For Better or Worse: A Historic Moment

Rather than blogging last week, I posted on my health collab blog Healix. You can read the post here.

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Last week, Obama signed the historic health care reform bill into law. It was a historic moment - to achieve something that had eluded the last several US presidencies. To read more on the health care law, the NY Times has collected several articles here. Now only time can tell if it will be a success or a failure.

President Obama Signs Health Care Bill Into Law

There is still a considerable maelstrom over all this. Talking to my friends, I get polar opposite reactions from people in med school vs. people in public health. While the public health sector cheers this reform, the medical sector groans. Is it so curious that two aspects of the health field would respond so differently? Perhaps not . . .

I shadowed my mentor, a pediatrician, for the last time yesterday (*tears*). We talked briefly about the health care law and his thoughts on it. His opinions weren't surprising to hear; basically, there are both good things and bad things about the law.

Some great things about the law include:

- mandating that children are able to stay on their parents' health insurance until age 26

- not being able to refuse insurance or increase premiums on children with some kind of pre-existing condition

In pediatrics, these are huge advances for children's health. In general, mandating that everyone have health insurance is, on a societal level, a good thing. It spreads the risk such that the sick few can utilize more "health care dollars" without being a massive drain on the system. And there are definitely people who make too much to qualify for Medicaid but too little to buy their own health insurance, and hopefully this law rectifies that.

Some not-so-great things about the law include:

- taking money away from the Medicare Advantage plans to fund the public option

- mandate that companies provide health insurance to their employees or pay an 8% penalty on payroll to fund the public option (unless exempt)

- no tort reform (that is, malpractice reform)

Since my mentor is retiring in a few months, he'll be utilizing Medicare. And since Medicare is rather "bare bones" in what it covers, he would like to buy an additional Medicare Advantage plan that covers more. But as a result of this law, the Advantage plans will become more limited in options, and he's not pleased about that. Furthermore, many companies spend about 10-15% of their revenue to provide health insurance to their employees. So to not provide health insurance and pay the 8% penalty would result in more profits for such companies.

And of course, most physicians despise Medicare/Medicaid due to notoriously low reimbursement rates. So to vastly expand those programs without changing how reimbursements work displeases many/most physicians greatly, and that's an understatement. It only adds insult to injury that Congress failed to repeal the Medicare's SGR (Sustainable Growth Rate), resulting in a 21% cut in reimbursements; though, it should be noted that the final decision has been deferred so the cuts don't take effect immediately.

So while physicians in private practice "earn their keeps," academic physicians and public health officials are salaried. As such, reimbursement woes don't affect them and they can cheer and champion the health care law all they want. But private practice physicians fear that expansion of Medicare/Medicaid could lead to inferior health care due to the way physicians are paid through these programs.

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The question might be though: how badly would an expansion of Medicare/Medicaid coupled with the 21% cut (assume it doesn't get repealed) affect physicians?

To answer that, I take the example of a Dr. Schreiber in the CNN article, I'm a Medicare doctor. Here's what I make.

Note: I'm oversimplifying the calculations A LOT. The end numbers in bold below are drastic underestimates of what they would actually be in reality. For the US federal income tax estimates, I'm solely using tax brackets and assuming no deductibles and other factors that would decrease the actual amount paid in taxes.

Scenario 1

In that article, his practice's gross revenue is about $800,000/year. He spends about $60,000/month (or $720,000/year) on "fixed costs," which include office costs (electricity, water, heating, etc) and malpractice insurance for his 2 nurse practitioners ($2,000/year) and himself ($7,000/year). So in the end, his income is about $80,000-$100,000 a year. To keep the math simple, I'll say he makes $100,000 a year. Which is still less than one would imagine a family medicine doctor making.

Of that $100,000, he pays 28% of that in US federal income tax (so, $28,000). It's actually far more complicated than that, factoring in deductibles and such, but again I'm keeping the math simple. So he has $72,000 a year in disposable income.

Now let's suppose he's single, in his late-30s, and he still repaying part of his $200,000 in loans from med school. Assuming no interest (hehe, I wish) and he's planning on repaying the loans in 10 years, he'll have to pay $20,000 a year. Take that away from $72,000 and his disposable income is closer to $52,000 a year.

Scenario 2

Let's re-do all of that with the 21% cut in Medicare payments. According to the article, about 1/3 of his patients are Medicare patients. So 1/3 of his revenue decreases by 21%, which would generate an estimate of $744,000 a year. His fixed costs stay the same ($60,000/month), so his income is now $24,000 a year. He would now pay 25% of his income as US federal income tax (so, $6,000). His final disposable income is $18,000 a year. And he can't even pay off his med school loans, much less anything else.

So from $72,000 (after tax) to $52,000 (+ still repaying med school loans, 1o-year plan) to $18,000 (+ 21% cut in Medicare payments, no repaying loans), it's pretty bleak. Again, those are very rough and far off-the-mark estimates. A more "realistic" estimate would be closer to 10-15% of income as taxed, due to deductibles and such. So for the first scenario, assuming 15% taxed, his yearly income would be closer to $85,000 (then $65,000 after loan repayment); and in the second scenario, assuming 10% taxed, his yearly income would be closer to $21,600.

No wonder why many med students now go into sub-specialties that make over $170,000 a year (before tax) instead of primary care.