The Health Care Conundrum

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Expert Perspective by Grahall’s OmniMedia Editorial Board

expert perspective telescopeA summary of a recent OI Partners survey of planned rehiring as the economy begins to rebound (reported by World at Work “Nearly Half of Employers Plan to Rehire Some Laid-Off Workers”)  says “As the economy slowly improves, 40% of employers are planning to rehire some former workers they laid off as either full-time employees or as consultants and freelancers to add needed skills, according to a recent survey. … The survey found that financial services companies are most likely to rehire some laid-off employees, while manufacturing companies are the second-most likely. Government agencies and non-profit institutions are least likely to rehire laid-off workers, followed by health-care employers.” 

On its surface, with Health Care Reform looming, it might seem surprising that Health Care would be among those least likely to rehire laid off workers.   Grahall is not surprised as we track Bureau of Labor Statistics releases monthly and have seen that health care has been steadily adding jobs even as the rest of the economy has been shedding them. (Actually government has been adding jobs as well and while Detroit presently has 18 unemployeds for every job opening, DC has 6 job openings for every unemployed.  That’s fodder for another blog, though.)  There are some interesting aspects to this, and it’s not just about the economy and jobs. 

The article goes on to say in a quote from Tim Schoonover, chairman of OI Partners that “Financial services and manufacturing were among the industries affected most by the recession, and made the deepest workforce cutbacks. That is why they may be more ready than other sectors to re-hire some employees they had to let go.”
We agree that last year’s basic statistical data has shown that, as the economy shed jobs by the hundreds of thousands each month, Health Care was among a few industries that  saw job increases. 

So perhaps with some additional 50 million people soon to be covered by health insurance we can take some comfort in the expectation that health care workers will be there to serve these new patients.  But let’s not get too comfortable about that.  One of the conundrums of health care reform, which will result in adding 50 million people to insurance plans, is that it will surely drive up demand for medical services.  The added burden of newly covered people will require an increase in hospitals, labs, doctors, nurses, aides, and equipment.  Much of the need may also arise in parts of the country where little infrastructure or resources exist to provide health care today.  Where will the brick, the mortar, the human resources, and the equipment come from to address the increased demand for care?  Will the increased supply lower prices sufficiently to defray overall cost increases? 

Health care reform proposals suggest that our country will pay for the new coverage through cost savings. But economic theory would preach that when demand increases and supply does not rise to meet it, then prices go up, perhaps eradicating anticipated costs savings.   Further, health care reform proposals suggest that cuts in Medicare reimbursement rates will also help pay for the costs of these programs.  However, these reductions might put more pressure on already cash-strapped hospitals and could possibly drive some of them out of business at the same time that demand for hospital services is increasing.

Currently about 85% of Americans are covered by some form of insurance.   As demand goes up and the supply does not, what is the government to do to help keep it affordable other than to suppress prices by reducing reimbursement rates? In this scenario, health care providers will simply treat more people for the same amount of money.  

Grahall’s Robert Cirkiel says that he believes “the insurance companies got it wrong.”  They went to Congress and the President early and said something like “we will be willing to accept universal coverage that forces us to take on any and all comers, but we don’t want a Federal Plan”.  A better approach for insurers would have been to say: “Bring on the Federal plan, but permit us to underwrite”.   Robert continues, “Insurers should prefer to medically underwrite individuals so that the government plan would get stuck with the unhealthier participants and become the higher priced ‘insurer of last resort.’   This would have resulted in a many other problems, of course, but not for the insurers.”

One of the ironies in the diatribe over of Heath Care reform is that critics claim it will move us further away from a “free market” structure, when in fact,   a free market structure in health care has not existed for some time – and for good reasons.  Free markets require individuals to behave like consumers: evaluating, considering and understanding alternatives.  But consider this, when you have an urgent health crisis (say it’s a heart attack), you don’t behave like a consumer.  A call goes to “911” and an ambulance picks you up and takes you to the closest hospital where a bevy of doctors, nurses and specialists use complex machines and unique drug therapies to deliver life saving solutions.

Basically, when you are dying you don’t comparison shop. The risk of dying has a way of instantly removing “consumerism” from the equation.  Add to this that the health care delivery system described in the preceding sentence needs to be paid – like lifeguards – regardless of whether any ”customers” show up.    This all means that health care costs cannot fall beyond a point, and so there is only so much “downside yin” to balance the “upside yang.”

So right or wrong, we will have health care reform, lobbied heavily by the insurance companies, and it will be flavored with their goals and politically strangled by partisan arguing.  Now we just hope we don’t get sick, but ironically the process is doing just that.

Contact Grahall’s Editorial Board at edie.kingston@grahall.com

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