With health-care reform barreling forward into the law books, many Americans (including yours truly) who wanted to ignore this very important but oh-so-convoluted piece of legislation now have no choice but to take notice.
There actually is a lot to like about the bill. There are certainly feel-good elements, like extending coverage to lower-income Americans and prohibiting excluding participants based on pre-existing conditions. And as a buyer of individual coverage, I do like the idea of a national insurance exchange (even if it doesn't come online for a while).
But it ain't perfect. Earlier in the week, my fellow Fool Brian Orelli urged investors to look for investment opportunities rather than moan about the bill. That's probably smart advice, but I'm going to complain anyway.
Here are three areas where I think this hefty and historic bill falls short:
1. Bye-bye to medical underwriting
Whether we're talking about Allstate writing auto insurance or UnitedHealth (NYSE: UNH ) pricing health-care policies, the basic process is the same. Insurers gather pertinent information on the party to be insured, and, based on actuarial number-crunching, determine the premiums they're going to charge for the policy.
Thanks to the new health bill, insurers are now hamstrung as far as what information they can use to set premiums. Specifically, they're limited to whether the plan covers an individual or family, what state rating area the insured is in, age, and tobacco use. And for the last two, insurers are limited in terms of how much they can increase premiums -- for tobacco, for example, they can't exceed a ratio of 1.5 to 1.
Medical underwriting -- that is, underwriting based on medical history and other important health facts -- will be a thing of the past.
Why does this matter? It matters because it makes everyone look very similar in the eyes of insurers. It means that two people who are similar in the categories listed above will end up paying similar premiums -- even if one person has been very reckless with their health in other ways. Without the use of medical underwriting, the reckless person will pay less than they should for insurance, while the not-so-reckless person will pay more. Nice use of incentives.
While creating stronger incentives for people to keep themselves healthy could hurt companies like Coca-Cola (NYSE: KO ) , McDonald's (NYSE: MCD ) , and Diageo -- all of their products aren't exactly good for your health -- it's exactly the kind of thing we need to be doing if we want to actually bring down medical costs (more on that below).
2. Thou shalt buy health insurance
Maybe it's because I haven't seen the director's cut of The Ten Commandments, but I don't remember buying health insurance being on one of those tablets. Regardless, if you're a U.S. citizen, you'll soon be required to purchase health insurance and prove it at tax time. If you don't, you'll be hit with a nice thanks-for-not-playing penalty of $750 for not having coverage for the entire year. (That level is reached beginning in 2016, after a two-year phase in.)
Particularly after the new legislation's reforms kick in (which for the most part is 2014), it may be a pretty good deal for most Americans to buy health insurance. However, someone who is fit as a fiddle and rarely ends up at the doctor may still be better off paying out of pocket. But for their good health, they'll now have to cough up $750 to Uncle Sam.
To me, this seems like a government tip 'o the hat to the health-care industry. Requiring individuals to have insurance is a big benefit to health insurers like WellPoint (NYSE: WLP ) and Aetna (NYSE: AET ) , not to mention drugmakers like GlaxoSmithKline (NYSE: GSK ) and Merck (NYSE: MRK ) .
3. Cost containment called and it wonders why it's not in the bill
Back in 2008, PricewaterhouseCoopers' Health Research Institute put out a report titled "The Price of Excess: Identifying waste in health care spending." The report started by highlighting the high level of health care spending in the U.S., the low comparative results, and the poor perception of the U.S. system.
The report suggested that up to an amazing $1.2 trillion per year, or more than 50% of all health-care spending, could be attributed to wasteful spending. It then broke down that wasteful spending into three areas: behavioral (individual behaviors such as obesity and non-adherence to drug regimens), operational (inefficient administrative and other processing costs), and clinical (practitioner issues, largely the practice of defensive medicine).
While the bill takes half-hearted stabs at a few of these areas, cost containment is clearly an afterthought rather than the thrust. And in the end, that may be the biggest disappointment of all when it comes to this supposedly huge step forward in health-care legislation.
Personally, I do like the idea that more Americans will now be insured (and that actually can help lower costs), but in the coming years, one of the country's biggest challenges will be the unbridled growth of our health-care spending -- particularly if outcomes continue to trail the rest of the world.
That's just my opinion. What do you think? Scroll down to the comments section and share your thoughts on the reform.
If only there were a Warren Buffett of health care. ... Oh well, at least we have his great investing insights.