurers will be required to spend 80-85% of their premiums on actual healthcare as opposed to profits. The current "average" is 74%. For insurers, the offset comes from the government mandate that millions of healthy, young people will now be required to pump their money into the insurance pool.
- The Federal Government will promote competition among insurers to drive down costs -- details unspecified.
- Preventative care will be promoted to drive down healthcare costs. Preventative care here does not mean diet and lifestyle changes, but more frequent medical testing so that people can get on lower cost drugs sooner and thus delay the need for more expensive surgical procedures.
- Medicare is not actually being cut, but a permanent reduction in the annual payment adjustments for some Medicare services, including inpatient hospital services and ambulatory care would save a theoretical $500 billion a year. How these services would still be provided at current levels without paying for anticipated inflationary increases is not explained. It should be noted that the Mayo Clinic just closed the doors of one of its Arizona clinics to patients on Medicare because they couldn't afford to keep providing services at current levels of reduced fees -- let alone after a further $500 billion reduction. In addition, there are unspecified calls for cutting spending…sometime in the future. Unfortunately, many of the best ways of cutting costs have been sidelined by deals cut with the pharmaceutical industry, the health insurance industry, and hospital bosses in exchange for their support.
- The anticipated cost to the Federal Government for all of these changes is estimated at $848 billion, near term -- although long term savings are promised.
Democratic reasons for the bill
- It covers most of the 50 million Americans currently uninsured.
- Although, it costs more money over the next ten years, it theoretically reduces costs after that -- thus saving the current system from inevitable bankruptcy.
- It shifts costs to those better able to afford it.
Where it fails
I'm not here to argue morality or big government VS small -- merely to talk about the financial viability, and here the Democratic version fails. The simple fact is that the bill contains no real cost cutting measures -- merely vague promises. In fact, most routes for cost cutting have been bargained away in exchange for support. But even more importantly, it ignores the simple demographics, which I've been talking about for several years now -- and will cover once again at the bottom of the newsletter.
By the day, it's looking less and less likely it will pass. At the moment, I'd put its odds at less than 50/50. The good news in non-passage is that it's not a good bill, and would definitely cost money short term -- although, it would open the door for tweaking and improving over the coming years. The bad news is that it's the only game in town that even looks to address some of the major issues facing healthcare in the U.S. If it goes down in flames, we'll be stuck with the status quo, which ultimately is far, far worse. And because of the demonstrated political costs involved in taking on healthcare, it is unlikely anyone will seriously look at the issue again for years.
The Republican Plan
The Republicans don't actually have a plan -- more like a wish list, with no specifics as to how the details should be implemented. The key wishes include:
- Rejection of virtually all aspects of the Democratic Plan
- Establish Universal Access Programs that expand and reform high-risk pools and reinsurance programs to guarantee access for all Americans to affordable healthcare.
- Enact liability reform to end junk lawsuits against doctors and hospitals.
- Prevent insurers from cancelling policies.
- Allow Americans to shop for coverage across the country -- rather than just within the state they live.
- "Encourage" small business health plans, innovation, healthier lifestyles.
It's not really a plan (pretty much by design), so there are no details to analyze -- or to attack (and that's the point). As a wish list, it's certainly nice, but with no details, it's meaningless. And like the Democratic plan, it fails to address the underlying demographics that would guarantee that it too is ultimately unaffordable.
The bottom line
The Republicans didn't take healthcare on when they were in office for eight years, and would be even less likely to take it on when they come back in office -- given the demonstrated political costs of the last year. Their wish list is just that -- an attempt to offer something that sounds good in opposition to the Democrats and with no details that can be attacked. In effect, the Republican position amounts to tweaking the status quo.
What the "Tea Party" wants
- Kill the Democratic Plan.
- No new taxes.
- Reduce government debt.
- Don't touch anything that currently exists -- especially Medicare.
It's hard to argue with the basic premises underlying the Tea Party -- smaller government, more responsible government, and some fiscal sanity. But as with the Republicans, a basic premise and wish list is not actually a position. And without an actual position and its accompanying details, there's really nothing to analyze. In the end, the Devil is in the details. For example, when it comes to healthcare, the basic premises of the Tea Party are mutually contradictory. Not passing a healthcare bill is not the same thing as leaving healthcare untouched and not having to pay higher costs. The simple fact is that demographics will change healthcare no matter what government does or does not do. If no bill is passed, increasing cost (healthcare costs went up over 10% in 2009 alone with no help from government) will mandate one or more of the following:
- Higher taxes. If Medicare isn't cut back, rising costs will force higher taxes and/or fees to pay for it.
