Paul Starr’s analysis of the stalled health insurance reform bill, “Underrating Reform”, suggests that the compromises and concessions made by the Democrats in Congress “to get something passed” in no way diminishes the legislation’s significance. I agree. But not for the reason you might think.
This “stunning historical achievement” succeeds in shining a bright light on “pay to play” politics in Washington and on the spinelessness of the “so-called” Congressional Progressive Caucus. And when the public option finally succumbed to the chopping block, as many of us knew it would, then even “progressives” such as Howard Dean joined the ranks of liberals calling for the President to “start from scratch.”
Professor Starr goes on to assert “the legislation would be a major advance in two important respects…it would boost the living standards of low-wage workers…and improve economic security for the middle class.” A Medicaid expansion would, indeed, improve living standards for low-wage workers. The same is true of the SCHIP expansion that Congress passed in 2007. This clearly improved conditions for many of the country’s poorest children. And it passed without need to resort to reconciliation.
I disagree, however, that the proposed legislation would be a boon to the middle class. That simply defies history. We have only to look to the experiences of the citizens of Massachusetts to see that mandates to purchase private health insurance, subsidized by taxpayers’ money, has been a bust, not a boon, to these families. It has created a population that is underinsured and now has lost its safety net hospitals and providers. Only the private health insurance industry benefits from mandates and subsidies.
What is most distressing, but predictable, about Prof. Starr’s analysis is his vilification of those darn “pie-in-the-sky” liberals who won’t go along with progressive incrementalist spin but, instead, persistently focus the light on shameless influence-peddling by corporate lobbyists and meaningless posturing by progressive Democrats.
Cheap shot, Professor Starr.
This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.
Health Insurers Break Profit Records As 2.7 Million Americans Lose Coverage
Health Care for America Now!
The five largest U.S. health insurance companies sailed through the worst economic downturn since the Great Depression to set new industry profit records in 2009, a feat accomplished by leaving behind 2.7 million Americans who had been in private health plans. For customers who kept their benefits, the insurers raised rates and cost-sharing, and cut the share of premiums spent on medical care.
Executives and shareholders of the five biggest for-profit health insurers, UnitedHealth Group Inc., WellPoint Inc., Aetna Inc., Humana Inc., and Cigna Corp., enjoyed combined profit of $12.2 billion in 2009, up 56 percent from the previous year. It was the best year ever for Big Insurance.
Of the estimated $809 billion spent on private health insurance in 2009, the five biggest forprofit companies… captured $232 billion.
Medical loss ratios for 2009:
WellPoint – 82.6%
UnitedHealth – 82.3%
Humana – 82.8%
Cigna – 81.2%
Aetna – 85.2%
Is health insurers’ profit 2% or 22%?
In a previous Quote of the Day (link above) it was pointed out that, for investor-owned private health insurers, the percentage of revenues reported as profits does not represent how lucrative the profits actually are for this industry. In light of record profits being reported, let’s look at an update of the numbers.
For purposes of these ballpark calculations, revenues are assumed to be premiums paid for purchase of the private plans (ignoring investment returns on reserves). The revenues are split into 1) a fund to be used to pay for health care benefits, and 2) funds to operate the business entity that is selling insurance services. The latter portion includes all administrative expenses and other costs of running their businesses, plus profits.
Those funds being held to pay for health care, in essence, are funds that belong to the insured and are merely being held by the insurers “in trust.” They are not part of the actual business operations of the insurers. Their exposure to risk is almost negligible since their actuaries continually adjust premiums so that they cover the potential risks.
Their actual business entity is the creation, marketing and servicing of their products that provide administrative services for health care financing. This is comparable to the service that they provide to self-funded employer health benefit programs. The actual business entity is very similar, but the employees’ health care funds are held “in trust” by the employer rather than the insurer.
Setting aside the “trust funds,” let’s look at what the actual expenses and profits are for the five biggest for-profit health insurers.
The non-weighted average of their medical loss ratios for 2009 is 82.8%. That means that 82.8% of revenues go into the “trust funds,” and 17.2% is retained for their administrative and other business expenses plus their profits.
These five companies had combined revenues of $232 billion. Of that, $192 billion went into the “trust funds,” and $40 billion went into their business operations and profits. Their combined profit was $12.2 billion. That $12.2 billion profit out of the $40 billion that they retained for their business expenses means that their actual profit averaged over 30%. Over 30%! No other industry has returns anywhere near this level.
The insurance industry often responds by saying that their profits are less than one percent of our total national health expenditures (NHE). Even if that is true, these five companies alone kept one-half of one percent of our NHE as their profits.
