Free lunch is always expensive

I was interacting in Onalaska with two dozen small business leaders when the news came down Thursday morning that the U.S. Supreme Court had upheld Obamacare. The reaction was uncertainty about what to do in their companies.

One CEO said he was leaning toward installing a defined contribution plan for health care so the company would have a less volatile expense. His human resources manager said they might offer a set amount, say $5000, to each employee and then let them choose from a menu of individual health plans.

A consultant had advised her that such an approach would get the company around the new law’s $2000 penalty per employee for dropping coverage.

None of the companies said they had applied for the new federal subsidies for retaining or installing coverage. That’s the pattern across the country: little use to date of the subsidies.

Another manager said he was seriously considering dropping coverage and paying the $2000 fine. His savings would be huge. He worried, however, that he might lose key employees to a larger company still offering coverage.

In that sense, he said, small businesses could become the biggest victims of the rising costs. The consensus of the group was that the new law would raise costs and therefore premiums in the private sector.

On his cynical side, he sees the pattern of small employers dropping coverage under the new law as intentional. He predicts the Democrats will use their exits as an excuse for nationalizing health care.

A manager of a small insurance agency said he expected most of his health care business to disappear after the government exchanges start up by 2014. He said commissions are already drying up because insurance companies can only spend 15% under the new law on non-health care activities.

That, of course, raises the question of how a government agency can deliver brokerage services any better or cheaper than a private agency.

Most medium and large businesses will continue to offer health plans, because they want to retain their trained work forces. So the new law will have only a minor effect on how they deliver that benefit. They will continue to seek real reforms in the private sector.

The remaining issue is the staggering cost of the new law to taxpayers. The price tag will be much larger than the estimates given as the bill was debated in Congress. That is the history of Medicare and Medicaid, both hugely more expensive that original estimates. Free lunch is always expensive. Government budgets are already busted at all levels, and benefits are the primary cause.

So the next battle in the health care war will be the presidential and congressional campaigns. Volleys have fired daily. Yet the shallow debate there reminds me of a famous psychological experiment.

It’s the perception exercise that asks spectators to count the number of basketball passes by each of two teams, one dressed in black, the other in white. When I participated, about 100 spectators diligently counted and then reported their tallies to the professor showing the video.

When he asked, “Who saw the gorilla,” only two people raised their hands. I was one who didn’t see a guy in a gorilla suit prancing through the middle of the passing exercise. The gorilla stopped, waved his paw and then moved off stage. Ninety eight percent of the counters never saw him.

That’s what is going on as we watch President Obama and Mitt Romney and their parties’ candidates for Congress exchange jabs on health care. They try to shift the monkey to each other’s backs, but they never deal with the gorilla: the out-of-control costs.
It is the hyperinflation that caused the nation’s access problem in the first place, the problem that Obamacare attempts to solve.

Estimates of cost increases for health care for 2012 range from 4 percent to 10 percent, but businesses and individuals are routinely getting rocked with double-digit premium increases.

One recent analysis put coverage for a family of four at more than $20,000 per year. People and small businesses are being priced out of care. Medical costs are now the number one cause of bankruptcy in the country.

Against that backdrop, the emptiness of the presidential debate is mind-boggling. Romney, who promoted and signed a predecessor of Obamacare as governor of Massachusetts, now completely opposes the structure he once favored. And he doesn’t even seem embarrassed about his monumental contradiction.

He opposes, but proposes little. In fairness, he has called for turning Medicaid over to the states, which would allow innovation to reshape that badly busted program.

The president just gives a head fake in the direction of cost control. He does what Democrats are wont to do – raise taxes and throw money at the problem. His law would add some 15 million people to the roles of the already bloated, mis-managed Medicaid program.

I have asked Romney’s advisors why they don’t adopt the sweeping reforms that private payers are adopting to tame the inflation beast. The new disruptive business models deploy incentives and disincentives to get a handle on utilization, proactive on-site clinics to keep people out of hospitals and payments for value. No uptake from Romney’s top advisors.

Ironically, these are Republican kinds of ideas. They are based on individual responsibility and marketplace disciplines. It’s about management science, where Romney is supposed to be expert.

There is plenty of money being spent on health care in the U.S. — $2.7 trillion and soaring, enough to cover everyone if innovative management is brought to bear.

Romeny’s strategists have defaulted to a simplistic position. They say, “Repeal and Replace,” but have not articulated an alternative plan.

Romney’s safe, mum strategy runs the danger of voters concluding: “There is no there there.”

Meanwhile, with the exception of leading edge innovators in the private sector, the costs continue to stack up year after year. The trend is unsustainable.

What gorilla?

John Torinus is chairman of Serigraph Inc. in West Bend. He is involved with several business and civic organizations and is the author of “The Company That Solved Health Care.” His blog appears regularly at www.johntorinus.com and is republished with his permission by BizTimes.

John Torinus is the chairman of Serigraph Inc. in West Bend. He is involved with several business and civic organizations and is the author of “The Company That Solved Health Care.”

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