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The impact of proposed new federal regulation on health care delivery

Posted Jul 17 2009 12:01am
Proposed new health care regulations may have an extraordinarily negative impact on the way consumers access their health care. The following information is from a September 2005 report from the Small Business Association entitled The Impact of Regulatory Costs on Small Firms.

"The annual cost of federal regulations in the United States increased to more than $1.1 trillion in 2004. Had every household received a bill for an equal share, each would have owed $10,172, an amount that exceeds what the average American household spent on health care in 2004 (slightly under $9,000). While all citizens and businesses of course pay some portion of these costs, the distribution of the burden of regulations is quite uneven. The portion of regulatory costs that falls initially on businesses was $5,633 per employee in 2004, a 4.1 percent cost increase since 2000 after adjusting for inflation. Small businesses, defined as firms employing fewer than 20 employees, bear the largest burden of federal regulations, as they did in the mid-1990s and in 2000. Small businesses face an annual regulatory cost of $7,647 per employee, which is 45 percent higher than the regulatory cost facing large firms (defined as firms with 500 or more employees)."

In other words it is fact that small employers (particularly those with fewer than 20 employees) share a disproportionate burden of regulatory costs. This is important to consider because of the current debate regarding health care reform that will cause additional mandated cost burdens to small health care practices.

A lot of people consume their health care in 'very small businesses' - your doctor, physical or occupational therapist, dentist, mental health counselor, chiropractor, etc. are mostly categorized as 'very small businesses.' Many of these offices employ small numbers of people - but interestingly the payrolls of these operations are high because they are employing a highly skilled professional workforce.

How might the current health care reform proposals impact these employers? In the current text of H.R.3200 as Introduced in House as America's Affordable Health Choices Act of 2009 there are significant penalties for employers who won't be able to afford to offer health care for their employees - as much as 6% for payrolls between $350k to $400k per year.

These payroll sizes are actually quite small, and will likely have a disproportionately negative impact on small professional offices where the average salary is high. Specifically, how many health care workers can be employed under a cap of $400,000??? The answer is "not many" and that is why these salary cap proposals are extremely damaging to small offices that employ these highly paid professionals.

These penalties will be applied to many of these provider offices because they may not be able to afford the proposed mandatory percentage contributions, which are currently proposed as:

72.5% of the premium cost of single coverage
65% of the premium cost of family coverage

The critical factor here will be the cost of the premiums, of course - which is a rather large unknown at this point. Still, the owners of these medical and professional offices will be forced to incur increased costs - either through mandated premium contributions or penalties for not participating. Increased employer expenses drive up the cost to deliver care, which will lead to upward pressures on prices - which ultimately feed pressures on cost to deliver that care -and on and on in a never ending upward spiral.

An alternative is that employers will seek to limit the size of their practices and control their functional growth - which essentially subverts the system by ducking underneath the mandates. The problem with this is that it bypasses the intent of making insurance affordable/available and it forces care to be delivered by increasingly small offices which is not efficient and also can also cause upward cost pressures.

If small professional offices are not able to find ways to work within these systems they will ultimately fail. That can cause consumers to have fewer choices or to force consumers into very large health care systems that are able to work within these models because as stated above the relative cost distribution of these mandates is less on large employers.

This will be a shock for consumers - most don't prefer standing in the waiting room with 50 other people who are all waiting to see the same doctor and who were all given a 9am appointment. This is the model of care in large inner city clinics - and won't sit well with people who are more used to receiving their care in their small community doctor's office.

So the future of health care delivered in small professional offices is at risk - unless the reimbursement structure offered somehow offsets the mandated costs. That will keep the small professional offices in "business" and preserve consumer choice but will certainly not do much to help limit the cost of that health care, which was supposed to be the whole point from the beginning.

From the perspective of a small health care provider, the intent of the proposed legislation seems to be the systematic decimation of our current delivery system. There is no question that we require reform in our system but this proposal is a frontal assault on the doctor, dentist,and therapist in your local community. It will have a chilling impact on what your future health care delivery will look like.

End game analysis: get ready to drive to the big hospital clinic, grab a number, and stand in line. It's the only way that the proposed model can be affordably delivered.
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