Some in the policy community say that eliminating profits of the private insurers won’t save enough to make a difference. But they miss the point. First, that $12.2 billion would provide for quite a bit of health care. But a far greater amount could be recovered by eliminating the administrative excesses of the insurers and the costs of the administrative burden that they place on physicians and hospitals.
But the most important reason is not even quantified. This intrusive industry has taken away our choices in health care by assessing heavy penalties for care provided outside of their restrictive networks, while putting in place numerous barriers to the health care that we need. Why do we reward these despicable people so richly for their unseemly, heinous acts?
We want a system that helps us get health care that we need, like Medicare, not one that impedes our access to care as they pick our pockets and snatch our purses.
This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.
Md. health care receives good marks
By Shantee Woodards
February 10, 2010
Health care reforms in Maryland need only minor adjustments to be as effective as an insurance “exchange” established in Massachusetts, according to a new report that compared both states.
The report, released Wednesday in Annapolis by two insurance trade associations, found that Maryland’s current system of distributing insurance to small employers and individuals is adequate and takes the place of the so-called health insurance exchange offered in Massachusetts.
In Maryland, there’s an environment “where brokers can buy health insurance and it’s sold to individuals and it looks like our ‘Connector,’ ” said Jonathan Gruber, an author of the report and professor of economics at the Massachusetts Institute of Technology.
A Health Insurance Exchange for Maryland?
Comparing Massachusetts and Maryland
By Robert L. Carey and Jonathan M. Gruber, PhD.
Maryland Association of Health Underwriters
National Association of Insurance and Financial Advisors of Maryland
The success of the reform generally, and the Connector specifically, in Massachusetts has motivated similar approaches both at the Federal level and in other states. Virtually every current proposal for reform at the state and Federal level includes some form of “exchange” that would organize and sell health insurance in the non-group and small group markets. The popularity of this approach raises the important question of whether the Massachusetts model can be replicated – and how much government involvement is required to make that a reality. The answer will clearly vary from place to place, and with the details of the proposed exchange.
In this report, we evaluate the possibility of setting up an exchange in Maryland. We begin with a detailed description of the non-group and small group markets in Massachusetts before health reform. We then discuss health reform in that state, discussing both the establishment of the Connector and its early role in health reform. We next turn to an evaluation of the non-group and small group markets in Maryland, and in particular the much more significant role played by intermediaries in that state. In many senses, intermediaries in Maryland play a role much like the Connector plays in Massachusetts. This makes the transition to an exchange much less onerous in Maryland.
Many experts touting the Congressional reform proposals have singled out the insurance exchange concept as being one of the most important avenues of reforming the private health insurance market. MIT Professor Jonathan Gruber was involved in designing the Massachusetts exchange and has been an independent-expert-on-the-dole for the administration and Congress as they move forward with the concept of private insurance exchanges.
In this report, commissioned by the insurance intermediaries that would be threatened by an insurance exchange, Robert Carey and Jonathan Gruber conveniently show that Maryland’s brokers are already providing the function of an exchange, so the transition to an exchange would be “much less onerous.” They seem to suggest that we could retain this middleman industry to fulfill the function of the exchange.
They are careful to say that they addressed this one issue only, and did not address the many other issues involved in reform. That’s important since Maryland’s private quasi-exchange has left 800,000 uninsured – over 14 percent of their population. Also Maryland citizens are facing the same outrageous increases in insurance premiums that citizens of other states face. Exchanges alone will not solve these problems.
The Gruber/Obama/Baucus approach to reform has been to take a group of individual policy proposals, such as the exchange, and patch them together in a comprehensive reform package. Each policy concept used has significant deficiencies. When you patch them all together, you still end up with a system that will leave tens of millions without insurance, with inadequate measures to stem health care inflation, with an expansion of underinsurance products, and with increasing financial hardship for America’s workforce and their families.
Private insurers are providing us with expensive, intrusive, and largely worthless services that take away our choices in health care. What good will it do to line them up in a private insurance exchange that adds only the imprimatur of the federal or state governments?
Using the most expensive and dysfunctional model of reform to build on the most expensive and dysfunctional health care system of all industrialized nations makes no sense whatsoever, especially when the goals of universality, comprehensiveness and affordability have been so mercilessly compromised.
The least expensive and most effective model would be to improve Medicare and include everyone. But Gruber’s microsimulation model is designed to assess private insurance solutions. It does not work for a single payer Medicare model.