- Less healthcare. No matter how much taxes rise, it won't be enough, so Medicare will have to be scaled back. And not just Medicare, insurance companies too will steadily exclude more and more treatments and drop more and more people from their system…to protect their bottom lines.
- Rationing of healthcare. In fact, we already have that -- with the insurance companies acting as "death panels" that decide who and what gets covered now. And as costs rise, it will only get worse.
- Increased debt -- both personal and government.
- And ultimately, more government involvement.
In other words, not passing a good healthcare bill will bring about exactly those things that the Tea Party is arguing against. They will come by stealth. They will come independent of which party is in office. They will produce little benefit since they will be unplanned. And they will come surely as night follows day because of the underlying demographics.
There's an old saying that applies here: be careful what you ask for; you just might get it.
The rest of the world
In some ways, Europe, China, South Korea, and Japan are facing the exact same demographics we face in the United States -- but even more so. And these demographics will put intense pressure on the ability of governments to continue to provide the kind of national healthcare their citizens have come to depend on.
So, without further ado, what are these demographics?
The demographics of healthcare
When it comes to demographics, we're talking about age and self-inflicted illness. Most governments are aware of the coming age issues, although they have not figured out how to address them yet. But it is the changing nature of illness that presents the biggest problem -- and most governments haven't a clue about what's happening here.
The age issue is simple. All healthcare plans, private or national, existing or proposed, are giant Ponzi schemes. They depend on ever larger numbers of new, young healthy people pumping money into the system with no need to pull money out in the near term so that the older sicker population can use that money to take care of themselves. Again, it doesn't matter whether the money is being given to private insurance companies or governments, the principle is the same -- an ever larger number of young, healthy citizens supports a smaller number of older sicker citizens. And like all Ponzi schemes, it works as long as no one upsets the apple cart. But the moment there are no longer enough "new," young, healthy people to keep priming the pump, or those "new" contributors need to pull their money out before their time, the system collapses.
And that's the situation we now face.
Outside the countries of Japan and South Korea, Europe is aging faster than any other part of the globe. In 2006, 21 percent of Europeans were older than 60 years of age. By 2050, nearly 34 percent will be above 60. Quite simply, you're talking about a dramatic reduction in the number of young, healthy people priming the pump and a dramatic increase in the number of senior citizens drawing from the well. The only solution is an equally dramatic increase in the amount of taxes that the young, healthy workforce will have to pay in order to sustain the system.
And that's if the younger, healthier population doesn't have to pull its money from the Ponzi scheme before its time. But in fact, they will. That's the self-inflicted disease demographic I mentioned, and that we'll explore in more detail in a minute. For now, just understand that an aging population means more people drawing on the system and fewer people paying into it. The only way to keep the books balanced is for those paying in to pay more…or to reduce the amount of care that senior citizens are getting.
That covers Europe. But as I said above, Japan and South Korea are actually aging even faster. As for China, it too is aging rapidly, largely as a result of government policy that mandated smaller families. In fact, in China, the current ratio of 16 elderly people per 100 workers is set to double by 2025, then double again to 61 by 2050, according to the Washington-based Center for Strategic and International Studies. But it's not just established countries that are aging. Countries such as Mexico are projected to reach developed-world levels of old-age dependency by the middle of the century.
As for the United States, it too is aging, but more slowly than many countries in the developed world. But that "more slowly" is based on a couple of questionable premises. First, a significant factor in keeping the U.S. population "young" is teenage pregnancy. Despite the promotion of "morality" in the U.S., the U.S. actually leads much of the world in teenage pregnancy. Unfortunately, children born to teenage mothers are much more likely to become welfare babies and "draw" money from the system as children and young adults, rather than contribute to it. In other words, they exacerbate the problem, not make it better.
