It has been my good fortune to have participated in a few discussions on the topic of Health Care and Health Care reform over the past two months.

I was asked to sit on a panel discussion at the California Hispanic Chamber of Commerce (CAHCC) Annual Convention in San Diego. Concern from the attendees clearly focused on how the current system and potential future changes might impact and affect the Latino community in general and Latino business owners in particular. My comments touched on some of the shortcomings in the system as well as its actual advantages. It was most important to point out that there are solutions in place that benefit the Latino community and Latino business owners. Some of the other panel members touched on services that are available today that people can take advantage of.

As it relates to insuring (financing) their health care, we spoke of public programs already in place that are often not utilized. Over 1/3 of the uninsured population is actually covered; they are eligible for pulic programs like Medi-Cal and Healthy Families. They are just not enrolled. So we coud alleviate much of our problem simply with outreach programs to the community. We also spoke of products and programs that can be utilized for much lower premiums than traditional PPO plans. Many HMO plans can be a great fit for the Latino population, particularly those that targtet the Latino community. Business owners and their families should consider strongly the benefits of High Deductible Health Plans (HDHP’s) alongside Health Savings Accounts (HSA’s). Premiums can be as much as half the cost of traditional PPO plans and the savings can be sued to fund the HSA’s.

Earlier this month, I participated in another panel discussion,….this time alongside eight practicing physicians. The program was produced by the Conejo Coalition for Responsible Government. I was again honored to sit among such an esteemed panel. One physician was a proponent of a single payor system and the others were largely fearful of the effects of even greater government intervention. The audience (based on the submitted questions and the level of response to the presenters) seemed to share that concern. My points were largely aling the lines of :

Our current system, while flawed in some aspects, produces the best level of health care in the world.

This is a really big issue: 20% of our GDP. We need to take our time and get it right. Beware the law of unintended consequences.

While our friends in DC are debating the macro issues, those of us on Main St need to find solutions to our micro issues. HDHP’s and HSA’s are an extremely viable alternative for many of us.

Both forums were extremely civil, even allowing for some varied opinions. This is a very important and intimate topic for all of us. The discussions should continue and we should all make our voices heard.

My wife asked what I thought about the President’s speech on Health Care reform last nite, and my response was mixed. President Obama may be the most gifted orator we have seen in our lifetime. He is clearly brilliant in his intellect; there is never a question of whether he “gets it”, whatever it may be. But I was also disappointed that he resorted to the same demagoguery he accused opponents of. I was reminded of a speech given by President Andrew Shepherd (the role played by Michael Douglas) in the movie “An American President”. In this particular section, he was referring to Senator Bob Rumson, his opponent in the upcoming election. He said, “He is interested in two things and two things only: making you afraid of it and telling you who’s to blame for it. That, ladies and gentlemen, is how you win elections.” Or in this case, pass legislation. References to “special interests” are always good for sound bytes, but let’s remember: we are all special interests. My wife is a teacher; she is a special interest. We have relatives who are seniors; they are special interests. I belong to  church and volunteer with a charity; those are special interests. Special interests are not inherently bad.

Health Care and Health Care financing is big. It represents nearly 20% of our GDP and it is growing. There are segments of our system that are badly in need of repair, and some of those repairs are fairly simple. Guarantee Issue is something that was legislated by many states for small businesses (AB 1672 for CA) and later by the feds as part of HIPAA. It does not however protect individuals nor mid sized businesses. Months ago, the insurance industry offered this up as a part of the solution. This is not something one company can do unilaterally, or it will lose in the marketplace by others who game the system. All must play by the same rules of the game. GI can work, but only when all people are in the system. Why would someone buy insurance when healthy, if it is possible to get after you are sick. Several states (like MA) tried this and the cost skyrocketed. MA premiums are generally double what comparable plans in CA cost. This is a workable solution, but it does not stop the spiralling cost escalation.