Isn’t it time that we told Gruber to pick up his model and take a hike? Let’s bring in Steffie Woolhandler and David Himmelstein and take a closer look at their model. Of course the sponsors of this new report by Gruber and Carey would cringe at that prospect.
This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.
Health care on their minds
By Bryan Horwath
The Dunn County News
February 9, 2010
It was clear what topic was at the forefront of most people’s minds during a listening session with Sen. Russell Feingold (D-Wisconsin) at Boyceville High School on Saturday — health care, health care and more health care.
The topic of the day included concerns over health care costs, the so-called government takeover of health care, requests for universal health care, and horror stories from individuals and small business owners over what many described as a broken system.
After a couple of questions about the perceived lack of civility among politicians in Washington and the possibility of peak oil becoming a real concern, the health care questions started coming in droves.
Singling out single payer
One resident wanted to know why the single-payer system — popular in other industrialized nations — isn’t on the table any longer with regard to President Obama’s health care reform bill.
The health care bill passed in the U.S. Senate on a bitter partisan vote in December of last year, but is currently tied up in the House. Some in Washington think the bill is on the verge of falling apart because of strong opposition by Republicans and the recent election of Scott Brown to the U.S. Senate in Massachusetts.
“If you would have been to some of the other town meetings I’ve been to in the past year, you would know why (health care is fading),” Feingold said. “The opposition is unbelievable. The bill that we passed in the Senate not only doesn’t have single-payer, but there isn’t even a public option. People are calling it a government takeover of health care, but it’s just the opposite — it’s a big increase in private health care.”
The senator got applause from the mostly pro-Feingold crowd when he said he was in favor of a single-payer system, but said he has not seen enough support for single-payer in recent months.
“There wasn’t near enough support for single-payer at this point,” Feingold said. “I’m willing to see if this bill that we passed in the Senate works. If it doesn’t, however, then maybe we have to go back and look at single-payer. I’m suddenly hearing more talk about it, so if the current health care bill dies, we might eventually hear more about (single-payer).”
Reform is overdue
Feingold did say that the time for health care reform is long overdue.
“I’m worried about this,” he said. “I was in this job in the early 90s when the health care plan with the Clintons failed. Every year in the 90s when I went to town meetings like this, health care was the number one issue. I’ve been going to these types of sessions for 17 years, and by far the thing people ask for the most is universal health care.”
Feingold did say that the current health care bill would still be a victory for health insurance providers.
“When we had the public option die with our bill in the Senate, the champagne bottles were popping over at the insurance companies’ offices,” Feingold said. “My only hope is that people decide they don’t want to be dominated by the big insurance companies any more than they want to be by big government. You have to balance big government with big business so that people are protected, but that’s not where we’re headed.”
One resident said he was happy that Democrats have been attempting to pass a health care bill, but was dismayed that nothing seems to be getting done.
“I think the president is absolutely right,” Feingold said. “You can’t talk about the deficit or the economy without talking about health care. We’ll see what happens.”
Sen. Russell Feingold seems to be saying what we’ve been saying all along. If the Senate bill fails, then we’ll “hear more about (single-payer).” If this bill passes but doesn’t work (and it won’t), then “we have to go back and look at single-payer.”
One way or another, we eventually will have single payer or some form of social insurance very close to it. With increasing intolerance to rising costs which result in diminished access and impaired health outcomes, no other end result is possible.
Anthem Blue Cross dramatically raising rates for Californians with individual health policies
By Duke Helfand
Los Angeles Times
February 4, 2010
California’s largest for-profit health insurer is moving to dramatically raise rates for customers with individual policies, setting off a furor among policyholders and prompting state insurance regulators to investigate.
Anthem Blue Cross is telling many of its approximately 800,000 customers who buy individual coverage — people not covered by group rates — that its prices will go up March 1 and may be adjusted “more frequently” than its typical yearly increases.
The insurer declined to say how high it is increasing rates. But brokers who sell these policies say they are fielding numerous calls from customers incensed over premium increases of 30% to 39%, saying they come on the heels of similar jumps last year.
Insurers are free to cherry-pick the healthiest customers in the lightly regulated individual market. They can raise rates at any time as long as they notify the state Department of Insurance and prove that they are spending at least 70% of premiums on medical care.
Many policyholders say the rate hikes are the largest they can remember, and they fear that subsequent premium growth will narrow their options — leaving them to buy policies with higher deductibles and less coverage or putting health insurance out of reach altogether.
The insurer said it had a team of workers to help customers balance costs and insurance.
“Anthem offers a variety of health benefit plans,” the company said, “and we are dedicated to working with our members to find health coverage plans that are the most appropriate and affordable for their needs.”
