How will doctors react to Obamacare?

Reading time: 12 – 20 minutes

President Barack Obama failed to achieve his dream of nationalized healthcare for one simple reason.

He forgot that doctors and hospitals were still operating under the Free Enterprise system. His focus was entirely on health insurance, as if this were the only road to healthcare.

Doctors and hospitals are still in the private sector and can react.

Heartbreak Ridge, Korea 1952. Adapt, Overcome, Improvise!

They are still free to act — and react.

Applying the wisdom of Gunny Sargeant Highway, in ‘Heartbreak Ridge’, there is a way forward for doctors and hospitals:

You adapt. You overcome. You improvise.

Adapting to Obamacare

Now, I have great faith in the free market system and an abiding belief in the law of unintended consequences.

The assumption that healthcare insurance is the only model for a national healthcare system is dead wrong.

President Barack Obama failed to get bi-partisan support for his healthcare law

Obama’s arrogant, high-handed performance has generated so much opposition in passing his mangled, extremely partisan healthcare package that he may have limited himself to one term and eliminated any chance for correcting loopholes.

Even if he serves two terms and Congress fails to repeal Obamacare and the Supreme Court, as is often the case, fails to uphold the Constitution, Obamacare (as it will forever be remembered) is still likely to fail.

Obama, taught in the Saul Alinksy School of Capitalism for Community Organizers, has never really understood how Free Enterprise works.

He thinks people are stupid, entrepreneurs less ethical than ‘community organizers’, and, as he said in a campaign speech, that doctors will cut off your foot for an extra buck.  On the first point, he may be right, as his election attests, but many Obama voters are fast learners and are moving on.

Obama’s lack of understanding of the free market system is good news for the United States, because a dedicated Marxist with an intention of destroying the country could do real damage if he understood how things worked.

Healthcare economics 101

The basics of healthcare economics are rather obvious:

1. Some healthcare procedures are a necessity of life. Without some procedures, you may die, like medical treatment for a heart attack. Other healthcare procedures are a luxury, often unnecessary to prolong life, like breast implants or surgery to remove a tattoo.


Young or old, no one lives forever.

2. Over time, with progress, healthcare treatments become more expensive, simply because they are more complex, require greater skills, or call for costly apparatus or drugs.
3. Healthcare needs are not spread equally across the population. All people have approximately the same need for food, but vastly different needs for healthcare. Some people are born with horrible defects at birth that, even with the most expensive and prolonged healthcare, can never be cured. Others are born with a genetic blessing and the luck to avoid accidents that allows them to live into their nineties, with little special treatment.
4. Healthcare needs are not spread equally throughout a person’s life, tending to be highest at birth and in infancy and then again, late in life.
5. Healthcare needs may be sudden and unpredictable, such as when a person is in an automobile accident or falls off a ladder.
6. For some people, the costs of healthcare necessary to conduct a reasonably normal life are more than a person may earn in several lifetimes.  For other people, the total costs of healthcare are far less than their total lifetime earnings.  For still others, no amount of expenditure can prolong or save their lives.
7. Healthcare costs tend to decrease and service delivery becomes more efficient, when consumers are aware of the costs and have an economic interest in keeping costs low. Medical service providers, in such an environment, will strive to improve efficiency in order to gain customers.
   

   Obamacare depends entirely on the efficiency and wisdom of bureaucrats.

8. Healthcare costs tend to increase and service delivery becomes less efficient, when consumers are unaware of costs and do not have an economic interest in keeping costs low. Inefficiency increases still further when methods and terms of healthcare delivery are determined by government bureaucrats, rather than by the private sector.
9. The demand for healthcare will always expand faster than the supply, even in declining populations.  Most people would like to live as long as possible and the cost increases with medical advances, as demand for healthcare exceeds supply.
10. The most effective way to reduce healthcare costs is to increase supply. The government can do this by providing free medical schooling to all who have the necessary talent, by removing government created monopolies, such as patent rights or delivery restrictions on pharmaceuticals or hearing aids, by subsidizing manufacture of medical equipment and supplies, by granting tax exemption to doctors and hospitals, by removing barriers to access of information about doctor’s fees and past performance, and by removing government regulations that hinder the redesign of health delivery systems.
    

    Rationing of consumer goods during WW II. Healthcare will always be rationed. The question is how and by whom?

11. Healthcare will always be rationed in one way or another.  The political and social question is how this rationing is to occur. Who will make the rationing decisions? Families, clans, nations? Individuals by the price mechanisms? Social norms, like elderly Indian widows, without a protector, wandering off into the snow in winter?

Because healthcare needs are universal and must be rationed, debate on the issue can be highly emotional. Furthermore, because the market is so large, certain powerful commercial interests will lobby fiercely to maintain the status quo, protecting what they consider to be their interests.

The field is ripe for economic and political charlatans to promise the impossible, because so many people want to believe the impossible.

Four basic healthcare models

Here are the four basic schemes for healthcare rationing:

1. Power, wealth, charity: Healthcare is delivered with priority to those with the most power and money. The rest of the population depends on charity.
   

   Charity has long been an ingredient of healthcare.

2. Clan, group, nation: Healthcare is provided free to all members of a clan, group, or nation.  The group uses collective resources to finance the program and sets the rules on how and to whom services are to be provided.
3. Insurance programs: Healthcare is provided free, or with a small co-payment, to beneficiaries of health insurance programs.  Such health insurance may be purchased by the beneficiaries, paid for by third parties, such as employers, or financed by the government.
4. Credit insurance plans: Healthcare providers offer their services with payment spread over long periods to those who participate in certain credit insurance plans.

