Thursday, August 16, 2012

The Medicare Voucher Trap

If you understand parables, the object is to tell a story and be able to learn some useable facts that otherwise would be boring because we all like stories more than lectures. It works for people of all ages, but for some reason they stop being told when one becomes an adult.

This article is about Medicare and whether vouchers would be a good way to “save” Medicare from financial ruin sometime in the future. It does assume Medicare is in trouble if the pace of health care costs continue as they have unabated and if the Obamacare program fails in its promise to reduce costs. Nobody’s crystal ball is perfect on this so you will need to judge this based on the array of misinformation, partial facts, and lots of opinion. Good luck.

But we begin this story in Washington State. For many years, Washington State has been using state liquor stores as the way to sell hard liquor. For nearly just as many years, there have been proponents of getting government out of the liquor business and allow the many fine merchants to sell liquor as a complement to their wine and beer sales. It had been thwarted time and time again.

However, last year, with a concerted effort by many retailers, most notably Costco,  interested parties put together enough signatures to place an initiative on the state ballot to discontinue the state store sales and allow the purchase of hard liquor in larger retail stores. Keeping it out of small stores was, in the words of the proponents, to keep good control of liquor purchases. Apparently, they feel the smaller mom and pop stores and quickie outlets are bastions of illegal sales to minors and other questionable purchasers. My cynical little mind thinks it was more about greater opportunity for the large retailers to make out like bandits.

There were many “fluffy” items in this initiative that provided money to alcohol abuse programs, increase alcohol use awareness, and other saintly aspects to appear as responsible law. The word was the retailers were going to improve efficiencies that would lessen the cost because we all know government does a lousy job of containing costs. There was one more carrot for the state. Because this would impact a substantial hit to the state budget since the state would lose markup revenue, there would be a distribution fee and retailer fee that would equal out the loss of revenue to the state. This was important because in a state like Washington that does not have state income taxes, the loss of revenue could very well bring up the tender subject of state income tax or increase in other taxes.

The media blitzkrieg unleashed upon the public from the pro and con sides would make Mitt Romney’s effort in the Primary days in Iowa pale in comparison. With $35 million poured into both sides, you could not hear or see in any safe direction without some kind of message populating your senses. The pro initiative outspent the opponents by a two to one margin because, I guess, the big retailers have deeper pockets than the state and national distributors do.

The voters went to the polls and sold with the ideals of capitalistic competition and the shear volume of media placement, the I-1183 initiative passed with nearly a 60-40 margin. It just went into effect on June 1st.

So what happened after this anti-government pro-commerce initiative was placed into action? Prices went up on most items. To be fair, the pre-tax prices went down as expected. However, once the taxes were applied at the checkout stand, that is, the portion that goes to the state to make up for the lost state store revenue, most of the prices went up beyond the previous price with tax. Do you know who made out? Any or all liquor stores in the states of Idaho and Oregon that sit within short driving distance of Washington. They are reporting record sales because of the leakage from Washingtonian liquor purchases. 

The contingent against the measure tried to warn us, but we couldn’t hear it among the cacophony of the pro-measure advertising deluge. They did say that there would be price increases just because it is simple math: when you put another set of hands in between the manufacturer and purchaser, their efforts must be compensated. This initiative added an additional middleman and who doesn’t know what middleman do to the price of any goods sold. Prices go up from manufacturer to distributor. Liquor taxes are applied. Prices go up from distributor to retailer. Prices go up from retailer to purchaser. The difference between pre-initiative and post-initiative liquor distribution was that a middleman was added. Prior to I-1183, there was only one price increase between the distributor and purchaser because the state had the one markup for taxes and their needs and that was it.

Now we can turn our attention to the Medicare voucher program the GOP ticket is suggesting. Here is the theory: instead of the full scale payment by the government to providers for Medicare beneficiaries, the voucher program would take the government out of the loop except for a one-time payment per year that can be applied to an insurance policy. Romney and other conservatives say that by allowing each beneficiary to go out and negotiate an insurance policy with a carrier, the free-market efficiencies will improve the costs and allow a better competitive environment. Any future issues between your provider and payment will be done by the insurance company according to the terms in the policy negotiated. Like the liquor in the state of Washington, the government is not part of the transaction.

There are so many problematic avenues to take with this discussion, like the fact that you must convince your insurance company to pay and how the very elderly or sickly are not going to afford a policy, but let’s focus on the nature of transactions in the purchase of the policy. Currently, you don’t purchase a policy unless it is for the Advantage program or purchase a supplemental policy to cover the costs not covered by Medicare. When a doctor or hospital visit is necessary, the beneficiary submits a Medicare card and they get reimbursed by the government according to the payment schedule the care provider agreed to via enrollment. From what I understand, the reimbursement schedule isn’t the most lavish amount to the extent some providers stay away from Medicare because they view it as insufficient.

The voucher program would have the beneficiary purchase their own policy with money from the government. The beneficiary pays for it and hopes the care costs are covered through them. Here is the point; just like the people in Washington hoping the competitive environment keeps liquor costs low, the rest of the Medicare population hopes the voucher pays for enough coverage. The only problem is, we have now handed our money over to a money-making enterprise. They expect a cut to run their business. They have shareholders to satisfy. They pay dividends to reward the shareholders. Where does that money come from? Why, from you, of course!

The voucher program creates a new middleman, the insurance company, and they expect some amount of payment. The government has overhead in the Medicare program that amounts to about 2% of the total cost. Private insurance companies vary, but remember, prior to the passage of Obamacare, they were balking at the prospect of returning anything over 20% of non-care related expenses as the Obamacare program requires. The difference of these two percentages will be the portion that comes out of our pockets. These will be additional dollars paid that have nothing to do with the payment of the actual health care costs.

For the insurance companies, this is quite a boondoggle. Look at all the new business they can get because the government with its restrictive rates and large number of beneficiaries now must fend for themselves in the health care insurance market. Free customers! But for many of us, I'm afraid we will experience the same thing Washington State liquor purchases found out the hard way; the same old goods have new higher prices that we will have to pay.

The free enterprise system is a great tool as long as there is a level playing field and businesses do the responsible actions of honoring their commitments. But we have seen time and time again, the health care insurance field has some predatory vultures that will practice extreme reimbursement avoidance in order to increase profits. We need to examine this issue and make the best possible choice as if our life depended on it. Because, simply enough, one day it will.

1 comment:

  1. The insurance companies already have more power and control than any one entity should. We all know, insurance companies do not have our best interests at the forefront of any decision making process. Creating another way for them to gouge us is like giving candy to a baby.