Trade-Offs Getting Tougher: Problems Paying Medical Bills Increase for U.S. Families, 2003-2007

By Peter J. Cunningham
Center for Studying Health System Change
September 2008

About 57 million Americans were in families with problems paying medical bills in 2007–an increase of 14 million people since 2003, according to a new national study by the Center for Studying Health System Change (HSC). Problems paying medical bills increased for both nonelderly insured and uninsured people. Although the rate of medical bill problems is much higher for uninsured people, most people with medical bill problems–42.5 million–had insurance coverage. About 2.2 million people with medical bill problems were in families that filed for bankruptcy as a result of their medical bills, and a much larger number reported other financial consequences, such as problems paying for other necessities and having to borrow money. The increase in medical bill problems–especially among insured people–is the main reason why more people reported unmet medical needs because of cost in 2007 than in 2003.

http://www.hschange.org/CONTENT/1017/

And…

Health Benefits In 2008: Premiums Moderately Higher, While Enrollment In Consumer-Directed Plans Rises In Small Firms

By Gary Claxton, Jon R. Gabel, et al
Health Affairs
September 24, 2008

Average annual premiums in 2008 are $4,704 for single coverage and $12,680 for family coverage. These amounts are about 5 percent higher than premiums were last year. Enrollment in high-deductible health plans with a savings option increased to 8 percent of covered workers, up from 5 percent in 2007. Deductibles in preferred provider organizations, the plan type with the largest enrollment, increased from 2007 levels.

http://content.healthaffairs.org/cgi/content/full/hlthaff.27.6.w492/DC1

And…

Studies Show Strain of Medical Bills

By Reed Abelson
The New York Times
September 24, 2008

Even as Washington and Wall Street debate the best way to avert an economic meltdown, increasing numbers of Americans are struggling with another financial crisis: the growing burden of unpaid medical bills.

Two studies released Wednesday morning provide further evidence of the toll health care is increasingly placing on working families, even for those who have health insurance. And as employees are paying more medical expenses out of their own pockets, they are having a harder time coming up with the money.

While policy analysts acknowledge that finding any new money to expand coverage may prove difficult, some also say the terms of the debate may be changing as policy makers and the public rethink their positions on the need for regulation and the role of the government in industry — including the health care system.

“We can now imagine a government takeover that we could not imagine before,” (said Len Nichols, a health economist at the New America Foundation).

http://www.nytimes.com/2008/09/25/business/25health.html?_r=1&hp&oref=slogin

The bad (but not unexpected) news is that there is no relief from the unrelenting increases in health care costs for individuals and their families. But there is one number that should alarm all of us: 42.5 million people WITH INSURANCE COVERAGE have medical bill problems in spite of their coverage.

Whereas most advocacy efforts for reform have been directed towards expanding health care coverage to include more individuals, the proposals have included compromises designed to make health insurance more affordable. These compromises, involving fewer benefits and greater cost sharing, have made health care LESS affordable. Just ask those 42.5 million insured individuals who have medical bill problems.

It is time for us to get past the process of trying to bring everyone under the private insurance umbrella that leaks like a sieve. We need to adopt a financing system that is effective in preventing individuals with health care needs from having to face the additional burden of medical debt.

The private insurance industry covers primarily the relatively healthy: the healthy workforce, their healthy families, and the healthy sector of the individual insurance market. But some of these healthy individuals do develop significant medical problems, and for tens of millions of them, the private plans have not prevented medical debt. Shouldn’t that be the purpose of health insurance?

A government takeover of health care financing could provide us with the coverage that actually would work: a single payer system that would enable each of us to access the health care that we need, without exposing us to the additional burden of medical debt. If the government can serve as responsible stewards of our mortgage markets, surely they can become responsible stewards of our health care financing.

A.M. Best Revises Rating Outlook of U.S. Life/Health Companies to Negative

MarketWatch
September 18, 2008

Although fundamentals for the vast majority of life/health companies are currently sound, uncertainty continues to be widespread in terms of the future direction of the economy, real estate values, interest rates, equity markets–both domestically and globally–and liquidity. All of these factors have had an impact on life/health insurers’ balance sheet strength and operating performance.

As the federal government takes unprecedented steps to promote stability in financial markets and limit damage to the broader economy, A.M. Best notes both the political uncertainty of the upcoming Presidential election as well as the enhanced regulatory scrutiny that currently pervades the life/health industry. These issues are most prevalent across health insurance product lines, which are influenced significantly by regulation at both the federal and state levels. As a result, A.M. Best has revised the rating outlook on the health insurance industry to negative.

