Health Care Is Heavily Taxed Now

Congressional plans for financing the proposed health care legislation include provisions to tax health insurance of non-union citizens and medical devices vital to the delivery of medicines. We never hear that health care is already heavily taxed, but that these taxes are hidden from the consumer and have the greatest impact on the sick.

What we do hear is that costs are skyrocketing and insurance companies are gouging the public, in spite of actual data that indicate the profit for health insurance companies has lingered under 3.5% year after year. It should be obvious that those profits are not the source of significant increases in cost. Insurance companies rank 88th in profitability and hospitals 77th in U.S. corporate profitability.

Annually, we do the "Medicare Dance," whereby Congress waits until the last minute to overturn its mandate that payment to physicians and other providers will remain within a constant dollar amount. The fact that the nation has needs for increasing services to an aging and expanding population of seniors matters not. This year, a reduction of 21% has just been delayed until April Fool's Day after Senator Bunning's courageous and appropriate blocking of a temporary measure. Essentially, the government plays the doctors for suckers each year, satisfying them with no increases in payment in the face of cost increases to practice. This actually represents a decrease in payment. This year, the doctors were suckered even more: The last date to opt out of Medicare is March 17th.

I contend that almost the entire increase in the cost of care is related to hidden "taxes" -- costs imposed by government -- and not "waste, fraud, and abuse" as the politicians say in their glib lectures. Here are just a few of them:

Medicare, Medicaid Underfunding "Tax"

Each year, the government "adjusts" reimbursement to providers, including hospitals, doctors, home health, and a long list of individuals contracted for service. Hospitals are required to accept fixed payment based on diagnosis, irrespective of the acuity of the patient's illness. Currently, hospitals lose between 15% and 20% of the actual cost of providing care, justified in part by a declaration that a penalty is imposed on the assumption that they are gaming the system.

The providers are then required to recover their costs by essentially adding an additional surcharge to the rates charged other payers -- that is, the insured and the uninsured who pay their own medical bills. Managed care companies will negotiate bulk contracts that limit the amount a provider can charge them. Usually, for the provider, this is enough to cover cost plus an amount needed to cover the cost shift. As this pool shrinks, so too does the financial well-being of the provider. They must limit capital investment and eventually restrict service. Essentially, we have a crisis at this time because of government underfunding. If the federal government were to pay their bills for services received by their enrollees, some markets such as Florida would experience as much as a 30% drop in cost of care to the payers using insurance or paying cash.

Lawyer Full Employment "Tax"

This tax is seen every day of the week, but the notion that it is confined to medical malpractice is entirely fallacious. Every aspect of the provision of service has a hidden tax to cover the cost of the legal and victim industries. Product liability on medical devices, drugs, vaccines, and supplies adds substantially to the cost of care. Every aspect of health care is penalized at the courthouse. The Congressional Budget Office estimates that $54 billion can be saved over ten years with reform of medical malpractice alone.

The most annoying part of this is that it is such an easy fix that really costs us almost nothing. If we had "loser pays with guarantee," whereby the loser is responsible for the winner's costs, and if the loser is unable to pay, the liability shifts to the lawyer, the frivolous suits would dry up overnight. This does not restrict access to the legitimate victim, but certainly will remove the "roll the dice" filings.

Regulatory "Tax"

Every level of government gets involved in regulation of health care. It has become a collection of industries that all purport to contribute to the collective well-being. Frankly, much of it is no better than picking a provider from the Yellow Pages or from a sign on a bus. Government requires accreditation and until recently, JCAHO was the established religion. To keep Medicare funding, institutional providers were required by CMS to hold accreditation by this body. Huge sums of money were spent to meet ever-changing requirements, many of which were no more logical than the requirement to have Braille on drive-through ATMs.

EMTALA is another perfect example. Many states require a hospital to have an emergency room, and in order to retain federal and state funding, the hospital must provide access to virtually anyone who walks through the door -- legals, illegals, payers, and non-payers. Many use this as their primary care and have no intention of paying even if they can afford it. All of these costs get shifted to the payers as a hidden tax.

Special Interest Insurance "Tax"

It is almost impossible to buy health insurance without paying for the baggage programs inserted by politicians onto health insurance in each state. Many of these programs and providers are of marginal medical benefit at best and have only a very small constituency, which would be minute or entirely absent without the mandate of inclusion imposed on insurance companies. Why would everyone have to buy coverage for hair replacement or in vitro fertilization just to satisfy the senator whose wife practices it? Some states have over thirty insurance mandates.

Again, this is an easy fix costing nothing. The federal government outlines the requirements for a number of basic national plans and accredits companies to provide them. Providers will be required to deal with the plans in order to manage Medicare/Medicaid patients, effectively cutting out the state's special interest mandates, which can still be sold if anyone is foolish enough to buy them.


If $500 billion is to be removed from the system from the providers of Medicare and Medicaid, then a deliberately engineered financial implosion for hospitals and physicians will take less than two years, thereby generating another "crisis" which will be managed again by the people that brought us this first crisis. 

The next step will be complete absorption of the providers into global budgeting, mandated participation, and salaried positions. With this will come rationing and waiting lists. Even Obama cannot break the symbolic medical bread and wine to save the health care system on his current course.

With no more greedy insurance companies, mandated provision of care, and state-budgeted hospitals with salaried providers, whom are we to blame then?

Dr. Donaldson is a Pediatric Otolaryngologist in Fort Myers, Florida. He is the immediate past Chairman of the Board of Directors of Lee Memorial Health System, the seventh-largest public system in the USA.