Usually, some combination of delivery systems are employed.  When the ability to use health services is divorced from the need to pay, delivery is the least efficient.

All systems involve rationing.

Mixed models of healthcare delivery

In most countries, there is not a single, universal model for healthcare delivery.

Power and wealth is always an ingredient, even in nationalized systems.  Obamacare, for example, exempts members of Congress and high government officials.

I lived in Brazil for 23 years under a form of ‘nationalized’ healthcare.

Here is how it worked:

1. Anyone who ever had a job and held a ‘worker’s card’, had automatic free (or almost free) healthcare available in government-run hospitals.
   

   Hospital Samaritano, a private sector hospital in Brazil.

2. Doctors could elect to work for the government-owned hospitals, or work in the private sector, or do both.
3. Private hospitals were permitted, offering services to those who chose not to go to government hospitals.
4. Poor people went to the government hospitals; middle class and rich people went to private doctors and hospitals.
5. Many doctors used the government hospitals to gain operating room experience, essentially using the poor for practical training, while earning a little extra income.  Many doctors would work a day or so a week in government hospitals while maintaining a lucrative private practice. Some Brazilian doctors are world famous.  With plenty of opportunity to practice surgery, Brazilian doctors became among the best in the world.
6. Pharmaceuticals and prescription drugs were not strictly regulated. In those days you could go into a pharmacy, drop your pants, and get a shot of penicillin in the backside, for a small fee.
7. Private health insurance was available and not heavily regulated.  Doctor’s fees were reasonable for the middle and upper classes.
8. Medical performance was regulated primarily by word of mouth among patients.

While living in Brazil, my doctor, who charged only about $50 a visit, was also the doctor of the President of the Republic, who, of course, didn’t use government-run hospitals. My children were born in private hospitals — costs were reasonable and service was excellent.

I’m not recommending the Brazilian system (of the 1960s) for the United States. I’m simply indicating that there are many possible models for healthcare and that ‘nationalized’ healthcare has consequences other than those envisionaged by the planners.

Note: the system I describe existed in the 1960s. Today, things are different.

Dribbling Obamacare

Let us assume that Obamacare causes all health insurers to go out of business and because there are no penalties on the ‘individual mandate’, people simply refuse to buy government insurance.

Obama, seen here applauding the passage of Obamacare in 2010, may be out of office when it is repealed in 2013.

Big businesses, as always, will find loopholes in this poorly drafted law. Small businesses, in time, will also find ways to avoid the uneconomical aspects of Obamacare.

Congress will change to more closely represent the will of the people. It is almost certain that whatever survives under the name ‘Obamacare’ will be much different in 2020 than its supporters promised in 2010.

The law may even have been revoked, but assuming that it is not, here is a way the private sector might dribble past this legal mine field and provide better coverage at lower cost:

1. Private insurance companies might begin to offer individuals private credit insurance for debts to doctors and hospitals;
2. Doctors and hospitals might drop medicare, medicaid, and all government insurance plans.
3. Doctors and hospitals could be organized to treat patient with any condition, as long as that patient has a private credit insurance card and belongs to certain groups, such as certain churches, social clubs, or named associations.
4. Doctors and hospitals could bill in terms of monthly payments, tailored on ability-to-pay, extended over long periods, as long as patient has a credit insurance card.  Credit insurance could guarantee payment in the event of a patients death, unemployment, incapacity to work, or upon reaching a certain age.
   

   Camden, NJ. The poor may fall back on Medicaid or Obamacare.

5. The credit insurance would cover only amounts over a certain limit, and patients would always pay up front a certain amount, providing an incentive to seek the lowest prices and avoid unnecessary treatment.
6. Doctors and hospitals would hold a certain percentage of the credit risk and would provide certain services pro bono.

Under such a system, poor people would still benefit from the miracle of Obamacare. Middle-class and rich people would get the best doctors and could afford treatment for most ailments. A private sector credit-insurance system could result in lower medical costs because:

1. It would be possible to avoid complex federal regulations that impede innovation and providing efficient healthcare delivery;
2. Patient’s would seek the best treatment at the least cost;
3. Doctors and hospitals would reduce costs, both to  limit credit risk and to compete for business;

Here, however, the point is not to recommend this particular system, but only to suggest that Obamacare could cause the US healthcare system to change into something quite different, if doctors and hospitals find that they cannot live with the current law.

Medical providers are still free to react

When forced to the wall by Big Government, the private sector generally finds ways to improvise, threading loopholes in bad law, and inventing new methods of survival. Barack Obama will be out of office by 2017 — hopefully sooner — and it will be a different world.

Not all medical specialties depend heavily upon health insurance.

Not all medical services are so expensive as to require health insurance.

Dentists, for example, are generally excluded from Medicare and many insurance policies. Nevertheless, dentistry survives because hundreds of millions can afford the expense of a tooth filling or semi-annual cleaning.

General practitioners, optometrists, many out-patient procedures, dermatologists, medical tests, and so forth — all may be affordable without health insurance.

Without the bureaucracy and paperwork that health insurance entails, medical providers may find they can make their offices more efficient while providing better service.

Of course, high cost procedures, like heart surgery, are another matter, but as discussed above, there are other ways to structure a business if pushed to the wall.

In any event, bad news is often good news for someone.

I have high faith that smart operators will look past the flaws in Obamacare, past its obvious inflationary consequences and destructive impact on the US economy, and think outside the box to find creative ways to make ethical profits on the people’s need for affordable healthcare.

Summing up, Obama has failed to nationalize US healthcare because he focused on health insurance, forgot the role of doctors and hospitals, leaving them free to adapt, and did not attempt to shut down free enterprise entirely.

What do you think?