Unintended Consequences

Edition: January 2013 - Vol 21 Number 01
Article#: 4154
Author: Brian Taylor

Editorís Note: The following two columns, by Repertoire Publisher Brian Taylor and Claflin Co. President Ted Almon, address the affordable care act, and specific to the industry, the medical device tax.


One thing that I can confidently predict is that there will be no shortage of discussion around healthcare reform in the coming months and years. Frankly, the issues are so broad and complex it is impossible to expect a comprehensive solution.

I find much of the Affordable Care Act troubling, but perhaps for different reasons than most. I believe that healthcare costs and the current delivery and payment system are in dire need of change, yet ďreformĒ might not even be a strong enough word to describe what is needed. I do believe that the ACA, while perhaps well intentioned, is one of the worst bills ever cobbled together. It at first teased us with the goodies like 26 year olds staying on parentsí insurance and guaranteed insurability for many. Still, with all its faults, I think there are greater troubles in healthcare beyond whatever problems or solutions the ACA creates.

So much is being written about sticky issues like the medical device tax that affects us all directly with the loss of jobs and increased costs, or the difficulty in setting up the exchanges from where the newly insured will buy their insurance. On the plus side, many young people love the provision allowing them to remain on their parentsí plan until age 26. Certainly, the guarantee of insurability plays well to most people. But when legislation is pieced together by a process thatís messier than sausage making, there are going to be problems.

Number crunches

The unintended consequences that continue to surface and surprise even the most ardent supporters of the ACA are disturbing. For starters, under current law, insurers were allowed to charge an older, less healthy customer up to five times the price they charged a young and healthy customer. Under the ACA, that ratio has been reduced to a factor of three. This means that young, healthy folks may be seeing huge increases in their premiums that will force many to opt out of the system entirely, and elect instead to absorb the fine for not having insurance. Not exactly what the drafters had intended. Remember, we need all those young healthy people to be paying in to support us older, big consumers of healthcare.

The device tax was aimed at suppliers in exchange for the increase in business that they would surely see as a result of all these newly insured customers. Yet, taxing the top line revenue number is a job killer, as many startups donít break even. Theyíll be out of business. Perhaps a windfall profit tax would be a fairer way to get revenue, but to assume that all suppliers will see increased profits is absurd. Wherever possible, these added costs will be passed on to the consumer and when they canít be passed along, job losses are a likely consequence.

The big red flag of reform

Lost in all the rhetoric and details of the reform movement is that we are overlooking, I think, the biggest problem of all. We donít have enough deliverers of healthcare! It doesnít matter if we add 30 million or 100 million more new people to the roles of the insured. All that will do is create longer waiting lines. The premise for financing reform was based on the huge increase in business suppliers and providers would see. Each stakeholder was convinced to make concessions in exchange for the windfalls in new business or payments that awaited them. But we already had a huge shortage of providers as a result of the baby boomers retiring at the rate of 10,000 per day and needing more healthcare. By 2020, it is estimated we will be short over 100,000 doctors needed to serve an aging population.

We canít create providers overnight, and with the economics of healthcare, we are finding it harder to attract people to the profession. One of the greatest dangers we face is the likelihood that we are going to create a two tiered healthcare system Ė one for those with wealth and another for those without. As providers struggle to see more patients and receive lower reimbursements they will seek an alternative or leave the profession. We are already seeing concierge medicine quickly develop where people who can afford it pay a premium for care from a provider who turns to a cash business and less stressful way of life. This will leave many struggling to find quality healthcare in a timely manner, despite that they now have insurance.

Healthcare is facing unprecedented hurdles and challenges. Until the major issues can be clearly identified and agreed upon, it will be hard to develop a solution that will have a chance of providing a solution. We can and must do better.

Brian Taylor