Diagnosis for Democracy
Insights into the State of Our Union
A Blog by Rob Tenery, MD


Warren Buffet Might Have the Answer to Health Care Reform

By Rob Tenery, MD on April 24, 2017

When putting his first fund together, Warren Buffett told the 11 doctors he was trying to persuade to invest with him that he would put in $100 of his own money as his ‘skin in the game’.  Buffet’s gesture was to show his potential investors that he was willing to share in the risk for the benefit of their common goal. If Buffet had not made that extra effort, the potential investors might have put their money elsewhere, possibly leaving Buffet looking for another career.

Obamacare (Affordable Care Act, ACA) is an example of the reverse of that effect. The initial premise of the ACA was that in addition to expanding the states’ Medicaid programs, those in the uncovered population would join the federal programs. If these individuals choose not to sign up, they would be subject to a fine under the individual mandate clause outlined in the Act.  This added mandate was to insure success of the program, because the additional funding from the healthy uninsured would make up for the higher costs of coverage generated by the sicker individuals. Unfortunately, it didn’t work as well as they had anticipated!

The problem was the healthy uninsured didn’t join in high enough numbers to pad the insurance companies’ funds. To barrow from a gambling expression, those who didn’t sign up were ‘betting on the come’ " which means you don't have what you need, now; but, you are betting you will have what you want or need when the time comes. They didn’t have enough of their ‘skin in the game’, choosing to pay the nominal penalty instead.

The insurance companies that participated in the ACA programs came to realize they couldn’t cover the expenses at their negotiated premiums.  Since the private insurance companies felt they could no longer operate under these conditions, they were forced to make one of two choices: Stay in and raise their premium rates to their enrollees or get out of the ACA market.

Then came the results of the 2016 election with Donald Trump winning the White House and the Republicans keeping the majority in both houses of Congress. A major commitment made by Trump and the Republican candidates was to ‘repeal and replace’ the ACA. Now is the time to make good on their promises. The problems in replacing the ACA are complex since it involves mandates, taxes and regulations that are already in place. Additionally, there are the expanded Medicaid programs that will fall to the states to make up any financial shortfalls or leave patients uncovered.

The Democrats, who never really sought Republican support when the ACA legislation was created, are now asking to be part of the solution. So far, the Republicans, still bruised by their past experience, have not yet tried to bring the Democrats on board in a meaningful way.  The Republican, for all their promises since the ACA went into effect, are still divided on several key parts of any new legislation. Even though the current Republican version passed out of the House Budget Committee by a one-vote majority, there were not enough votes to pass out of full House. After compromises by both the Freedom Caucus and the larger Tuesday group, it appears thee Republicans will bring forward their revised option to the ACA later this week or the next.

What seems to be the downfall of the ACA legislation is that not enough of the healthy uninsured had ‘skin in the game’.  Without their participation, any new plan is unlikely to be successful. The paltry fine of the ACA’s individual mandate just didn’t ‘incentivize’ enough participation to make the legislation successful.

Single payer systems have one major advantage over the ACA and the current Republican proposals---- everyone is covered. Universal coverage must happen in any replacement or modification of our current system. That could be through an individual mandate that is so punitive that to opt in is the only realistic choice. For those that fall outside of the Medicaid and Medicare programs, the alternatives could be conventional coverage at affordable rates, high-risk pools, high deductable plans or a new category of mandatory catastrophic coverage that would be required by all who did not opt for any of the other alternatives.

One principle that appears to be overlooked is the uninsured put themselves at risk for a life of debt or bankruptcy. And who is responsible for their unpaid debt for unanticipated medical expenses? The taxpayers and the providers of the health care services.  This time around, they need to get it right!





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