If a country's population isn't replacing itself fast enough, there's one other way to keep the population young -- immigration. This has been one of the prime factors that has pumped new, young, healthy workers into the system thereby continually pumping up the pool of young taxpayers to support it. In this regard, the U.S. has in the past been far friendlier to immigrants than Europe, Japan, China, and South Korea, for example -- and thus delayed the aging of the country. However, that is changing. Thanks to 9/11 and changing attitudes in general, the current citizenry of the U.S. views immigrants less favorably than in the past. In addition, the economic disruption of the last year has made the U.S. a less attractive destination for many immigrants. The upshot is that immigration is down in the U.S., and the immigrants who are coming in are the older family members of immigrants who are already here -- rather than the young, healthy, opportunity seeking, "new" immigrants needed to support the Ponzi scheme. The bottom line is that in the coming years immigration will less and less be a factor in slowing down the aging of America.
And now we come to the big one, the elephant in the room no one wants to talk about -- self-inflicted catastrophic illness. Over the years, I've written many times about this issue -- always ending with the same conclusion:
No amount of tinkering and funding can stop the inevitable train wreck barreling towards us -- unless there's a major paradigm shift. No matter where you live or what healthcare system you function under, the demographics are undeniable. The American model is headed for disaster. But so is the French model. How can any healthcare system survive up to half its population living for 20-30 years with severe diabetes (as predicted by the CDC), let alone the other half suffering from cancer, heart disease, osteoporosis, Alzheimer's disease, and MS? There isn't enough money in the world to cover it.
And every time I return to the issue, the numbers have only gotten worse. Let's take a quick look at some of those numbers.
Literally just days ago, The Medical News published the latest analysis which showed that the cost of diabetes and pre-diabetes reached $218 billion in 2007, with the exploding number of cases of type 2 diabetes responsible for the majority of the costs. And those numbers are three years old! Update them for today -- and over the next ten years -- and you're looking at an average of a quarter of a trillion dollars a year over the next ten years in the United States alone. Do the math and that's $2.5 trillion dollars unnecessarily spent on a just one self-inflicted disease over the next ten years whether a healthcare bill passes or not. If people in the United States didn't give themselves diabetes through diet and lifestyle choices, the savings alone would 100% cover:
- All costs associated with any healthcare bill including covering all those currently uncovered.
- 100% of the cost of the bank bailout.
- 100% of the cost of the stimulus plan.
And that's with no new taxes, and that's just one disease.
As for heart disease, it's estimated that anywhere from 50-80% of heart disease is the result of dietary and lifestyle choices. (Personally, I put the number at 90%.) How much does that cost us? The cost of heart disease and stroke in the United States, including healthcare expenditures and lost productivity from deaths and disability, is projected to be more than $475 billion in 2009. As the U.S. population ages, the economic impact of cardiovascular diseases on our nation's healthcare system will become even greater. So again, using the conservative estimate of around 50% of that cost being self-inflicted, you're looking at another quarter of a trillion dollars a year in unnecessary costs per year.
And then there's cancer. Overall, environmental factors, defined broadly to include tobacco use, diet, infectious diseases, chemicals, and radiation, are believed to cause between 75 and 80 percent of all cancer cases in the United States. And that's not even considering the percentage of breast cancers caused by hormone replacement therapy (still commonly used) and yearly mammograms. And what are the costs associated with preventable cancer? The estimates are all over the map depending on how you look at the numbers. But at the low end, you're looking at close to a quarter of a trillion dollars a year (again) back in 2000 -- and at the high end, just under a trillion dollars a year in 2000.
So, let's add the numbers up.
At the low end, you're looking at $750 billion a year paid in the U.S. for the three major self-inflicted catastrophic diseases. Over the next 20 years, that's $15 trillion. Now you're talking about not just paying for healthcare, but literally paying off the entire national debt -- with no new taxes!!! On the other hand, if we continue to head down the road we're on, we're looking at ever higher taxes, ever greater debt, and a disintegrating healthcare system.
And every other country in the world can look forward to the same scenario.
Like a broken record, I keep repeating:
Pretending that any tinkering of the world's current healthcare systems can produce a viable solution to this problem of compounding demographics is the equivalent to rearranging deck chairs on the Titanic. At some point, our children will be left drowning in debt. The bottom line is that the only way that healthcare can survive -- the only way you can survive -- is if you take back control of your health and start doing those things that allow your body to stay healthy without the need for healthcare. Or to put it another way, the only way to save healthcare is to stop relying on it, use it only for the exceptional, and take care of yourself.