Jim De Bree: On the failed health care legislation

By James de Bree

Last update: Friday, June 30th, 2017

I teach, as an adjunct professor, in the Masters of Taxation program at Cal State Northridge. Last Saturday’s class covered the 3.8 percent tax on investment income also called the “Obamacare tax.” This tax is imposed on the investment income of households making more than $250,000. The mechanics of the computation are complex to ensure that only people making more than $250,000 are taxed and that the tax only applies to certain categories of income above that threshold.

The final slide in the presentation stated that these provisions would be retroactively repealed by the American Healthcare Act (“AHCA”). One of my students asked whether this is the tax that pays for Medicaid.

It is apparent that the AHCA is really nothing more than a large tax cut for the wealthy, accompanied by huge cuts in Medicaid funding. The remainder of the provisions fail to make the substantive reforms required to improve the quality of our health care system and contain its runaway costs.

By global standards, our system is by far the most expensive, and for many, the quality of care is substantively less than that afforded to citizens in other countries. This is the result of undue legislative influence of health-care providers, pharmaceutical companies and the health insurance industry.

We should not resort to a single-payer system. But we do need to employ a structure used by other countries where insurance is a component to their health care delivery. We need to include everyone in a unified risk pool and base insurance costs on that pool so that insurance pricing is not discriminatory against the sick.

Merely allowing insurance companies to sell across state lines does not accomplish meaningful reform because it merely aggregates a number of small higher-risk pools into larger higher-risk pools with similar demographics. Until risk pool demographics change, costs to participants will not improve.

You cannot ask the insurance companies to do this without mandating participation by all. I realize that a segment of the right opposes such mandates on purported constitutional grounds, but the economic reality is that mandated participation is necessary to allow everyone to have affordable health care. If we do not employ this structure, the political groundswell will ultimately result in a single-payer system.

Volume pricing for medical services and prescription drugs for everyone in the single pool is essential for cost containment. Other countries obtain quantity discounts by employing volume pricing strategies.

Conversely, ours is a fragmented system where smaller segments of the market negotiate prices individually. This is one of the drivers of health care cost increases — particularly the cost of pharmaceuticals and new technology, which is a larger component of total medical costs every year.

The FDA is the world’s de facto consumer protection mechanism. We have an extremely rigorous process to approve new drugs. It costs $1 billion to bring a drug to market in the U.S., and it is U.S. consumers who bear this cost. Foreign governments typically postpone approval until a drug receives FDA approval.

Since the pharmaceutical companies do not spend as much money obtaining approval in foreign jurisdictions, they sell drugs cheaper overseas. We need to find a way to spread the approval costs globally. Volume pricing discounts are probably our best bet to accomplish this.

Having a fragmented health-care delivery system not only affects the pricing of health care, but it significantly increases administrative costs. A centralized delivery platform will streamline the administrative process, reducing providers’ costs while eliminating the red tape patients experience managing claims.

Many of the complaints about Obamacare are the result of structural flaws which are the inevitable consequences of lobbying by special interests.

Republicans have complained about Obamacare for years. America hoped that the GOP had a solution that would improve the system. Clearly they do not.

Republicans seek to gut the system by eliminating subsidies for our poorest people—many of whom are too sick to work full-time. Yet tax subsidies remain for employer-sponsored plans and those who can afford to fund health savings accounts.

My fear is that, if the Democrats come to power, they are likely to propose a single-payer system that will not properly address the health care needs of our country.

Perhaps where this ultimately will end is that we will have a single centralized basic mediocre health-care system in which everyone will participate that provides a safety net for those who cannot afford insurance. Those who can afford insurance would be able to get better care without taxpayer subsidy.

It is truly a shame that we cannot think outside of the box to create a world-class health-care system that would be the envy of the world. The window of opportunity to do so is rapidly closing.

Jim de Bree is a retired CPA who resides in Valencia.