Health Insurance is going up because the cost of providing health care is going up. It is pretty simple mathematics. Understand this: we enacted Social Security in the 1930’s and arrived at 65 as the normal retirement age (NRA) because only 11% of the population lived to age 65 and lived on average 2 years beyond that. Today, life expectancy is nearly 80 and will continue to rise with advancements in the delivery of care. To put it in perspective, the average life expectancy at the turn of the 20th century was 45. What has occurred in the last hundred years is nothing short of dramatic. And while we have virtually eliminated many of the diseases and conditions that for thousand of years killed our populations, we have also figured out new ways to be sickened. For instance, we have yet to see what many are calling the “Epidemic of Diabetes” will do to our system. The average senior lives with 3 co-morbid factors (conditions that require on-going treatment). And with the emergence of the baby boomers into retirement age, the strain of the system will explode. Premature births are commonplace. C-Sections, once uncommon, now represent over 50% of the births at many of our top hospitals. We are able to treat and sometimes cure conditions that previously killed us. But this comes at a price. So, when public officials talk about reducing the costs of health care, we should keep in mind the real facts and the real numbers. Is there waste in the system? Yes, and it should and can be corrected. But the 2 main factors that create the meteoric rise in health care costs are:

1) New and more treatments for more of our citizens. Our is without question the best place in the world to be treated when you get sick.

2) The fact that in our health care system, it is the only segment of our economy where we are playing with OPM (other people’s money). Basic Economics 101 tells us that when cost is low or non-existent, over-consumption always, always occurs. 

As a nation, we are unlikely to accept a system that rations care. If the financing of health care is looked at as a zero sum game, one with a set budget, then rationing is inevitable. You have to decide how to distribute limited resources. This becomes very difficult when it is our own selves, or a loved one dealing with a medical condition. At that point, too much is never too much.

Reiterating past comments on the Public Option: competition is a good thing. It makes all competing entities better and provides for a healthy marketplace. The playing field has to be level however. It is not a matter of fairness; it is a matter of pragmatics. If the Public Plan reimburses providers at Medicare and/or Medicaid rates (which is largely under the net cost of care), the providers are forced to charge more to private paying patients. Ultimately, the only option left is the Public Plan, and Americans have generally indicated that is not their preference).

Again, the message to our public officials should be: reform the system,…but do it right. We have already seen what the Law of Unintended Consequences did to our housing and mortgage markets when we sought to create the well-intentioned reform of “affordable housing”. This is a big issue and deserves debate. It affects all of us in a very personal way.

Gordon Gecko (Michael Douglas’ role in “Wall Street”) was not right. “Greed, for lack of another word is (not) good.” However, the pursuit for an economic gain is good. That is what our economic system is all about. If you create the better mousetrap, you can and should benefit from that.

As it relates to the healthcare delivery industry, skilled physicians and surgeons who heal better than their counterparts are compensated accordingly. Pharma and other medical device manufacturers who find ways to treat and cure illnesses and injuries also benefit accordingly. One might make a case and I believe successfully, that the economic incentives in place have largely contributed to the the medical advances which our country and the world enjoy.

Competition is inherently good. It causes all of us to be better at what we do. If we do not perform in our jobs, we are replaced. If we do not serve our clients or constituency effectively, we are replaced. Competition keeps us at the top of our game.

So, does the inclusion of a Public Option increase or decrease competition? The Public Option is the government run health plan the folks in DC are discussing to include in the healthcare reform debate. On the surface it would appear to increase competition by adding one more option to the mix. Peel back the layers just a bit to see what it really means.

Medicare and Medicaid (Medi-Cal in California) are the 2 current public plans in place, and are the models being looked at to decide on a Public Option for the rest of the population. Both entities reimburse healthcare providers below their actual cost. The providers then have to charge private payers (those of us covered under private insurance plans, or cash paying customers) more to offset those losses. This is referred to as cost shifting. So everytime the feds squeeze reimbursement levels down to providers, we all pay more for the same services we were receiving before. So, follow the logic and the dollars: if a Public Option exists for mainstream America, and that model follows Medicare and Medicaid, the cost shift will be even greater. Private plans will not be able to compete with the public plan; people will not pay the higher prices that they are forced to pay because of the subsidy effect created. Then all we will have left will be the Public Plan, and competition will no longer exist.

“The Slippery Slope” and “The Camel’s Nose Under the Tent” are sometimes used as scare tactics for government involvement in programs, and often that is all they are. In this case, the fear is well founded. This is not a matter of fairness. Who, afterall really cares if anyone is treating insurance companies fairly,…other than the insurance companies, their employees and their shareholders? It is a matter of economics and choice. We need more competition and not less.

Private enterprise will never have a problem in effectively competing against a government run entity. Remember Fred Smith and that little company he started up a few decades back? Federal Express? And in California, we have a little experience with a public option. The HIPC (Health Insurance Purchasing Cooperative) was founded in 1993 to compete against the private payers. Years later, it privatized, and in 2006, it folded.

The playing field needs to be level,…again, not necessarily out of fairness,…but for our economic advantage and for choice.

