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The Collapse of the Health Insurance Industry

R. Michael Kalthoff 10-23-12

We are on a path to the collapse of our healthcare financial system under Obamacare. Even if Obamacare is vacated then repealed this year, without major open-market reforms, healthcare’s financial system will still collapse between 2015 and 2018.

Vulnerable to this financial collapse are many private-sector companies who transact the finances of the healthcare industry. This list is dominated by the health insurance companies, then hospitals, physicians and consumers, as well as a myriad of supporting companies that handle billing, cash management, etc.

How do I know that collapse in healthcare is coming? The financial collapse of any industry can be foretold by looking at single-industry, multi-year excessive inflation and related government legislative action. One example would be the housing “bubble” that built up due to lax mortgage regulation, which led to lax credit policies, which led to the 2008 collapse of the housing financial industry, which nearly bought down the global financial system overnight.

Another bubble has been forming for decades in the healthcare financial industry. Excluding higher education, healthcare’s annual inflation has been rising much faster than any other sector of our economy. Since the 1990’s, healthcare costs have been increasing at 2-4% per year more than average inflation. In any one year, this doesn’t sound like a lot, but added up over the last few decades, we are fast approaching a situation where these growing costs can’t be paid for by the rest of society. The burden is simply too great. Healthcare costs continue to grow at an alarming rate and are now consuming 17% of our entire economy and will reach 20% in just a few years. I believe it is at this point, the healthcare house-of-cards will collapse and will likely bring down the rest of our economy with it.

Some may argue that providing financial support to Medicare recipients to help them purchase private sector insurance will solve this looming crisis. Yes, this will bring some economic efficiency to the overall healthcare industry, but it will not solve the underlying cause of excessive inflation in healthcare. And until that cause is addressed, healthcare’s financial system will collapse in less than 6 years.

Some may argue that Obamacare has fixed healthcare and averted a collapse. Not true. Obamacare has actually shortened the time to collapse by 1 to 2 years because it never addressed the cause of excessive inflation and it adds financial burdens to the healthcare industry, which will impact all other industries. Obamacare increases taxes to healthcare companies and those costs will be passed on to the employer and then to the employee/consumer. This law also imposes thousands of pages of new regulations on nearly every business in healthcare, which will result in higher overhead costs needed for them to understand and comply with these new regulations. In fact, Obamacare has the potential to generate more pages of regulation than all other federal regulations combined. This law will certainly deal a fatal blow to the healthcare financial industry.

How is the private sector reacting to this crisis? Yesterday, Adecco, a global staffing company was quoted in a Reuters article titled, “Healthcare Costs Top U.S. Executives’ Concerns: Adecco Survey.” They polled senior executives and found that, “55 percent named healthcare benefits as their biggest current business challenge.” It is this challenge that will drive more companies to move the cost-risk of health insurance to their employees. And as I wrote in my previous article, “A Seismic Shift in Healthcare Starts Today,” major corporations have just started to limit healthcare cost-risk by giving their employees the cash to buy their own health insurance. In order to shed the risk of rising healthcare premiums, within 2 years, most companies in the U.S. will adopt a similar strategy forcing the health insurance buying decision to switch from employers to employees (consumers) who can then shop for lower-cost health insurance policies and drive down premiums.

Since health insurance companies cannot control medical cost inflation (as history has shown), this reduction in premiums forced by consumers will lead to an erosion of the income of private health insurance companies. They will be able to financially survive for a short time due to their strong cash positions, reorganizations and layoffs, but eventually an unrecoverable financial cascade and an eventual collapse of the healthcare financial system will result. In response, hospitals and doctors will see their incoming revenue sources move from insurance companies to consumer cash which will likely result in a growth of personal bankruptcies due to medical cost liabilities.

The major auditing companies who audit the books of all health insurance companies need to provide a sobering assessment of the risk of collapse and tell these companies and their shareholders what they could be facing.

Healthcare’s financial collapse will devastate the health insurance industry to be sure, but the effect on the physician community will have decades-long consequences. The long-term effects on an economic system when the fabric of that system is reduced or removed cannot be overstated. Core to the fabric of our medical system is, of course, our doctors. The collapse of our healthcare financial system will cause thousands of doctors to leave their profession. Doctors are not easily replaced. They each have 6-10 years of post-college education needed for them just to begin practicing medicine along with tens-of-thousands of hours of experience treating all of us.

Physicians over 50 are the most likely to leave their practices, resulting in the remaining physicians to become overworked. This will drive down the quality of care, drive up wait times for vital testing and surgical procedures and will create a spike in the demand for pain medications for those who have to wait months for treatment.

The Secretary of Health and Human Services has been granted a tremendous amount of authority in Obamacare (over 1,500 edicts) and many parts of Obamacare were vaguely written, allowing for further governmental takeover of healthcare. With declining reimbursement rates and increasing regulations, more and more doctors will be forced out of private practice and will seek employment through Obamacare-regulated Accountable Care Organizations. This will be the first major move to a government-run healthcare system where physician pay will continue to drop and wait times for exams and treatment will extend weeks to months, just as they have done in Canada, England and Russia.

It is my belief that there is only one way to avoid the collapse of our healthcare financial system. As I wrote in my book, “Saving Private Healthcare,” we as a country must adopt major open-market healthcare reforms that will move all of healthcare to the open-market. The open-market has worked well for all other sectors of our economy for many decades. It will work well for healthcare if the reforms are written and implemented properly.

We must:
• Repeal all of Obamacare
• Remove all medical/financial contracts between physicians/hospitals, health insurance carriers and the government
• Remove all public and private-sector medical price controls
• Stop all managed-care activities
• Stop personally suing doctors for medical malpractice
• Establish structures and remove obstacles that enable robust medical and insurance competition based on direct consumer purchase, open pricing and quality
• Get our government out of the business of medicine

If we make these changes, as I have outlined in my book, then by 2022, we will bring down healthcare costs by $2 trillion per year, while increasing the quality of medical care, and enabling physicians to take home more of their hard-earned income.

Only bold and decisive action will save the day, not piecemeal, half-baked and overly complicated changes. True and sweeping reform is not easy but we must do it if we are to avoid certain collapse of our healthcare financial system.

Michael Kalthoff is the author of the book, “Saving Private Healthcare,” available now on Amazon.com. This is the culmination of a 5-year effort that takes a critical look at our current healthcare system and describes a robust, forward-thinking plan and approach to actually fixing our healthcare system for generations to come.