Letter from Kathleen Sebelius, Secretary of Health and Human Services, to Leslie Margolin, President, Anthem Blue Cross
U.S. Department of Health & Human Services
February 8, 2010
One of the biggest pressures facing families, businesses and governments at every level are skyrocketing health insurance costs. With so many families already affected by rising costs, I was very disturbed to learn through media accounts that Anthem Blue Cross plans to raise premiums for its California customers by as much as 39 percent. These extraordinary increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy.
Your company’s strong financial position makes these rate increases even more difficult to understand. As you know, your parent company, WellPoint Incorporated, has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone.
‘A Wasted Opportunity’
By Joseph Rago
Wall Street Journal
February 7, 2010
Mrs. (Angela) Braly is the CEO and president of WellPoint, the largest U.S. commercial health insurer by membership. Her company’s affiliated health plans in 14 states cover 34 million people—or roughly one out of nine Americans. It contracts with 82% of the nation’s primary-care physicians, 84% of specialists, and 94% of hospitals. That scale lands her on the most-wanted list in President Obama’s Washington.
The tragedy, as she sees it, is what “a wasted opportunity” it all turned out to be. “Health-care reform” soon became “health-insurance reform” exclusively. “It was a pivot that was—unfortunate,” she says, “because it is not going to solve the longer-term problem.”
The solution is to “reintroduce the consumer to the health-care equation,” and on that front, she believes, insurers “are actually the part of the health-care delivery system that is there to create the value.” Mrs. Braly thinks patients will make more cost-conscious decisions if they have the incentives and the tools—namely, the information about cost and quality that is the basis of any ordinary market.
Mrs. Braly concedes that some people with pre-existing conditions can find it difficult to find affordable coverage, especially if they lose their job, get divorced, move, etc. “It’s when people have no option that we’re really in trouble and need to find a solution,” she says. But a better alternative to central insurance planning is public-private partnerships to create insurance pools for those with high risks. “That was a great idea that got pushed aside, and I think we need to revisit that concept.”
WellPoint’s California subsidiary, Anthem Blue Cross, has provoked appropriate outrage in response to its announcement of premium increases as high as 39 percent. Why would they risk creating this potential public relations nightmare when Congress is considering major increases in regulatory oversight of their industry?
Keep in mind that Anthem Blue Cross has been very successful in keeping its individual insurance products competitive by selling only to the healthy by subjecting applicants to medical underwriting. With the unabated rise in health care costs, the upward pressure on premiums has been moderated by introducing numerous innovations, especially increased cost sharing.
Currently the most important tool they have to limit their exposure to health care costs is to switch their clients to plans with high deductibles (often $5000 or more) and high coinsurance (typically 40% of all allowed costs over the deductible). You can confirm these numbers at eHealthInsurance.com.
By jacking premiums up to intolerable levels for low deductible and low coinsurance plans, they force their clients to choose these high cost sharing plans. Once enrollment drops in the low cost sharing plans, high cost individuals remain, driving premiums up even further resulting in the death spiral. At that time they can withdraw the low deductible plans from the market and require that their clients choose either the high cost sharing plans or drop their coverage altogether.
Another factor that has driven premiums up now is the high unemployment rate that has caused many individuals to drop their coverage, especially those who are relatively healthy, leaving in the plans those who try to hang on because of their greater health care needs. Of course, that adds to the death spiral.
Angela Braly, president, chairman, and CEO of WellPoint, supports greater patient cost sharing to “reintroduce the consumer to the health-care equation.” Patients will buy less health care, no matter how beneficial, when they are using their own money. That also happens to work out well for WellPoint since they will spend less on health care.
Angela Brady also wants those who need health care to be covered by public high-risk pools, while the healthy are covered by her private plans. That too allows WellPoint to spend less on health care, while we taxpayers foot the larger bills.
It would seem that the outrageous premium increases by Anthem Blue Cross would cause the administration to rethink a strategy of reform based on private insurance plans. But no. Instead HHS Secretary Kathleen Sebelius responds with a tisk, tisk, as Congress and the administration continue to move forward with locking us into this perverse system.
We need to respond with more than a tisk, tisk. We need to show up by the millions on February 25 (President Obama’s televised bipartisan health session) and demand the enactment of an improved Medicare for all of us.
Newfoundland premier Williams out of ICU, recovering well from heart surgery
The Vancouver Sun
February 8, 2010
Premier Danny Williams, who had heart surgery at a U.S. hospital last week, is recovering very well from the operation, a spokeswoman said Monday.