Welcome to the blog of Martin J Wolff & Co. I am Brian Sullivan, President, Employee Benefits. It is our objective to provide you with regular information and insight into issues of healthcare, healthcare financing (Insurance), healthcare reform and employee benefits issues in general. Our firm has well over 100 years of combined experience in this area. In addition to my time in private practice, assisting employers and their employees in their benefits matters, I have also served as a Director and Vice President with three of the largest health plans in the country. My partner, Marty Wolff has been serving the needs of business owners for over 45 years.

This combination of experience gives us a unique perspective into the macro (the national and state political matters) and micro issues (how businesses and consumers can deal day to day with these matters)  regarding this most important subject. Healthcare and the financing of healthcare will be a much talked about and heavily politicized issue on an on-going basis. I have had the good fortune to serve in this great industry for over 28 years, and the fact of the matter is  that it has been a public and political football for as long as I have been around and longer. Frankly, it should be. It is too important an issue to let it not be the topic of public debate. We all have opinions and we should let those opinions be heard. That is part of our political process, and the way our founding fathers meant it to be.

So, as we delve into this issue, you will hear a lot of talk about “special interests”, and it will often be uttered as a scornful phrase. Getting past the hype might be helpful. We are a small business owner in CA: that makes us a special interest. My wife is a teacher: she is a special interest. One of my daughters is a high school student, and the other is a college student athlete: they are both special interests. We have friends who have an autistic son: he and they are special interests. I serve as a volunteer for Big Brothers and Big Sisters of Ventura County, which is (you guessed it) a special interest. So, be cautious when you hear ads and speeches bemoaning the “special interests”. People, groups and organizations making their voices heard to policy makers is how our country and the political process is supposed to work. We elect policymakers every 2, 4 and 6 years. That is the beginning and not the end of our rights and responsibilities.

Leonard Schaeffer, the former Chairman and CEO for Wellpoint, and perhaps the most brilliant and effective leader I have ever seen in this business spoke often about healthcare and healthcare reform. He would say (and I paraphrase, but not much) that Americans want three things from our healthcare system: we want to look good, we want to feel good and we want to  live forever. The Sullivan corollary to that is that we also want someone else to pay for it.

Leonard was clearly right. Our expectations are very high when it comes to our healthcare system, and some very tough social discussions will need to occur at some level. Approximately 50% of the dollars spent in our Medicare system, are expended in the last six months of an individual’s life. We have similar issues when it comes to the delivery of premature babies, chronic conditions and terminal diseases. When it is a loved one involved, nothing is too much. 20 years ago, a premature baby born less than 2 pounds had a very limited chance at survival. Today, it is a common occurrence and a very expensive one. We all pay for these costs because they are spread in the forms of premiums and taxes.

Bear in mind that in the days or Social Security’s formation, the age of 65 was arrived at because in those days only 11% of the population lived to age 65. And those who did, lived on average 2 additional years. This helps us understand some of the pressures on our Social Security and Healthcare issues. The average life expectancy at the turn of the 20^th century was 45 years old. A hundred years later (a blip in the history of mankind) that number is nearly 80. With technology and the advances in medicine we have wiped out many of the conditions (scarlet fever, rheumatic fever, polio, plagues, child-birthing issues) that historically killed people, replaced by a host of new conditions (Cancer, heart disease and diabetes). Previously, we got old, we got sick, and we died. Now we get old, we get sick, we get treated (often not cured), get sick with something else, etc, etc, etc.

The point is that a system that nearly doubled the life expectancy of humans is not all bad. This is a very complicated and intra-dependent system that encompasses nearly 20% of our nation’s GDP. There is something in politics and economics called “The Law of Unintended Consequences”. It is akin to Forrest Gump and his box of chocolates, “Sometimes, you never know what you are gonna get”. The lessons of the drive for “affordable housing” in the early 90’s should remind us of that. Who could have argued back then, when the nation was in the midst of great economic gain, that all Americans should be able to benefit from the boon. The wave of the events that followed in those 15 years put us in the financial mess we are in right now.

So I think the message is,…I think the lesson is: tread carefully. Have discussions. Have debates. Study the potential unintended consequences. Take the time to do this right. It is too big and too important to push through change for the sake of change,…to be able to wave the flag declaring victory in order to satisfy campaign promises. This is the greatest political and economic system the world has ever seen. It may not be perfect, but it trumps anything we have seen so far in history. Thanks for joining us. We will see you soon.