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Jim De Bree: On the failed health care legislation

I teach, as an adjunct professor, in the Masters of Taxation program at Cal State Northridge. Last Saturday’s class covered the 3.8 percent tax on investment income also called the “Obamacare tax.” This tax is imposed on the investment income of households making more than $250,000. The mechanics of the computation are complex to ensure that only people making more than $250,000 are taxed and that the tax only applies to certain categories of income above that threshold.

The final slide in the presentation stated that these provisions would be retroactively repealed by the American Healthcare Act (“AHCA”). One of my students asked whether this is the tax that pays for Medicaid.

It is apparent that the AHCA is really nothing more than a large tax cut for the wealthy, accompanied by huge cuts in Medicaid funding. The remainder of the provisions fail to make the substantive reforms required to improve the quality of our health care system and contain its runaway costs.

By global standards, our system is by far the most expensive, and for many, the quality of care is substantively less than that afforded to citizens in other countries. This is the result of undue legislative influence of health-care providers, pharmaceutical companies and the health insurance industry.

We should not resort to a single-payer system. But we do need to employ a structure used by other countries where insurance is a component to their health care delivery. We need to include everyone in a unified risk pool and base insurance costs on that pool so that insurance pricing is not discriminatory against the sick.

Merely allowing insurance companies to sell across state lines does not accomplish meaningful reform because it merely aggregates a number of small higher-risk pools into larger higher-risk pools with similar demographics. Until risk pool demographics change, costs to participants will not improve.

You cannot ask the insurance companies to do this without mandating participation by all. I realize that a segment of the right opposes such mandates on purported constitutional grounds, but the economic reality is that mandated participation is necessary to allow everyone to have affordable health care. If we do not employ this structure, the political groundswell will ultimately result in a single-payer system.

Volume pricing for medical services and prescription drugs for everyone in the single pool is essential for cost containment. Other countries obtain quantity discounts by employing volume pricing strategies.

Conversely, ours is a fragmented system where smaller segments of the market negotiate prices individually. This is one of the drivers of health care cost increases — particularly the cost of pharmaceuticals and new technology, which is a larger component of total medical costs every year.

The FDA is the world’s de facto consumer protection mechanism. We have an extremely rigorous process to approve new drugs. It costs $1 billion to bring a drug to market in the U.S., and it is U.S. consumers who bear this cost. Foreign governments typically postpone approval until a drug receives FDA approval.

Since the pharmaceutical companies do not spend as much money obtaining approval in foreign jurisdictions, they sell drugs cheaper overseas. We need to find a way to spread the approval costs globally. Volume pricing discounts are probably our best bet to accomplish this.

Having a fragmented health-care delivery system not only affects the pricing of health care, but it significantly increases administrative costs. A centralized delivery platform will streamline the administrative process, reducing providers’ costs while eliminating the red tape patients experience managing claims.

Many of the complaints about Obamacare are the result of structural flaws which are the inevitable consequences of lobbying by special interests.

Republicans have complained about Obamacare for years. America hoped that the GOP had a solution that would improve the system. Clearly they do not.

Republicans seek to gut the system by eliminating subsidies for our poorest people—many of whom are too sick to work full-time. Yet tax subsidies remain for employer-sponsored plans and those who can afford to fund health savings accounts.

My fear is that, if the Democrats come to power, they are likely to propose a single-payer system that will not properly address the health care needs of our country.

Perhaps where this ultimately will end is that we will have a single centralized basic mediocre health-care system in which everyone will participate that provides a safety net for those who cannot afford insurance. Those who can afford insurance would be able to get better care without taxpayer subsidy.

It is truly a shame that we cannot think outside of the box to create a world-class health-care system that would be the envy of the world. The window of opportunity to do so is rapidly closing.

Jim de Bree is a retired CPA who resides in Valencia.

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James de Bree

James de Bree

  • Brian Baker

    What a load of pure, unadulterated bullpuckey, right down to the classic socialist dogma: “mandating participation by all… mandated participation is necessary… centralized delivery platform…”.

    Straight out of Marx. And I don’t mean Groucho.

    “I realize that a segment of the right opposes such mandates on purported constitutional grounds…”

    “Purported”? Name me ANY legitimate constitutional basis for government intrusion into the heathcare arena. “Mandating participation”? So, the government can “mandate” that I buy something? Are you nuts? Where does the Constitution allow THAT?

