Thursday, July 16, 2009

The impact of proposed new federal regulation on health care delivery

Proposed new health care regulations may have an extraordinarily negative impact on the way consumers access their health care. The following information is from a September 2005 report from the Small Business Association entitled The Impact of Regulatory Costs on Small Firms.

"The annual cost of federal regulations in the United States increased to more than $1.1 trillion in 2004. Had every household received a bill for an equal share, each would have owed $10,172, an amount that exceeds what the average American household spent on health care in 2004 (slightly under $9,000). While all citizens and businesses of course pay some portion of these costs, the distribution of the burden of regulations is quite uneven. The portion of regulatory costs that falls initially on businesses was $5,633 per employee in 2004, a 4.1 percent cost increase since 2000 after adjusting for inflation. Small businesses, defined as firms employing fewer than 20 employees, bear the largest burden of federal regulations, as they did in the mid-1990s and in 2000. Small businesses face an annual regulatory cost of $7,647 per employee, which is 45 percent higher than the regulatory cost facing large firms (defined as firms with 500 or more employees)."

In other words it is fact that small employers (particularly those with fewer than 20 employees) share a disproportionate burden of regulatory costs. This is important to consider because of the current debate regarding health care reform that will cause additional mandated cost burdens to small health care practices.

A lot of people consume their health care in 'very small businesses' - your doctor, physical or occupational therapist, dentist, mental health counselor, chiropractor, etc. are mostly categorized as 'very small businesses.' Many of these offices employ small numbers of people - but interestingly the payrolls of these operations are high because they are employing a highly skilled professional workforce.

How might the current health care reform proposals impact these employers? In the current text of H.R.3200 as Introduced in House as America's Affordable Health Choices Act of 2009 there are significant penalties for employers who won't be able to afford to offer health care for their employees - as much as 6% for payrolls between $350k to $400k per year.

These payroll sizes are actually quite small, and will likely have a disproportionately negative impact on small professional offices where the average salary is high. Specifically, how many health care workers can be employed under a cap of $400,000??? The answer is "not many" and that is why these salary cap proposals are extremely damaging to small offices that employ these highly paid professionals.

These penalties will be applied to many of these provider offices because they may not be able to afford the proposed mandatory percentage contributions, which are currently proposed as:

72.5% of the premium cost of single coverage
65% of the premium cost of family coverage

The critical factor here will be the cost of the premiums, of course - which is a rather large unknown at this point. Still, the owners of these medical and professional offices will be forced to incur increased costs - either through mandated premium contributions or penalties for not participating. Increased employer expenses drive up the cost to deliver care, which will lead to upward pressures on prices - which ultimately feed pressures on cost to deliver that care -and on and on in a never ending upward spiral.

An alternative is that employers will seek to limit the size of their practices and control their functional growth - which essentially subverts the system by ducking underneath the mandates. The problem with this is that it bypasses the intent of making insurance affordable/available and it forces care to be delivered by increasingly small offices which is not efficient and also can also cause upward cost pressures.

If small professional offices are not able to find ways to work within these systems they will ultimately fail. That can cause consumers to have fewer choices or to force consumers into very large health care systems that are able to work within these models because as stated above the relative cost distribution of these mandates is less on large employers.

This will be a shock for consumers - most don't prefer standing in the waiting room with 50 other people who are all waiting to see the same doctor and who were all given a 9am appointment. This is the model of care in large inner city clinics - and won't sit well with people who are more used to receiving their care in their small community doctor's office.

So the future of health care delivered in small professional offices is at risk - unless the reimbursement structure offered somehow offsets the mandated costs. That will keep the small professional offices in "business" and preserve consumer choice but will certainly not do much to help limit the cost of that health care, which was supposed to be the whole point from the beginning.

From the perspective of a small health care provider, the intent of the proposed legislation seems to be the systematic decimation of our current delivery system. There is no question that we require reform in our system but this proposal is a frontal assault on the doctor, dentist,and therapist in your local community. It will have a chilling impact on what your future health care delivery will look like.

End game analysis: get ready to drive to the big hospital clinic, grab a number, and stand in line. It's the only way that the proposed model can be affordably delivered.

5 comments:

Tom O'Leary said...

I have a hard time looking at the health care of Americans through a business lens. Health care is a right and currently there are millions of Americans who can't afford that right. Something must be done.

As for standing in long lines at big hospitals; I don't know what your experience is with regard to seeking medical treatment in countries where health care is treated as a public right.

I lived in Ireland for 7 years. Ireland has a fully socialized medical system. Every man, woman and child is entitled to free health care; but can carry private insurance (if they can afford to) to attend private hospitals.