With employers dropping coverage, and politicians and regulators seeking ways to provide coverage for the uninsured, the individual medical market has become ultra competitive. A.M. Best has similar concerns with the small group medical market as large, national managed care companies compete despite low profit margins.

Moreover, the current economic environment is placing additional pressures on the managed care sector. The commercial market has been extremely competitive for some time with limited growth potential. Layoffs and bankruptcies will impact commercial enrollment, while cost factors could pressure employees to drop coverage. Many publicly traded managed care companies have increased their financial leverage over the past year mainly for share repurchase and acquisitions (with goodwill), all of which increase balance sheet risk. While A.M. Best acknowledges that managed care companies tend to have more liquid and conservative investment portfolios due to the short-tailed nature of the claims, the issues that have emerged on Wall Street, and in the real estate market, are expected to result in writedowns of certain investments.

http://www.marketwatch.com/news/story/am-best-revises-rating-outlook/story.aspx?guid=%7B4190EA15-8E83-466A-8FD1-5C44D3E63F4A%7D&dist=hppr

When the economy goes South, and unemployment rates increase, publicly financed programs face budget constraints because of the decline in tax revenues. Think of our public education system. Publicly financed health programs (over half of all health care spending today) face similar constraints.

So we should look at the stability of the financing of health care through private health plans. This report from A.M. Best indicates that market volatility will have a negative impact on the participation in their health insurance products and on the insurers’ return on their investments.

A shift away from large employer coverage and towards individual and small group insurance products has made these markets “ultra competitive,” resulting in narrower profit margins. It is ironic that increased competition is considered to be a threat to the insurers’ business model. At the same time “enhanced regulatory scrutiny” is also a threat. It seems that the health insurance industry will have difficulties no matter whether free market or government regulation policies prevail.

In addition, a significant portion of insurers’ profits comes from their investments that have nothing to do with health care. As their investment revenues decline they must make up the difference by increasing the spread between their revenues and costs. Since their high administrative costs are relatively fixed, they must turn to increases in premiums and decreases in benefits paid. The decrease in benefits is accomplished by reducing the health benefits which are covered, and by increasing cost-sharing by the patients. Underinsurance is already a major problem, and it will expand further under current trends.

Any financial crisis would impact both publicly and privately financed programs, but the private investor-owned programs are more severely impacted. Looking at the current financial crisis, it’s clear that only our government has the capability and resources to ensure health security for all of us… forever.

Better Care at Lower Cost for Every American

By John McCain
Contingencies
September/October 2008

We can no longer afford to promise more than we can deliver. Nor can we risk misdiagnosing the problem and devising a cure that might harm the patient.

The problem is not that most Americans lack adequate health insurance. The vast majority of Americans have private insurance, and our government spends billions each year to provide even more.

Fundamental health care reform must begin with restoring control to individuals and their families as health care consumers and patients and making them the central focus of our health care system.

Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.

http://www.contingencies.org/septoct08/mccain.pdf

Let there be no doubt about John McCain’s plans for health care in America: Just as reducing the burden of government regulation of real estate lending has allowed more individuals to achieve the American dream of owning their own homes, reducing regulatory oversight of private insurers will make health care more affordable for all of us.

Many people made a lot of money in home loans while the regulators turned their backs. Of course, those people have walked away with their siphoned-off money in hand, and left us with a market that has destroyed the finances of individuals and shattered their dreams of home ownership. The magnitude of the crisis is so great that the government had to step in and use our tax dollars to prevent the collapse of the economy.

John McCain now wants the regulators to turn their backs on the private insurance industry. By selling us insurance products that are affordable, many people will make a lot of money. When those underinsurance products fail to protect us from financial hardship whenever we need heath care, our personal finances will collapse, and the financing of the health care industry will be disrupted, resulting in the impending collapse of the health care delivery system. By then, those who profited will have walked away with their siphoned-off money in hand, leaving us with a health care crisis that only the government will be able to repair, using our tax dollars to prevent the collapse of our health care system.

Just as a robust deregulated market in sub-prime lending and mortgage-backed securities was not the solution to expand home ownership to more Americans, a robust deregulated market in private health underinsurance plans can never make health care affordable for those who need it.

Barack Obama understands that if private insurance plans are to fulfill their function of making health care affordable, then the market must be tightly regulated, and underinsurance products must be prohibited. He also understands that private plans that actually work are no longer affordable for the majority of Americans. That is why he decided against mandating universal health care coverage; you can’t buy a plan if you don’t have the money to pay for it.