Elizabeth Matthews said the Newfoundland and Labrador premier was released from intensive care on Friday and is expected to be discharged from hospital sometime this week.
Williams’ decision to have the surgery performed at an undisclosed U.S. hospital, because the procedure wasn’t available in his home province, touched off a mini-firestorm, with some critics in Canada and the United States pointing to it as proof of problems in Canada’s health-care system.
Last week, deputy premier Kathy Dunderdale said the criticism of Williams was unwarranted and an invasion of his privacy. She said the premier would address the issue after his return home.
Danny Williams and the best health care in the world
By Mark Watson
The North Star National
February 7, 2010
Danny Williams, premier of Newfoundland and Labrador, Canada, underwent heart surgery in an undisclosed United States hospital on Thursday.
According to Deputy Premier Kathy Dunderdale, Williams received treatment from a “renowned expert in the procedure” that the premier needed.
Does Williams’s decision to travel to America for his heart surgery suggest that the procedure he needed was unavailable in Canada, or does it mean that the wait time required for getting the treatment was too long for him to survive before eligible for the procedure?
President Obama has extolled the virtues of the Canadian single-payer medical plan repeatedly in the past.
Perhaps this would be a good time for Obama and other Democratic leaders pushing hard to implement their so-called health care reform to rethink their plans.
If a Canadian-style single-payer system isn’t good enough for a Canadian premier, how long will it be until a universal medical coverage plan in America will not have sufficient resources for a member of Congress?
The fact that the Premier had to seek treatment outside his own country is an indictment of the Canadian health care system, nothing more, nothing less.
Response to Mark Watson by T. Rand Collins PhD MD
February 8, 2010
There is a great deal of sniping back and forth across the border from those who would use both systems’ problems for their own ends. Sadly, both systems are broken, but in different ways. America has excellent health care and world-class technology, but a significant part of the population cannot afford it. And another part of the population can just barely afford it, surrendering the equivalent of their mortgage each month just to be protected against a medical catastrophe. I talked in November to the owner of a clothing store in the Miami Trade Center, who told me that she was paying ~$2,000 per month for health care – and Mark Watson is knocking Obama’s efforts to make sure his people can go to the doctor?
Canadians are privileged to get complete care for a nominal cost. It may be slow, and it may have problems, but health care is a right, not a privilege.
I am, ironically, as Senior Vice President of International Health Care Providers, an Ontario-based medical travel firm, one of those who help Canadians find health care options in the US. But that doesn’t mean that I don’t believe in the Canadian system. Canada needs a private option, which is what the world’s most successful medical systems have – a combination of private AND public options for health care.
American arch-conservatives cry “Socialism” whenever government takes part in providing services or setting regulatory standards. Besides the fact that most Americans cannot define socialism (and more than a few can’t spell it), there are some things that are too important to be left to private interests whose primary interests lie in keep the shareholders happy.
Even a good concept like health care as a right for all can have times when those who manage it are short-sighted and unresponsive. Democracy was a good idea, but under Bush, who will go down in the books as the least competent president in the history of this country, freedom of speech and freedom from government spying were severely threatened.
I have dual citizenship in the US and Canada and have practiced medicine in both countries, and, were I pushed to choose, I would definitely opt for the Canadian system.
International Health Care Providers
It is a relief to know that Premier Danny Williams (Newfoundland and Labrador) is doing well after his heart surgery here in the United States. This news is a refreshing and reassuring breather after having been inundated with the callous releases from right-wing extremists celebrating Premier Williams’ medical misfortune, used to both denigrate the Canadian health care system, and tout the quality of the U.S. system (for some).
The North Star National article by Mark Watson is but one of those insensitive and distorted reports and certainly would not be worth including as a Quote of the Day, except that it provoked the response of an executive of a Canadian medical travel firm who also happens to be a physician who has practiced in both the United States and Canada.
We do not agree with Dr. T. Rand Collins that Canada needs a “private option.” That would create a two-tiered system with even longer queues in the public sector. They simply need to continue moving forward with their ongoing efforts in queue management.
Considering that Dr. Collins’ firm is in the business of bypassing Canadian queues by arranging for care in the United States, his fundamental assessment of the systems of both nations is certainly noteworthy. As he says, “… were I pushed to choose, I would definitely opt for the Canadian system.”
Gov. Crist’s victory for unaffordable underinsurance
Quote of the Day
May 23, 2008
From the Sun-Sentinel.com:
Delivering on Gov. Charlie Crist’s top election-year priority, the Florida Legislature on (May 2, 2008) approved a health insurance package to extend no-frills coverage to the state’s 3.8 million uninsured. Crist called the health-care package “historic legislation” that will be a model for the rest of the nation.
