Friday, March 12, 2010

My Objections to Obamacare: an Open Letter to Congress

The people at have made it possible for anyone to email their representative and all of the blue-dog Democrats in the House of Representatives regarding President Obama and the Democrats' healthcare reform bill. They even allow you to edit the default message to make it a personal appeal. Here is what I wrote to congress:

I write to encourage you to oppose government-run health care and any legislation which might broaden the federal government's control over my health care. I hope that you fight against health care legislation that would drive up costs, diminish quality and limit access.

I am a person who has been touched by the healthcare industry all my life. My father was a physician - an anesthesiologist - who even in the 70's saw upwards of 20% of his gross income go to malpractice insurance premiums. In my youth I worked as a nursing assistant on the delivery side of healthcare, caring for patients in both hospital and long term care settings. My wife also worked in healthcare delivery at the practitioner level, running a doctors office for the first few years of our married life. For the last 25+ years, I have worked on the payer/managed care side of the healthcare equation. Currently, I am a financial analyst for one of the top 3 healthcare companies in the world. I not only manage forecasting and budget for a $500M piece of our business, but work with our actuaries to develop premium rates.

When I weigh all of this experience against the current proposed legislation, and more importantly, the rhetorical basis for that legislation, I am frankly shocked at both the inadequacy of the bill to address the REAL healthcare reform needs of this country and the deceitful and inaccurate claims about our wonderful healthcare system. At the core of my disgust is the failure of the bill to address the true problem in the current system - cost. Defensive medicine and out of control malpractice rewards are a large factor in driving costs up. These constantly rising costs in turn are the major contributor to insurance premium rate increases. Government regulation in the form of mandated benefits also adds to the cost equation. And a lack of competition because of rigid, state based obstacles to product marketing removes the last hope of pushing costs down.

The current bill not only fixes none of these real problems but will exacerbate a good many of them. As doctors flee the system because they can't survive financially, the quality of and access to care will go dramatically down and cause an actual increase in prices due to supply and demand dynamics. All of the “pork” in the bill simply heaps waste on top of bad policy.

For all of these reasons I implore you to take the sensible and responsible approach to the current healthcare bill and vote against it. I hope you get that opportunity soon so that you and your colleagues, our servants in the machine of government, can turn your attention to issues that really are affecting our country in this current tumultuous time – jobs and the economy.


  1. Excellent letter. BTW: Can you tell us what your profit margins really are? I know they are not high as this admin would like us to think.

    My dad was on the board of a hospital back in the 60's and it is horrible what government regulation and price setting has done to the whole industry.

    Also, come back to wim. I gave an explanation over there about insitutionalized patriarchy to try and explain where I was coming from.

  2. Last things first. I will be back to WIM. I just need a little breather.

    Before discussing profit margins, we need to start with benefit costs. As a very general rule, health care companies target about an 85% BCR - Benefit Cost Ratio. For every dollar of premium, 85 cents goes directly to paying claims. Of course, on a case by case basis, that can vary wildly. I have plans in my product mix that actually are total losers, meaning that we don't bring in enough revenue to even pay for the services, let alone administration and overhead. But I have others that compensate for that. Overall, 85% is a typical target.

    Next you have to add on administration (the actual cost to process those claims) and overhead (IT, facilities, sales, etc.) Those expenses run around 10%. Of course, executive salaries fall into this set of expenses. This is one area where hyperbole has run wild. If we cut all the executive's salaries in our company by 50%, we wouldn't change that 10% admin/overhead in any significant way. As I said, my small piece of our business pie is about 1/2 billion in revenue. But our subdivision in total is apx. 1.5 billion in revenue. All of the executive salaries combined in our subdivision wouldn't amount to even 1/10th of 1 percent of that. That is true throughout the industry. Believe me - health care costs aren't "skyrocketing" because of lavish executive salaries.

    Well, you can do the math. 85% BCR plus 10% SG&A (sales, general, and administration) leaves about a 5% profit margin. In reality, 4-6% is a typical range. And there are, as in all businesses, good years and bad years. It also matters how much of your product mix is public (Medicare and Medicaid) vs. private insurance. But that gives you a pretty good idea.

    The last piece of the puzzle is benefit cost increases year over year. Much has been made about the large premium increase recently in California. People have asked: "is it realistic that benefit costs have gone up 30% in a year"? The simple answer is "yes". Now, I don't work for the company that proposed those large premium increases. I don't know their financials. Maybe they are gouging customers. I heard the head of the Dept of Insurance for CA on the radio the other day and they will be investigated to ensure that their rate hikes are reasonable. But I can tell you from first hand experience that, although unusual, it is not unheard of for benefit costs in a particular plan or program to increase significantly year over year.

    Hope that helps some. Here's some more information.

    You can see Fortune magazine's list of profits by industry for 2009 at this link:
    Healthcare: Insurance and Managed Care ranked 35th at a 2.2% profit margin. Click on the link for that industry and you can see all the companies ranked for revenues and profits. I won't say who I work for but we are #1 on the list. Our profit margin in 2009? 3.7%. Not bad for a recession year if I do say so myself. The most profitable company in the list made 5.4% profit. Hardly a windfall.