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Understanding Obama’s Healthcare Reform

November 10, 2009

Although I prefer financially conservative policies during times of economic turmoil, reform of our medical system is required: no resident of a country with the worlds largest GDP should be denied access to medical care. I’m concerned about a proposed “Government option’s” negative impact on the quality of healthcare, but overhaul of insurance by the Obama plan is valuable and the White House offers these highlights on reform:

• Insurance companies may not deny coverage based on pre-existing conditions.

• Prevents companies from dropping coverage when people are sick.

• Puts a limit on out of pocket expenses so people don’t go broke when they get sick.

• Eliminates some charges for preventive care (i.e. mammograms, flu shots, diabetes testing)

• Protects medicare for seniors and eliminates the “donut-hole” gap in coverage for prescription drugs

I’ve worked in insurance for a few years and experienced horror stories of clients who are left “uninsurable” because of pre-existing conditions. My father founded a company to deal with these exact difficulties when he was left to bear $100k+ in medical bills as insurance companies denied coverage for expenses related to my younger brother’s “pre existing” health condition. Suffice to say, individual policies extending coverage to pre-existing conditions is long overdue.

However, expanding coverage to individuals with pre-existing conditions is only effective when everyone is continuously insured, meaning coverage is purchased at length and not cancelled. Reason being, if pre-existing coverage is available, people will begin purchasing insurance only when ill, or only for immediate needs and cancel coverage once healthy, a phenomenon known as adverse selection. Adverse selection, impedes profitability posing losses to insurance companies, ultimately driving health insurance premiums upward for everyone. Which brings us back to Obama’s plan that addresses this concern by making health insurance a mandatory purchase. It’s a simple, necessary and effective solution.

But remaining highlights of reform are misleading. The plan promises to eliminate charges for certain preventative care services, put a limit on out of pocket expenses and prohibit insurance companies from canceling coverage because of illnesses. This sounds great, but most companies already offer this. In my years of dealing with individual and group health benefits, I have yet to see a carrier cancel coverage because of ongoing illnesses incurred during a policy period, and most all policies have an out of pocket maximum, or co payment structure capping what an insured must pay in a given year. For instance, on an individual Blue Cross policy in California maximum out of pocket expenses range anywhere from $3,000 to $10,00- depending on the policy one selects. Denial of coverage for a pre-existing related condition is plausible, but cancellation of a policy  because of a covered illness is unheard of. Also plans already include coverage for a wide range of preventative health services. Under some plans in California, all preventative health is covered at 100% after your deductible and annual physicals are covered even before the deductible. Granted California is a progressive state where private insurers offer relatively liberal coverages, but Obama’s plan starts to look misleading in calling itself “reform” when many of the proposed changes already exist.

So given that preventative coverage is currently available and Obama’s plan extends benefits to those with pre-existing conditions, the main concern left is rising costs. There are four major players in the U.S. health system: insurance companies, medical professionals, pharmaceutical companies and American consumers. Reconciling each industries interest in profitability with a consumer interest in affordability is the task at hand. Obama’s plan says it would cost “nothing” to taxpayers and if that’s the case, consumers seem protected, but costs will inevitably be born by another player in the mix. And thus far, reform chooses to ding insurance companies between the three. This explains the aforementioned wording that misleadingly suggests coverage is being expanded when much of those benefits are already offered by insurance policies. It’s not a direct vilification of insurance companies, but certainly plays on an already widely vilified view of the insurance industry.

Americans are understandably annoyed with medical insurance costs that have risen over the years. But pharmaceutical and medical professional industries have an impact on those premiums and are worthy of consideration as legislators draft reform. Fraud on the part of medical professionals engaging in rampant up-coding, charging for unnecessary services and over-billing of both private and public insurance like Medicare play a significant part in our upward premiums. In fact, $12 billion in improper Medical claims were paid last year. So we wind up paying for exorbitant fraud first through taxes on government run health care, then through upward premiums on private insurance! And on the whole, America spends more than $2 trillion on healthcare annually with at least 3 percent of that spending — or $68 billion lost to fraud.

Pharmaceutical companies also factor into rising costs, but media, legislators and Obama’s plan are surprisingly void of any discussion or reform on that front. How the same drugs we use and are manufactured by an American pharmaceutical company, can be sold at a fraction of the cost in Canada while cheaper foreign med’s are not easily accessible in our markets, is not only unfair, but increases our premiums in the same way fraud does. When an insured purchases brand medications from a pharmacy, they pay for only a co-payment, or deductible amount while the insurance company winds up bearing the remaining, majority cost of exorbitantly priced drugs, which ultimately drives rates up for us all.

Point to note: reform is needed on all ends. Obama’s plan brings much needed value by requiring insurance companies to extend benefits for pre-existing conditions and mandating purchase of some form of coverage. And equally important is understanding that insurance companies are not the sole contributors to rising costs of health care in America and should therefore not be an exclusive target of reform.

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6 comments

  1. Wow, finally a “Reform Understanding for Dummies “

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  2. […] With an expanding war and expanding government (Af-Pak war and healthcare reform respectively), expenses seem excessive. But thinking about the Af-Pak quagmire within this […]

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  3. […] With an expanding war and expanding government (Af-Pak war and healthcare reform respectively), expenses seem excessive. But, thinking about the Af-Pak quagmire within this […]

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  4. We need health care reform that is REAL health care reform. Corporate welfare has to stop

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  5. Obamacare is not healthcare reform. it does nothing to address the major problems and will also bankrupt our country. read the fine print folks.

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  6. Excellent article with lots to think of regarding the factors & other players involved in the entire healthcare reform, some of which have not been discussed by Obama’s Admin. at the forefront as you mentioned..therefore, can presume an overflow in costs somewhere.. So how it may all play out will be very interesting and it can also be very freightening, with the scariest scenario being that if Obama’s plan goes terribly wrong, this country will go bankrupt and then there won’t be anything left for anyone, including Medicare or Social Security.
    On the flip side, I strongly agree, that it is every American’s fundamental right to have access to affordable health insurance so although other players (contributers) as you mentioned are involved, the insurance companies have to be the ones to be targeted first or at the forefront because without health insurance there is access to nothing but out-of-pocket expenses most people can’t afford, so in the mix of things, health insurance companies have to face the harsh consequences, that they can’t operate as a business at the expense of people’s health because not only is it not fair and unethical, their refusal to deny on the basis of pre-existing conditions, etc. does greatly inflate healthcare costs because then people are left untreated, get sicker, end up at emergency rooms, not to mention, loss of employment, which are then tax payers, company, work-force, opportunity costs ,etc that affect the entire society and economy of the whole country. Furthermore, although you mentioned that reform mentions health insurance policies that had already been in place., for the masses this may be so..unfortunately, for some with long-term chronic conditions and/or expensive medical problems, insurance companies have dropped them over some sort of ambiguous technicality or cap system over the length of time a person can be covered under certain vague scenarios as part of their contract. These loop-holes to deny coverage or to drop coverage is absolutely ludicrous when the person is still sick and have no second chance at reinstating coverage. Furthermore, the healthcare reform removes pharma and insurance companies, etc, financial bargaining power to lobby for or against laws that favor and protect them at the expense of the rights we’re entitled to, especially of those who have been or still are innocent victims of deliberate sabotage by their health insurance provider.

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