From the Comment (Don McCanne):
Some model. It would reduce insurance premiums by stripping down benefits through measures such as limiting hospitalization and specialized services and by capping payments. Since this “doesn’t cost taxpayers a dime,” the premiums would still be unaffordable for most individuals currently without coverage. Obviously this model will not work for individuals who have health care needs.
Florida’s health plan for the uninsured has few takers
By Doug Trapp
American Medical News
February 1, 2010
Florida Gov. Charlie Crist didn’t establish a specific enrollment goal for Cover Florida, the state’s unsubsidized private insurance program for the uninsured, when he announced the start of enrollment in January 2009. But in a state with approximately 3.8 million uninsured adults, the fact that only 5,246 people signed up for one of the 27 plans in the program’s first 11 months appears to have defied all expectations.
The authorizing legislation instructed participating insurers to offer at least two types of plans: one with catastrophic and emergency department coverage, and one without.
Plan subscribers… must wait 12 months before their preexisting conditions are covered. Also, insurers balance the risk of covering such conditions by setting benefit limits as low as $25,000 each year and $50,000 in a lifetime for catastrophic plans, for example.
United HealthGroup — one of the two companies offering statewide Cover Florida plans — does not know why plan enrollment has been low, said spokesman Roger Rollman. Blue Cross and Blue Shield of Florida — the other company offering a statewide plan — directed questions to the state.
Today’s message is not meant to be an “I told you so,” even if I did tell you. The point of the message is that health policy science has advanced to a level that the consequences of policies in various reform proposals are fully predictable. “Well, let’s try this and see how it goes” is no longer acceptable, especially for our entire $2.5 trillion health care industry.
Gov. Charlie Crist has provided us with a very valuable lesson with his “‘historic legislation’ that will be a model for the rest of the nation.” His “Cover Florida” program has left 99.9 percent of the uninsured without any coverage, while providing the other 0.1 percent with coverage that won’t work if you need health care.
This may an extreme example, but the cardinal principle is crucial. It is unsound to throw together a bunch of policies chosen based on political considerations, and then pretend that the flaws will be fixed later. You start with a core structure based on sound policies that have been proven to work.
The hybrid model before Congress, using private health insurance plans and public programs, is the most expensive model of reform, even though an important stated goal, when this process began, was to slow the increases in health care spending. The feeble measures included in the bill that allegedly would control costs do not pass basic tests of health policy science.
The hybrid model also was supposed to cover everyone, but health policy science has demonstrated that this model can’t do that. Tens of millions will be left without coverage, a number sure to increase with time.
Charlie Crist’s silly program may be an embarrassment, but that does not compare with the shame that members of Congress should be experiencing simply because they would bankrupt, maim, and kill people by walking away from sound health policy science, while they pursue what they believe will be a political victory. What a terrible, terrible shame.
Health Spending Projections Through 2019: The Recession’s Impact Continues
From the Office of the Actuary, Centers for Medicare and Medicaid Services
February 4, 2010
Projections for 2010:
National Health Expenditures (NHE): $2,569.6 billion
NHE per capita: $8,289.9
NHE as percent of GDP: 17.3%
NHE projected average annual growth, 2009-2019: 6.1%
The economic recession and rising unemployment—plus changing demographics and baby boomers aging into Medicare—are among the factors expected to influence health spending during 2009–2019. In 2009 the health share of gross domestic product (GDP) is expected to have increased 1.1 percentage points to 17.3 percent—the largest single-year increase since 1960. Average public spending growth rates for hospital, physician and clinical services, and prescription drugs are expected to exceed private spending growth in the first four years of the projections. As a result, public spending is projected to account for more than half of all U.S. health care spending by 2012.
Woolhandler and Himmelstein: Paying For National Health Insurance — And Not Getting It (Health Affairs, July/August 2002):
Same story every year. Health care spending continues to increase at rates well in excess of inflation, and health care continues to represent an increasing percentage of our gross domestic product.
One important technical point. The CMS authors report that public spending will soon account for more than half of all U.S. health care spending. But they leave out two important taxpayer sources of health care financing: 1) tax subsidies in the form of tax deductions for employer-sponsored plans, and 2) the purchase of health benefit programs for public employees. In their classic paper (link above), Woolhandler and Himmelstein demonstrated that this results in a figure of government spending about fifteen percentage points higher than the numbers reported in this annual CMS report.