Neither a market of deregulated private plans nor a market of tightly-regulated private plans will work. Continuing to rely on the private insurance market will compound the crisis in health care financing, eventually forcing a government buyout of the system. Instead of waiting for more pain, suffering, financial hardship, and even death, let’s adopt a system that actually would make health care affordable for all of us: a single payer national health program.

Isn’t prevention better than a salvage operation?

Health care reform must art with a plan to simplify

By William R. Brody, MD, PhD, president of the Johns Hopkins University
San Francisco Chronicle
September 18, 2008

I favor community-rated health insurance – that is, one big pool to spread and share risk with no cherry picking allowed.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/17/EDA112VONV.DTL

There could not be a more explicit endorsement of social insurance, especially significant since it comes from one of the nation’s more important health care leaders. Once we all agree that we need one big risk pool to spread and share risk, the remaining efforts in health care reform would be limited to working out the details of the mechanics of funding and administering that pool.

That is not to say that it will be easy. We will still be debating whether or not we will dismiss the private insurance industry and replace it with a single payer universal health program. If we continue to use the private insurance industry, it will require massive transformation into a model similar to the European plans using non-profit private insurers, a change that investor-owned insurers surely will resist to the death of their corporations (what a pleasant fantasy). Instead of trying to totally change the mission and structure of U.S.-style insurers, it would be easier to replace them with our own public Medicare-like model.

Once we accept the concept of a single, equitable risk pool for everyone, then we can all move forward with the comparatively simple task of crafting the mechanics of the financing system. We really can do it.

In a Letter to the Editor of the Wall Street Journal just days ago, John Goodman, president of the conservative Dallas-based National Center for Policy Analysis, repeats this classic premise of Milton Friedman’s economic views:  “capitalism confers its greatest benefits on people at the bottom of the income ladder.  People at the top would have done well under any system. It is people at the bottom who are most liberated by markets.” This view of the world has dominated U. S. politics for several decades.  As we saw in our last post, however, free markets in health care are driving up costs at three and four times the rate of cost of living and family incomes.  It is long overdue to hold this theory to account for its actual track record and its impact on people needing health care.

These benchmarks show how flawed and disconnected this economic theory is from reality.

•  There are 46 million uninsured and at least another 25 million under-insured  (generally defined as spending over 10 percent of their annual  income)

•  Even among the more than 150 million Americans with employer-sponsored
health insurance, a 2007 report by Families USA found that:
a.  among the 50 million non-elderly Americans who spend more than 10
percent of their pretax income on health care, 4 of 5 are insured
b.  of the 13.5 million in families spending more than 25
percent of their pretax income on health care, more than 3 of 4  are
insured

•  A majority of uninsured and underinsured go without necessary health care
because of costs

•  The costs of cancer care are going through the roof at rates much higher than
for general medical care; a 2007 study by the Kaiser Family Foundation and the
Harvard School of Public Health found that nearly one-half of cancer patients
without consistent health insurance coverage use up all or most of their savings,
leaving them short for basic necessities.

•  A 2008 study by the Centers on Budget and Policy Priorities found that 2.4
million elderly Americans have been driven into poverty by medical bills,
despite having Medicare coverage; seniors now  spend 22 percent of their
annual incomes on health care (compared to 15 percent when Medicare was
enacted in 1965).

•  Medical bills account for about one-half of the 2 million bankruptcies each
year; of those bankrupted, 3 of 4 were employed and insured when they  fell ill.

•  Household debt today is at the highest level since 1933.

•  A 2008 analysis by Deloitte’s health research center has found that medical care
now accounts for 16.6 percent of the average American household’s income,
more than housing (14.4 percent) and food (13.1 percent).

•  Consumer confidence has fallen to a 28 year low

•  A recent Rockefeller Foundation/Time survey found that 85 percent of
Americans feel that the country is headed in the wrong direction, with a
majority saying that “the American dream is no longer attainable”;  80 percent
believe that whatever social contract we have had has deteriorated, and that a
new one is needed.

•  The accompanying graphic shows in brutal detail that the robber baron era
preceding the Great Depression has reappeared with an even wider gap in 2006
between incomes of the top 0.01 percent and the bottom 90 percent of U. S.
families.

