Bush’s Healthcare Unreality

President Bush believes the power of the individual consumer will result in price reductions when the negotiating power of large insurance companies and the federal government failed. In February he described the system based on his “reality”.

The traditional insurance today will cover your health care costs -- most of your health care costs -- in exchange for a high premium payment up front. The costs are generally shared by you and your employer. You may also pay a small deductible and co-payment at the time of treatment. What's interesting about this system is that those payments cover only a fraction of the actual costs of health care, the rest of which are picked up by a third party, basically your insurance company.

It means most Americans have no idea what their actual cost of treatment is. You show up, you got a traditional plan, you got your down payment, you pay a little co-pay, but you have no idea what the cost is. Somebody else pays it for you. And so there's no reason at all to kind of worry about price. If somebody else is paying the bill, you just kind of -- hey, it seems like a pretty good deal. There's no pressure for an industry to lower price. And so what you're seeing is price going up. If you don't care what you're paying, and the provider doesn't have any incentive to lower, the natural inclination is for the cost to go up and the insurance companies, sure enough, pass on the costs -- the increase in cost to you and your employer. That's what's happening.

Does this bear out in reality? The Journal of the American Medical Association published a report from government researchers who found healthcare costs eat up more than 10% of the annual income of some 50 million families as of 2003. This is an increase of some 12 million families since 1996. Nearly 20 million lived in families spending over 20% of their annual income on medical care.

President Bush’s "small deductibles" and "little co-pays" grew from $162 billion in 1997 to $236 billion in 2004. Could 10-20% of a family’s annual income be spent on such minor costs? Of course not, the President’s world is fantasy. Businesses have shifted the cost of care to employees for the last 15 years. And Mr. Bush wants to accelerate the dump via his active salesmanship for high deductible health plans.

What’s really going on? Why is the President pushing for Medicare and Medicaid Modernization? A look at the state of Texas gives some insight. Our legislature approved contracting out Medicaid to managed care companies on a revenue neutral basis. Companies would compete with each other to sign up enrollees. The STAR+PLUS program. A portion of the program’s description is below:

STAR+PLUS is a Texas Medicaid managed care program designed to provide health care, acute and long-term services and support through a managed care system.

STAR+PLUS provides a continuum of care with a range of options and flexibility to meet individual needs. The program increases the number and types of providers available to Medicaid clients.

Participants of STAR+PLUS choose a health plan (HMO) from those available in their county, and receive Medicaid services through those health plans.

Several insurance companies have been selected to offer their insurance products to qualifying Texas Medicaid recipients. One company AMERIGROUP Corporation is competing for patients in the state’s largest metropolitan areas, Houston, Dallas and San Antonio. I looked to see who served on their Board of Directors and was shocked to find a longtime healthcare consultant, Princeton Professor Dr. Uwe Reinhart.

Dr. Reinhardt joined the Board of AMERIGROUP in 2002. As of their last definitive proxy statement, Uwe controls 106,000 shares via stock options. At the current stock price of $35.60 this totals over $3.7 million. While he is underwater on the latest 16,000 shares in option grants, chances are Mr. Reinhardt’s holdings have significant value given his term on the board. As a non-employee director he takes home $40,000 a year for his services should he attend all scheduled meeting.

The bio in the proxy reveals his membership on the Boston Scientific and Triad Hospitals boards of directors. A Triad director since 1999, Mr. Reinhardt owns 2,000 shares and has 55,375 stock option shares. At $41.50 a share he controls almost $2.4 million worth of TRI stock. In addition he receives and annual retainer of $55,000 and $10,000 more if he attends all meetings. Does this ensure he looks after the for-profit hospital sector as he advises on health care system change?

What about medical device makers like Boston Scientific Corporation? Uwe has served on their board since 2002 and beneficially owns 39,334 shares of stock. At $16.50 per share, he controls $650,000 worth of BSX stock. He also brings home an additional $60,000 per year from his annual retainer.

The Princeton Professor has been a longtime advisor to political leaders on ways to control healthcare costs and improve access. He serves on The Kaiser Family Foundation’s Commission on Medicaid and the Uninsured. From 1997-2002, Dr. Reinhart served for five years on the Center for Health Care Strategies, a non-profit think tank focused on improving managed-care techniques for the Medicaid and SCHIP populations.

Why that’s the very program Texas is implementing via STAR+PLUS! And it even contracted with Uwe’s firm for services! What are the odds of that happening randomly?

Mr. Reinhardt also serves as a trustee for several of Hambrecht & Quist’s investment portfolios. He helps oversee their products specializing in health care and life sciences investments and has done so since 1988.

I find it interesting that a Princeton Professor with an international reputation in healthcare could have such obvious conflicts of interest. For decades Dr. Reinhardt has been in a position to recommend policy changes that could benefit his personal portfolio.

This brings us near full circle back to his other position as Uwe is a member of the Editorial Board of the Journal of the American Medical Association. The periodical just shared a significant number of American families are paying much more in annual healthcare costs than “small deductibles” and “little co-pays”.

The report contradicted the President with its findings. “We also noted that high out-of-pocket burdens associated with delaying or foregoing medical care for financial reasons, behavior that can have severe consequences for those in poor health”.

As a final tidbit, Dr. Reinhardt serves on the External Advisory Panel for Health, Nutrition and Population, the World Bank. This group has a reputation for pushing American businesses and market positions overseas. Will a man who advised our country for decades into the health care mess we currently face be able to help the world? Or will he just help himself?

When he talks to Congress next what will he say? Will he talk about the two tiered healthcare system he foresaw in his 1999 talk?

Dr. Reinhardt predicted that this country will decide to ration care by income. The poor will be guaranteed a minimum of care, with budgets tightly controlled; others will buy whatever they want. This two-tiered health care system, he maintained is the only hope for the uninsured.

He concluded with a “sure-thing” forecast of the future that the audience could count on. As he put it, simply, “shift happens.”

I would change the word from “shift” to “sleight of hand” given the Bush plan to dump healthcare costs on the individual while not stemming the ever burgeoning legions of uninsureds in America. That he does so under the rubric of "modernization" makes it all the more maddening.