Using a back-of-the-envelope update, the government is already using taxpayer funds to finance about two-thirds of our national health expenditures (NHE). In a financing system that only Americans would design, a significant portion of those funds, without much transparency, are funneled through to the inefficient, wasteful private insurance plans and recategorized as private spending.
Taxpayers should be outraged. We hold the stewards of our public funds to a higher standard for responsible spending than we do for those who are shuffling funds around in a market economy.
We should be receiving much greater value for our health care spending, but we won’t under the proposal before Congress. It has been designed to funnel even more taxpayer funds to the private insurance industry, with the guarantee that they can draw off for themselves fifteen to twenty percent of the funds they receive.
With that model of a financing system, we can anticipate that we will receive the same depressing report from CMS each year until finally our finances and our health are ruined by the imposition of the forces of Stein’s Law. With a single payer national health program – an improved Medicare for all – it doesn’t have to be that way.
Increased Ambulatory Care Copayments and Hospitalizations among the Elderly
By Amal N. Trivedi, M.D., M.P.H., Husein Moloo, M.P.H., and Vincent Mor, Ph.D.
The New England Journal of Medicine
January 28, 2010
We examined the consequences of increasing copayments for ambulatory care in a large, nationally representative sample of elderly Medicare enrollees in managed-care plans. As compared with matched control plans in which copayments for ambulatory care were unchanged, Medicare plans that increased these copayments by an average of 95% for primary care and 74% for specialty care had a reduction in the number of outpatient visits but an increase in hospital admissions, in the number of days of hospital care, and in the proportion of enrollees who used hospital care. According to our estimates, for every 100 elderly enrollees exposed to this level of increased cost sharing for ambulatory care, there would be 20 fewer outpatient visits during the first year after the increase but more than 2 additional admissions for acute care and approximately 13 additional inpatient days in the year after the increase. The effects of copayment increases on the subsequent use of inpatient care were magnified for enrollees living in areas with low income and low educational levels, for black enrollees, and for enrollees who had hypertension, diabetes, or a history of acute myocardial infarction as compared with the effects observed for the entire study cohort.
Cracks in the moral hazard foundation:
This is an important study. It demonstrates, once again, that requiring already insured patients to pay more out of pocket if they access care can have a detrimental impact on both their health and on total health care spending. This is the opposite of what we should be striving for as we attempt to reform health care. Yet Congress and the administration are including this ill-considered policy of cost sharing in the unfounded belief that it would be a harmless method of slowing health care spending.
In order to reduce premiums for private insurance plans offered by the proposed insurance exchanges, the current legislation calls for plans with actuarial values 50 to 100 percent lower than typical employer-sponsored plans (with limited exceptions). These lower values are achieved partly by requiring patients who need to use health care to pay an even larger amount out-of-pocket in the form of deductibles, copayments, and coinsurance.
Those who defend cost sharing usually cite the RAND HIE – an experiment that supposedly demonstrated that patients were not harmed by not receiving care that required out-of-pocket spending – the moral hazard argument. One problem with that study was that it was limited to the relatively healthy workforce, their young, healthy families, during a short, healthy interval in their lives. The conclusions of the study do not have external validity for an entire population, with all their ills, covered in a universal program. The study was further flawed by the fact that participants were allowed to drop out at any time and return to their prior insurance, and the cost-sharing wing did so at an eighteen-fold rate over the control wing. These individuals, many of whom were no doubt facing higher costs, were excluded from the results of the study. How can they possibly claim that the cost-sharing group fared no worse than the control group? (See the “Cracks in the moral hazard foundation” link above for further information.)
The problem of ever-increasing health care costs must be addressed, but assessing financial penalties (cost sharing) against individuals for having accessed necessary health care is one of the very worst ways to do it. This and other studies demonstrate that it can actually increase total health care spending, not to mention impairing health outcomes.
A single payer system – an improved Medicare for all – uses much more effective policies to control health care spending while removing financial barriers to the care that patients need. Aren’t you tired of hearing the President and members of Congress tell us that single payer is the program that would work, but we’re not going to do it?
Herb Stein’s Unfamiliar Quotations
By Herbert Stein
May 16, 1997
If something cannot go on forever, it will stop.
–Stein’s Law, first pronounced in the 1980s
This proposition, arising first in a discussion of the balance-of-payments deficit, is a response to those who think that if something cannot go on forever, steps must be taken to stop it–even to stop it at once.
Huge Deficits May Alter U.S. Politics and Global Power
By David E. Sanger
The New York Times
February 1, 2010
… as Prof. James K. Galbraith of the University of Texas puts it, “Forecasts 10 years out have no credibility.”