(Source: Thompson, G. Meet the wealth gap. The Nation 14 (12): July 1-15, 2008)

These points make clear how untrue and preposterous the trickle-down theory of economics really is.  It is a cruel hoax.  We are in the second Gilded Age, and conservative market policies fail the public interest.  A recent article in The Nation by John Cavanagh and Chuck Collins of the Washington-based Institute for Policy Studies, describes our current predicament in these terms:

“Our top-heavy era has evolved from a heavily bankrolled effort by conservatives and corporations to instill blind faith in the market as the magic elixir that can solve any problem.  This three-decade war against common sense has preached that tax cuts for the rich help the poor, that labor unions keep workers from prospering, that regulations protecting consumers attack freedom.  Duly inspired, our elected officials have rewritten the rules that run our economy – on taxes and trade, on wage policies and public spending – to benefit wealthy asset owners and global corporations.  To reverse this reckless course, we need to change our nation’s dominant political narrative and restore faith in the critical role that government must play to protect the common good.”

In future posts we will address some directions for health care reform which will bring necessary care within reach of all Americans based on medical need, not a disappearing ability to pay in our runaway market-based non-system.
______________________________________________________________________

Adapted from: Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008 by John Geyman. With permission of the publisher, Common Courage Press

Buy This Book: http://www.commoncouragepress.com/index.cfm?action=book&bookid=376

Covering the Uninsured: Options for Reform

Kaiser Family Foundation
September 17, 2008

Options for Covering the Uninsured

1. Build on the current system:
Strengthen the employer-based system
Expand public coverage by building on Medicaid and SCHIP
Create new group insurance options for individuals and businesses

2. Revise the sponsorship and financing of health coverage through the tax system

3. Adopt a single-payer plan

http://www.kff.org/uninsured/h08_7813.cfm

Listening to the national dialogue on health financing reform, you would think that we have only two options: 1) Don’t start from scratch with a better program, but build on the current system (Obama), or 2) Reform the tax code to shift incentives for purchasing insurance from employers to individuals (McCain). Replacing our dysfunctional financing system with a single payer national health program, if even mentioned, is immediately dismissed from the dialogue.

As an example, yesterday Health Affairs released three new articles commenting on the reform proposals. An excellent article by Buchmueller et al explained why the McCain proposal would be relatively ineffective in expanding coverage to more individuals and would likely result in a deterioration of the effectiveness of health plans. An article by Antos et al explained why the Obama proposal will fail to slow the escalation in health care costs, besides falling short on universal coverage.

The third Health Affairs article should have been on how single payer would control costs while providing comprehensive coverage for everyone. It wasn’t. Instead it was an article by Mark “Moral Hazard” Pauly describing a compromise model incorporating features of the McCain and Obama plans. Although the Buchmueller and Antos articles were covered extensively by the media, I couldn’t help but notice that the Pauly article was ignored, and quite appropriately so.

Kaiser Family Foundation is precisely right. There are three options for reform. We know that only one of them will work: single payer. A discussion of the McCain and Obama plans is not complete without including an explanation of the effectiveness of single payer. It’s our job to be sure that it is included.

Physicians Urged to Carefully Review Blue Cross Contract Amendment

California Physician
September 15, 2008

Physicians contracted with Blue Cross of California were recently notified of the insurer’s intent to amend its Prudent Buyer contract to include Anthem’s Select PPO product, effective January 1, 2009.

The addendum in question requires contracted physicians to always refer Anthem Select PPO Members to other participating Select PPO providers, unless they have obtained authorization to refer out of network. Physicians should be aware that the underlying Prudent Buyer contract authorizes Blue Cross to unilaterally lower the physicians’ fee schedule as a penalty for referring to out of network providers. For this reason, it is important for physicians to determine if colleagues you frequently refer to and those who refer to you participate in the Select PPO network.

http://www.calphys.org/html/cc763.asp

Addendum:
http://www.calphys.org/assets/applets/bc_addendum_091508.pdf

Those supporting health care reform based on the model of private health plans competing in the marketplace have looked to Blue Cross of California (BCC) as the nation’s leader in innovative market solutions. BCC has been very effective in providing insurance products with competitive premiums by using these innovations to limit what is paid for health care benefits, in an environment of ever-increasing health care costs.

By far the most important innovation was to establish preferred provider lists of physicians and hospitals that agreed to accept contracted reimbursement rates. The providers accepted lower rates, and patients were financially penalized if they used providers outside of the contracted networks. No attempt will be made to address here the many other innovations that allowed BCC to reduce what it pays for health care, but more does need to be said about this new innovation in its preferred provider networks.