I never had to wait for a doctor or dental appointment any longer than I do in the States. The medical centers and hospitals were modern with high quality doctors and nurses attending. We had two of our children in Ireland and received much better care there than we did here in the States for the one child we had here. Of course, there was no bill in Ireland.

The bill in the States was partially covered by insurance, but left us thousands in the hole and stressed by the insurance companies attempts to minimize their responsibility.

I'm somewhat confused by those who think that profit-driven corporations whose goal is to maximize profit by minimizing coverage are somehow more interested in the quality of our health care than the government is.

I also served in the US Air Force for 7 years and enjoyed public health coverage through the US Government. Again, treatment was high quality and affordable.

So, yes, some bear a higher cost for helping to pay for the commons. That's ok by me. But the commons must be provided. And the health care of our people is a common right.

It's no wonder that the US is ranked 37th (between Costa Rica and Slovenia) for our health care system by the WHO.

Chris said...

Some interesting comments, Tom - until you lost me on that WHO report. The parameters used for that report favor socialized systems, and so by nature of what was being measured the US scores poorly. The poor US score is BECAUSE it is not a socialized system.

Additionally, the rankings in that WHO report are more reflective on outcome based on expenditures, not simply on outcomes. No doubt that our expenditures are high, and that also contributes to the low ranking despite the arguable reality that the actual US quality of care is superior to many countries ranked 'ahead.'

That report is one of the most mis-used pieces of information that exists on relative value of health care systems. Seriously, how many Americans are flocking to foreign countries to get health care? And how many people around the world flock to the US for care?

All this aside - I agree that we need reform - just not the kind of reform that will ruin those qualities of our health care system that make it excellent.

Americans are market-oriented thinkers and this is why there is also strong Democratic opposition to some of the public options that are now being proposed. Also, you fail to mention the reality of waiting lists for services in socialized systems - and this is something that simply is not going to be accepted in an American system. The American system is responsible for more medical and technological innovation than anywhere in the world - and we need to be sure that we don't throw out the proverbial baby with the bath water during our reform efforts.

Tom O'Leary said...

If you don't like the WHO report, you can look at others. Forbes recently did one themselves, which ranked the US number 11 in terms of world's healthiest countries. Interestingly, the healthiest countries more often than not had public systems in place.

see: http://www.forbes.com/2008/04/07/health-world-countries-forbeslife-cx_avd_0408health.html

The fear that we will all be waiting in long lines for care is a popular scare tactic that just simply isn't true. What is true is that today, this is the case in Emergency rooms in the United States because so many people can't afford to go to regular doctor offices for treatment or preventative care.

Having lived in countries with both public and private systems, I would choose a country that offers both public and private options any day.

Health care shouldn't be the death of us.

Chris said...

Actually I don't like any of the reports because they tend to represent the bias of the reporter more than the reality of the situation. In this particular report I stopped paying attention when they talked about basing high rankings on number of providers per mile/km. With that kind of crazy methodology maybe we could lop off Texas and hope that might help us crack the top 25 on the list.

Wait lists are not a scare tactic - they are real and are well documented in every country that has a socialized system. We can already see the 'long lines' phenomenon in that aspect of the American system that is socialized - i.e. Medicaid.

The reason why people misuse emergency rooms is multifactorial. There are some people who use emergency rooms instead of going to community based clinics. If you go to any emergency room on any given night you will see that it is full of people who do not truly have emergency care needs and should/could be seen in a less expensive setting. However, the prospect of being sued (thanks to Hill-Burton and later EMTALA) causes hospitals to simply write off most of those costs. Why do we not see tort reform as a key piece to our solution?

We can't have a real discussion on the issue until people stop politicizing it. We could start with getting a real fix on WHO is actually uninsured - we could eliminate the young indestructibles who opt out purposefully, the wealthy who pay out of pocket, the illegal aliens who are gaming the system, and the uninitiated who are actually eligible for government plans but don't bother. That would probably leave us with fodder for a real discussion - because there undoubtedly are people who are falling between the cracks that we really need to attend to but all that is generally lost in the rush for power grab that we are currently observing.

Anonymous said...

We could start with getting a real fix on WHO is actually uninsured - we could eliminate the young indestructibles who opt out purposefully, the wealthy who pay out of pocket, the illegal aliens who are gaming the system, and the uninitiated who are actually eligible for government plans but don't bother.

This is a great idea. I think as much as people are saying health care is a right, it is also a right (or a freedom, if you will) to opt out of being insured, especially when talking about the first two groups you mentioned.

I've enjoyed your post and the civil comments.