Real and proposed Alphabet Soup

Excessive government regulation has a demonstrable negative impact on entrepreneurship in today’s economy. For the past 50 years or so, with a brief hiatus in the 1980s, Congress’s reaction to every supposed problem was to pass a law creating a new bureaucracy and enabling it to promulgate a plethora of new regulations to micro-manage all aspects of running a business.

Thomas G. Stemberg, founder of Staples, Inc. back in the 1980s, writes about the roadblocks start-up businesses face in the present.

Chief among those roadblocks, Stemberg says, is the blizzard of bureaucratic red tape that buries businesses and stifles job creation. He cites the additional 16 million hours that vending-machine and chain-restaurant business owners must spend complying with new food regulations each year. And somewhere there is a licensing requirement for magicians to do a rabbit disappearing act, which mandates an annual fee, surprise inspections, and a rabbit disaster plan. All told, American business faces 46,758 pages of rules to live by in the Federal Register.

Senators Angus King (I, Maine) and Roy Blunt (R, Missouri) have introduced legislation that would create a Regulatory Improvement Commission that would recommend cuts in the (federal, anyway) regulatory regime, that would require up or down votes in Congress on regulations identified as useless, oppressive, or just plain silly. This plan emulates the Defense Base Realignment and Closure Commission (BRAC) that successfully closed 121 military bases since 1988. The success mainly resulted from giving the members of Congress political cover for base closings in their district or state. That seems to be the trick to cutting pork. King and Blunt perceive it could work the same with arcane regulations that stifle entrepreneurs.

Can it pass? I guess we’ll see. For Stemberg’s essay, please see this link.

Speaking of bureaucracy, the ever increasing cost of medical services is a demonstrable result. One physician and his patient, however, found a way to do an end run, thus saving 85% off a bill for an uncomplicated hernia operation. Dr. Jeffrey A. Singer of Phoenix, Arizona scheduled a patient for surgery in a local hospital. The patient is 60-ish self-employed entrepreneur that has an indemnity type heath insurance policy with no provider or preferred hospital requirements. For the required surgery, the policy benefits would pay a total of $2,500 for the surgeon and anesthesiologist and $2,500 for the various hospital charges. After discovering that the hospital’s fees would be around $23,000, presumably based upon the now infamous “Chargemaster” described by Steven Brill in detail earlier this year (Time magazine, March 5, 2013), the patient balked at the surgery. Dr. Singer, after learning of the nature of the patient’s insurance, realized that because it was an indemnity policy – like car insurance – it did not bind him to any particular preferred provider or hospital arrangement. The physician was able to help his patient shop around for a hospital that would negotiate the fees. They found one that quoted a reasonable up front cash price. He had the surgery, paying a turn-key price of a little more that $3,000.

I know from personal experience this can work. A number of years ago, when I was self-employed in a fledgling business, I injured myself and had to go to the emergency room (under my own power) for treatment. When presented with the bill, which I believed was outrageous, I offered roughly one-third of the total in immediate cash. They accepted with alacrity.

What is wrong with the health care payment system we have allowed to grow uncontrollably is that it really is not insurance. As Dr. Singer points out, it is a pre-paid health plan. Insurance companies negotiate with hospital and provider networks for the fees. The “Chargemaster” or whatever the list price schedule used might be called, is only the anchor point from which the actual fees paid by the insurer are negotiated. The only patients who pay full list price are the under- or un-insured that don’t know they can negotiate the fees.

The hospital fees are so outrageously high because (1) the providers set a high list price so they can end up with a better deal (Negotiation 101), (2) the providers must factor in their costs incurred in submitted claims (even the smallest clinic, hospital, or ASC must have one of more full time employees that do nothing that process claims), (3) insurance companies also have the claims processing expenses, and (4) most important, the patient has no incentive to be a frugal consumer of health care services because it is “free” or has low out-of-pocket cost (of which many patients still complain) at the point of service. When the payer is a third party, the patient has no incentive to be a wise consumer.

The solution to this state of affairs was supposed to be the Affordable Health Act, or “Obamacare” if you please. It does nothing to address the situation described above. Not only will the administrative costs remain, but they will grow because of the added regulatory compliance costs and bureaucracy necessary to administer it. Even the meanest intelligence could have predicted that a 2000+ page statute that mandates the promulgation of who know how many thousands of new regulations would have a massive price. Actually, I’m sure the super-smart Ivy League educated policy makers and the insurance industry lobbyists knew that. They just figured that a good number of those dollars would end up in their pockets.

What’s next? An “Affordable (meaning free) Food Act”? A good model for that would be Soylent Green.

To read Dr. Singer’s article see this  this link.

If interested in a continuing discussion of the heath care finance morass, see John Goodman’s health blog at this link.

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