Largely because of its competitive premiums made possible by its leverage in being able to sign up physicians and hospitals in its Prudent Buyer PPO plans, BCC has been one of the most successful programs in California, success being defined from a business perspective. Its success has been so great that it is now in a position to be able to make itself its own competitor, but, as we’ll see this is not competition that is designed to benefit the patient/consumer, but rather to benefit the Anthem/WellPoint shareholders of which BCC is a subsidiary.

In addition to its well established Prudent Buyer PPO, it now also has established Anthem Select PPO, a product designed to be more competitive by offering even lower premiums. The Anthem Select PPO has established a separate contract with a much smaller number of physicians and hospitals who have agree to even lower reimbursement rates (presumably lower, though that is proprietary information). Besides lower rates, BCC also benefits by making access more difficult for patients by sharply limiting the number of Select providers available.

Patients may not realize it, but they are penalized when they continue to use their Blue Cross Prudent Buyer providers if those providers have not also signed up to be part of Anthem Select PPO. They may think they have access to the Prudent Buyer PPO list, but if the corner of their card says “A Select Network Product,” they are restricted to a much more limited choice if they expect to receive the full benefits of their plan (that is, full underinsurance benefits).

The new BCC innovation spelled out in the addendum and in the underlying Prudent Buyer contract establishes financial penalties for physicians who continue to refer to their established Prudent Buyer colleagues and hospitals without first checking to be certain that they are on the much more exclusive Anthem Select PPO list.

BCC has provided a potential out. Physicians can obtain prior authorization to refer Select patients to the Prudent Buyer providers. But talk about abusive administrative excesses! BCC is requiring the burdensome prior authorization process merely to cross refer within its own two artificially segregated networks!

The process is hardly transparent. Most physicians and their staff members will not notice “A Select Network Product” on the corner of the card. They will make the Prudent Buyer referrals as usual. When the claim is paid, the disallowed amount will be adjusted off, without the staff realizing that the adjustment is greater than it would have been had a referral been made within the more restricted Select list. The patient will receive a statement of benefits with a larger amount listed as their own responsibility, not realizing that they are being penalized for using a Prudent Buyer provider who did not also have a Select contract.

Thus Blue Cross of California has set up within its own Prudent Buyer program two separate PPO lists that it uses to play against each other for the purpose of cheating the patient, cheating the physician, and cheating the hospital. Only the shareholders benefit.

Some may feel that “cheat” is too strong of a word, but cheating is depriving by trickery, and that is exactly what BCC is doing.

For those who still believe that we can patch together reform by using private insurance plans, please read John Geyman’s “Do Not Resuscitate: Why the Health Insurance Industry Is Dying, and How We Must Replace It” (Common Courage Press).

The Road to Serfdom

By Friedrich A. Hayek

Quote from the condensed version as it appeared in the April 1945 edition of Reader’s Digest

There is no reason why, in a society which has reached the general level of wealth ours has, (the certainty of a given minimum of sustenance) should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.

http://www.iea.org.uk/files/upld-publication43pdf?.pdf

The Road to Serfdom
http://www.press.uchicago.edu/presssite/metadata.epl?mode=synopsis&bookkey=206047

“The Road to Serfdom,” the work of Nobel Laureate F. A. Hayek, has been one of the most influential books of the last century. It has been an inspiration to those who are opposed to socialism and who support free markets and libertarianism. The teachings of Hayek are frequently cited by those opposing government involvement in health insurance markets. But what did Hayek actually say?

He acknowledges that there are “common hazards of life against which few can make adequate provision.” All other nations have decided that the potential need for health care is one of those common hazards.

He recognizes that such hazards can be provided for by “a comprehensive system of social insurance.” Although the specifics of social insurance programs for health care can vary, they have in common a fund that provides for the payment of health care, an equitable source of payments made into that fund, and automatic inclusion of the individuals for which the fund was designed. It appears from his statement that Hayek would include all members of a society except perhaps those who are capable of making adequate provision for themselves.

He recognizes that the state should help organize such a comprehensive system of social insurance. Hayek was quite familiar with social insurance since his country of birth, Austria, had social insurance programs dating back to the nineteenth century.

Although an avid supporter of free markets, Hayek understood that even in a wealthy society the state should help organize a comprehensive system of social insurance.

Perhaps we should ask the free market advocates opposed to comprehensive social insurance to retrieve from their libraries their copies of “The Road to Serfdom,” and read them again. Although they don’t listen to us, just perhaps they may listen to Friedrich Hayek.