Simply projecting that health care costs will rise unabated is dangerous business.
His greatest hope, Mr. Galbraith said, was Stein’s law, named for Herbert Stein, chairman of the Council of Economic Advisers under Presidents Richard M. Nixon and Gerald R. Ford.
Stein’s law has been recited in many different versions. But all have a common theme: If a trend cannot continue, it will stop.
The Long-Term Outlook for Health Care Spending
Congressional Budget Office
Projections of Health Spending
Over the past 30 years, total national spending on health care has more than doubled as a share of GDP. Under the assumptions described (in this CBO report), according to CBO’s projections, that share will double again by 2035, to 31 percent of GDP. Thereafter, health care costs continue to account for a steadily growing share of GDP, reaching 41 percent by 2060 and 49 percent by the end of the 75-year projection period.
GOP House Issues Conference
January 29, 2010
Congressman Paul Ryan (speaking to President Obama): … Medicare, as you know, is a $38 trillion unfunded liability…
At over $2.5 trillion (almost 18 percent of our GDP), the level of health care spending in the United States this year is almost intolerable. Yet we hear predictions that health care will represent half of our GDP by 2082, and that Medicare will accumulate a deficit of $38 trillion.
Thank goodness for Stein’s Law. We will never see these numbers for the simple reason that this rate of increase cannot go on forever. It will stop once it hits the wall.
Herbert Stein, being from the Chicago School of Economics (think Milton Friedman), did not believe that steps must be taken to intervene since the problem would take care of itself. Although that is true, the problem with this sterile, amoral view, common amongst those of the Chicago School, is that it ignores the consequences of a spontaneous economic process devoid of the input from the heart and soul of beneficent public stewards.
To be clear, in the economics of health care, Stein’s Law does not represent one point in the expansion of health care spending at which everything stops and the health care system collapses. Nor does it represent a single point at which expansion stops and spending becomes static. Rather it represents a multitude of various walls for various payers, including individuals, employers and the various levels of government, each of which has its own wall as a barrier represented by Stein’s Law.
In our fragmented system of financing health care, Stein’s Law is already in play. Tens of millions are no longer able to afford health insurance. Tens of millions more are no longer able to afford adequate insurance products and must face the financial hardships of the underinsurance products that have been the response of competing insurers in our market economy in health care. The rate of employer-sponsored coverage has been declining because too many businesses, especially small businesses, have already hit the wall. Many states are struggling with the need to reduce Medicaid payments to providers in order to try to include more under the umbrella, while watching the safety-net of providers crumble from protracted financial losses. Even the federal government is struggling to find ways to fill the void in the face of massive budget deficits.
With Stein’s Law, we can predict that the rate of spending increases will very soon slow down, but under our current financing system, that will inevitably result in more financial hardship, suffering, and even death as health care access becomes ever less affordable.
Suppose the Senate bill passes, along with the reconciliation tweaks, then what will happen? Since our beneficent stewards in Congress neglected their duties, failing to adopt policies that would slow the growth in health care spending, health care costs will continue to test Stein’s Law.
Some of the multitude of walls will move, but none of them will go away. The states will see their walls move further out with the infusion of Medicaid funds. The federal government will see its wall move closer, signaled by the shrill cacophony of the budget hawks. Employers will not see their wall move much, but they will continue to barrel forward, eventually hitting it one by one.
But what about our hard-working, middle-income Americans? The wall will be moved much closer. For several reasons, mostly related to costs, there will be an attrition of employer-sponsored plans. Since the subsidies to purchase private plans will be less than the employer contributions, fewer individuals and families will be able to afford the plans. To slow the rise in premiums, more benefits will be stripped out. The Obama administration would accelerate this deterioration in benefits by imposing an excise tax on the plans as “the most effective way to control costs.” The Obama/Orszag policy of controlling costs by erecting financial barriers to necessary health care is a very sick policy indeed. The legislation before Congress adds afterburners to middle-income Americans only accelerating their trip to Stein’s impenetrable wall.
When our economic models have immoral consequences, we should abandon the amoral models of the Chicago School, and move to normative economics. It is not a sin for an economist to have a heart.
Under a single payer national health program – an improved and expanded Medicare for all – Stein’s wall will still be there. But instead of letting the entire system crash into the wall, our own beneficent public stewards – if we elect ones with a heart – will be there to make sure that everyone receives the care that they need. The resources that we use may take us up to the wall, but we won’t be crashing into it.
Every other industrialized nation has an impenetrable Stein wall, but by using normative economics, they don’t sacrifice their citizens by slamming them into that wall.
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