    We already have examples of government-run healthcare in this country. So, let’s tally the score, shall we?

    Medicare: nearing insolvency, on critical life support.

    Obamacare: In massive meltdown mode. Collapsing under the weight of its own fiscal idiocy.

    The VA: an unmitigated disaster.

    Sounds to me like 0 for 3.

    So you think, in light of that, that the government can solve the problem? Based on what? Your European “examples”,
    which I’ve said until I’m blue in the face are absolutely irrelevant to the discussion, an attempted comparison of apples and blueberries?

    This column, and its premise, is utterly absurd, and your constant repetition doesn’t make it any more credible. And stop trying to pretend it’s anything other than outright socialism.

  • Brian Baker
  • Steve Lunetta

    Anthony- I would agree with your comments. Jim still supports an insurance-based model but recognizes that a single-payer system may be where we end up. This is the kind of discourse we need- reasoned, open, intelligent, and creative.

    • Ron Bischof

      You may find the British authorities outrageously heartless or merely humane in gauging that Charlie’s chances for survival, much less a productive life, are vanishingly slim.

      Either way you may ask: Why does the British government have such wide authority over Charlie’s treatment? One big reason: Because the government funds a single-payer health system, picking up medical costs for British citizens.

      We imagine many Americans reassure themselves that this country’s largely private system of health insurance would never be so dismissive of a parent’s right to make decisions about a child’s health care. Or deny a parent the right to take a child home to die.

      But this medical drama, no matter anyone’s opinion, foreshadows the difficult decisions to come if America converts its medical insurance system into a single-payer model. (Note that “single-payer” is a euphemism for government-controlled health spending and care.)

      The prospect of single-payer here isn’t far-fetched: Medicare and Medicaid already account for about 38 percent of U.S. health care spending. Democratic politicians have floated the notion of lowering the Medicare eligibility age from 65 to 55, or of a broader Medicare-for-all. Before Obamacare became law in 2010, there also was talk of a so-called public option — a government-run plan — to compete with private plans on market exchanges. That was widely seen as a Trojan horse for single-payer.

      Now that Obamacare is faltering, talk of a single-payer national plan has surfaced anew in Democratic circles, notably California. In June, the Democrat-controlled state Senate passed a preliminary plan that would have covered all California residents, with no out-of-pocket costs, for an estimated $400 billion annually. That proposal evidently has died. For now.

      On a national scale, single-payer would more than triple government health care spending, by $32 trillion over a decade, the Urban Institute estimates.

      http://www.chicagotribune.com/news/opinion/editorials/ct-charlie-gard-single-payer-edit-0706-20170706-story.html

  • Ron Bischof
  • Ron Bischof

    People Are Dying Here’: Federal Hospitals Fail Tribes
    Indian Health Service facilities sanctioned for dangerous, faulty care, leaving often-impoverished patients on remote reservations without services required by law

    At the Indian Health Service hospital in Pine Ridge, S.D., a 57-year-old man was sent home with a bronchitis diagnosis—only to die five hours later of heart failure. When a patient at the federal agency’s Winnebago, Neb., facility stopped breathing, nurses responding to the “code blue” found the emergency supply cart was empty, and the man died. In Sisseton, S.D., a high school prom queen was coughing up blood. An IHS doctor gave her cough syrup and antianxiety medication; within days she died of a blood clot in her lung.

    In some of the nation’s poorest places, the government health service charged with treating Native Americans failed to meet minimum U.S. standards for medical facilities, turned away gravely ill patients and caused unnecessary deaths, according to federal regulators, agency documents and interviews.

    The IHS, a unit of the Department of Health and Human Services, operates a network of hospitals and clinics, much like the Veterans Health Administration. Under U.S. treaties that date back generations, the service is legally responsible for providing medical care to about 2.2 million tribal members.

    https://www.wsj.com/articles/people-are-dying-here-federal-hospitals-fail-native-americans-1499436974