Saturday, March 30, 2013

75% Scenarios
Not all scenarios are rosy.
As I read the news, I keep running across 75% scenarios.
·         France has raised its top income rate to 75%.

·         Delos Cosgrove, MD,  CEO of the $5 billion Cleveland Clinic, predicts government, which now pays for 50% of total health costs, may soon pay for 75% costs.

·         Merritt Hawkins,  the nation’s largest physician recruiting firm, believes 75% of physicians will be employed by hospitals and large health care organizations by 2020 and probably ooner.

What would health care look like if these 75% scenarios came to pass?

1.       If the income tax goes to 75%  in the U.S., it would result in capital flight from the U.S., as it has in France.   But where would the rich go? As matters stand in U.S. now,  the effective U.S. top rate is 39.5%, but it is more like 45% if you throw in other taxes, like the 3.8% Obamacare tax, new Medicare taxes,  the payroll tax, and other hidden taxes.    Keep in mind that many blue states already effectively tax income  at 50%.  But, given Americans’ dislike of high taxes and big government,  the 75% rate is highly unlikely  in the US.  Still, on a smaller scale, capital flight is already occurring  in the U.S. – from high tax Blue States – California, New York, the Midwest, the NE corridor-  to Red States – particularly those with no income tax – Florida, Texas, Tennessee (“Laffer and Moore: The Red-State Path to Prosperity,” WSJ, March 27, 2013). 

2.        If and when government pays for 75% of all health costs, there will likely  be a massive migration of patients and physicians out of the system to concierge and cash only practices,  to any setting that is free of third party restrictions and paperwork, to self-funding by large and small businesses,  to health savings accounts with high deductibles  away from PPOs and HMOs, to anything with lower premiums and more freedom of choice, to the underground economy . It will not be pretty.  It will be chaotic.  But this is what happens in a country that prefers individualism to collectivism and the freedom to do what one wants in a nanny-free environment.

3.      If hospitals and large integrated health systems employ 75% of doctors, including physicians,  a colossal  consolidation into larger and larger entities with capital, administrative, analytical, and technological resources will take place.  These huge entities will have enough wherewithal  to establish monopolies, to fend off government, and to  negotiate larger payments from health plans  Hospitals will charge higher fees for physician services to offset losses from declining numbers of beds, dwindling  Medicare revenues,  and losses from  less-productive physician practices.  Physician productivity will drop about 30% as physicians become salaried employees.  Some of these entities will take the form of accountable care organizations.   Government antitrust actions will ensue, In a worst case scenario,  a physician shortage will occur, as physicians drop out of workforce,  work part-time, or seek non-clinical work, and there are not enough nurse practitioners  or physician assistants to take up the slack or fill the primary care gap.

I hope none of these 75% scenarios happens.  I would not like  to be labeled as “Doctor Worst-Case Scenario.”

Tweet: Worst-case scenarios:  U.S. income tax rates climb  to 75%, government pays for 75% of total care, and hospitals employ 75% of doctors.


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