Court ruling hikes business uncertainty; what gorilla?

The contenders

ONALASKA WI – I was interacting here 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 per cent 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% to 10%, 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?

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  • bailcon

    John;
    How about a fact-to-fact check with what has already happened in Massachusetts? They began with a one year delay where the Feds gave this a five year delay, so the Massachusetts experience might be extrapolated, having several years under their belt.
    Did it get people to sign up or did they pay the penalty/tax? Did it become well used? Are the doctors happy? Are businesses with it or against? Did their insurance rates move? 

  • Tim Nixon

    John,
    It will be interesting indeed. One misstatement of fact. The amount spent on non-medical costs will be 20%-not 15%. So the small insurance guy may be able to keep his share of the pie.
    Also, on the PBS News Hour Thursday evening, they interviewed a Senator (he might have been a representative) from Texas. He suggested high deductibles and forcing transparency in costing by the elimination of fee for service where possible. So there are at least some Republicans who seem to understand the problem(s) and are making proposals for debate.
    Of yes, I can’t let you get out of Dodge without spanking you for claiming the practice of throwing money at problems is exclusively a Democrat solution. After our experience with “W” for eight years, that seems a little simple and silly.
    Tim Nixon 

    • Anonymous

      Hi, Tim,

      There are two levels of allowable overheads; 15% and 20%.

      You are right about the GOP letting spending get out of control under W. But I see plenty of fiscal conservatives on the Republican side and not many on the Democratic side.

  • John Edward’s Newborn Baby

    While Romney’s campaign is saying “Repeal and Replace,” Obama Care was built on the Massachusetts model put in place by the former Governor Mitt Romney. Is Romney opposed to a healthcare system that he once favored? While the Affordable Care Act, AKA Obama Care is on the federal level, the idea for Obama Care is the same as Massachusetts’ Romney Care. 

    Obviously Romney has offered no alternative plan to replace Obama Care; his last healthcare plan was Romney Care, the Massachusetts Healthcare plan he had implemented. With the last health care plan he implemented being so closely identical to what he is now criticizing Obama for, he would look disingenuous if he replaced Obama Care with his previous health care plan for Massachusetts. Even though Romney had a health care plan very similar to what he is now strongly opposed to, it would be hard to implement such a similar plan on a federal level without looking like a liar.

    Do you really trust this etch-o-sketch candidate?