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Minnesota 2020 Journal: Moving Healthcare Forward over Conservative Opposition

March 08, 2013 By John R. Van Hecke, Executive Director & Fellow

This week, the Minnesota Senate and House of Representatives passed legislation establishing Minnesota’s health insurance exchange. (The legislation now moves to a conference committee where House and Senate changes can be reconciled). Every conservative caucus member but one voted against it. The votes affirmed long-standing, hostile conservative policy opposition to healthcare reform while clinging to the hope of something vaguely better that does more, at lower cost, while preserving great profits for all involved. Conservative policy leaders may not know what they are for but they know what they’re against. Defiant opposition may be good conservative stakeholder politics but it's poor state public policy.

Healthcare is changing rapidly. What worked in the past isn’t working today. Consequently, 20th century healthcare service delivery and health insurance won’t function in the 21st century. Systemic inadequacy compelled change. We have the Affordable Care Act—Obamacare—because the old way of financing healthcare was slowly but surely failing.

The alternative was staying with the old, compromised and failing healthcare system. It was an expensive, inefficient method of delivering and paying for healthcare services that was quickly becoming impossibly expensive. Without reform, centralized cost containment and market competition, the only remaining solution was to simply stop treating patients when the money ran out.

In the healthcare reform debate, conservatives are fond of insisting that government has to “get out” of healthcare. What they really mean is that government should limit affordable healthcare access to non-conservative constituencies while delivering publicly funded benefits to deserving recipients. Today, government provides roughly a third of all Americans with healthcare and health insurance. Between military, government employees, veterans, federal prisoners, and Medicare and Medicaid recipients, the federal government is deeply, inseparably involved in healthcare. It’s foolish and irresponsible to pretend otherwise.

But, we’ve been over this ground before. It’s useful, however, to quickly review how we reached our healthcare reform moment. The story starts with America twenty years into post-World War II prosperity and a handful of catchy songs.

In 1965, the Beatles and the Beach Boys respectively released “Rubber Soul” and “Today!”. Both albums were hits. Both, in retrospect, revealed both groups’ rapidly changing musical direction. A year later, the bands were in the studio, creating seminal, capstone works. For the Beatles, released in 1967, it was “Sgt Pepper’s Lonely Hearts Club Band” and for the Beach Boys, released a year earlier in 1966, it was “Pet Sounds.” “Rubber Soul” and “Today!” were important precursors but they weren’t the bands’ stopping points.

Concurrently, Congress passed Medicare and Medicaid. Medicare is the national health insurance program for older Americans and disabled young people. Medicaid is a means-tested healthcare program for low income and disabled Americans, jointly funded by state and federal governments. It is a principal source of medical assistance for its service population but it’s not the only one.

Medicare and Medicaid were created simultaneously in 1965. The were amendments, Title XVIII and Title XIX respectively, to the Social Security Act, originally authorized in 1935 as a part of President Franklin D. Roosevelt’s transformative New Deal legislation. The New Deal sought to stabilize the increasingly volatile American economy by creating a social safety net. Social Security was introduced as a minimal national pension plan for the destitute elderly.

Twentieth century medical research drove healthcare advances, extending and improving human life. Recognizing the changing cost structure associated with this expanding field, insurance companies began offering products that mitigated treatment cost risks. The first significant, large-scale use of employer-provided health insurance flowed from the United Auto Workers’ collective bargaining agreement with the Detroit-based automotive manufacturing industry in 1950.

To better understand Medicare and Medicaid, it’s important to understand how insurance works. Insurance, at its most basic level, is a risk assessment and management strategy that hedges against the likelihood of an undesirable occurrence in return for a premium payment. Assessing risk’s probability and determining premium price are essential business model elements. A healthy 21-year old has a lower probability of heart failure than someone in her 70s. Given heart disease’ low-likelihood among 20 year olds, a group of them could negotiate for a low-cost, high-service coverage premium. Heart failure’s risk among people in their 70s becomes increasingly probable so the cost of insuring against heart disease’s related treatment costs is almost essentially the cost of treatment.

Private insurance companies prosper by limiting their risk exposure and pay-out obligations. This has the logical consequence of slowly but surely pushing people out of the private insurance market due to cost. The nation, on the other hand, is charged with helping people pursue happiness. A lot of sick elderly and poor people tend to decrease public happiness. As a result, governments began creating social safety net programs to mitigate social risk. Which, brings us back to the Medicare and Medicaid Amendments of 1965.

With legislative passage, government functioned as the insurer, effectively spreading the risk of the highest risk groups—elderly, impoverished and  people with disabilities—across the entire national population. Obamacare continues that tradition by making health insurance compulsory but implements it on a state-basis through a health insurance exchange. The exchange is a mechanism for creating larger risk pools, putting greater pressure on insurance companies to compete for business.

Obamacare will not solve America’s healthcare challenges but it is a critical step forward. I’m disheartened that Minnesota’s conservative policymakers still refuse to engage the health insurance exchange planning and implementation process. Obstinacy hinders progress, holding Minnesota back. The Beatles weren’t content to stop after making “Rubber Soul.” Minnesotans want their policymakers to keep working Minnesota’s problems, not to pretend that they don’t exist.

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4 Comments:

  • Colleen O'Connor Toberman says:

    March 8, 2013 at 10:35 am

    Thanks for your thoughtful analysis, John. As someone who prefers pragmatism to partisanship, I’m always frustrated to see lawmakers take stances that aren’t actually productive for our citizens.

  • John Cook says:

    March 12, 2013 at 9:59 am

    I have accepted as consensus that public spending for healthcare was over 50% while private insurance covers around 35% and out-of-pocket and"other” account for the rest.  A quick online search supports those numbers.  What is the source for the numbers quoted in the article?

  • Frank says:

    March 12, 2013 at 12:58 pm

    WHICH numbers (of John Van Hecke) are you questioning??  Mostly, he was just making a lawyerly, statistics-limited case in favor of reform, and in opposition to hide-bound conservative opposition to same.

  • John Van Hecke says:

    March 12, 2013 at 3:54 pm

    I’m not a lawyer.