Market theorists have been telling us for years that the competitive marketplace will keep prices under control, as well as fix problems of access and quality of health care.  This statement by senior fellows of the Hoover Institution in 2006 reflects market ideology which has framed health care policy for three decades:

“Greater reliance on individual choice and free markets are the solutions to what ails our health care system . . . A handful of policy changes that harness the power of markets for health services have the potential to give patients and their physicians more control over health-care choices, create more health insurance options, lower health costs, reduce the number of uninsured persons—and give workers a pay increase to boot.”

If competitive markets are so effective in controlling health care costs, how is it that these costs continue to soar at rates three or four times the rates of cost of living or median family incomes?  Here are five reasons why markets fail, and can never succeed, to control health care costs.

There is little actual competition in health care markets.  Instead, we find widespread consolidation, whether among hospitals, pharmaceutical companies, other suppliers, nursing homes, dialysis centers, or insurers.  As examples, Tenet, the second largest hospital chain in the country, controls 80 percent of hospital beds in El Paso, Texas, while private insurers have near-monopolies in 95 percent of HMO/PPO metropolitan markets (raising antitrust concerns by the U. S. Department of Justice). One-half of Americans live in areas that are too sparsely populated to have any real competition.  And of course, when people are seriously ill and require the most costly care, they find it difficult or impossible to comparison-shop for physicians or hospitals.

On the supply side, providers and suppliers have wide latitude to set prices.
Much of the health care industry is investor-owned, from insurers to hospital chains and drug companies. As such, they are obligated to their shareholders to maximize profits and have wide latitude to set prices independently. In California, for example, Tenet hospitals have set charges for drugs ten times higher than state averages, while Ovation Pharmaceuticals hiked its price for Cosmegen, a chemotherapy drug for a kidney cancer in children, by more than 3,400 percent (not a typo!) in 2006.  So-called not-for-profits can also set their own prices, as illustrated by a recent Wall Street Journal report that the “nonprofit” Carillion Health System in southwestern Virginia charges $4,727 for a colonoscopy and $1,606 for a CT scan of the neck, levels three to ten times higher than charged by other local facilities.

Our fragmented system works against bulk purchasing.

In such a fragmented multi-payer system as we have, there is little opportunity to achieve sizable discounts through bulk purchasing.  Indeed, bulk purchasing of drugs was specifically prohibited by the Medicare Prescription Drug, Improvement and Modernization Act of 2003.  That legislation was crafted by conservative legislators and lobbyists to protect the pricing prerogatives of the drug and insurance industries and to avoid discounts on drugs of 40 percent or more as are achieved by the Veterans Administration.
Distorted reimbursement policies favor gaming of the system.

We have entrenched policies with a wide gap between physician reimbursement for procedures and cognitive services (ie., the face-to-face listening and talking part of medicine as is typical in primary care, geriatrics, and psychiatry).  Procedures are over-reimbursed while time-intensive cognitive services, including coordination and continuity of comprehensive care, are under-reimbursed.  It is well documented that higher-reimbursed areas of the country attract larger numbers of specialists with more specialist visits, more hospitalizations and ICU use, more inappropriate and unnecessary care, and worse outcomes than are seen in lower reimbursed parts of the country with fewer specialists and more generalist physicians.  Other providers game the system as well.  For example, HCA, the largest hospital chain in the country, has inflated its revenues by “upcoding” the severity of patients’ diagnoses, falsifying billing ledgers, and bouncing patients among its hospitals, sub-acute facilities, and home care agencies in order to bill multiple times for each episode of illness.

Demand for health care is not very sensitive to prices.

Although conservative theorists tell us that patients overuse health care if they are insured (moral hazard), that premise has been discredited as a major cause of health care inflation.  We don’t see runs by patients to unnecessary care.  Most medical care is ordered by physicians, who themselves are largely responsible for an estimated one-third of health care services that are either inappropriate or unnecessary.  As for price sensitivity, a  2005 RAND report found that spending dropped by only 17 cents for every dollar increase in price.

What can we conclude from all this?   Based on three decades’ experience with our deregulated marketplace, we have to conclude that markets cannot control health care costs, and in fact are themselves a big contributor to health care inflation.  Market ideology in other kinds of markets do not apply in health care.  Managed care of the 1980s and 1990s not only failed to contain costs, but also brought further complexity and turmoil to the marketplace while disrupting relationships between patients and physicians.  It has become obvious that reining in the costs of health care and at the same time increasing access and quality of care will require major reform, including a larger role for government.  Joseph Stiglitz, Nobel laureate in economics and former chief economist of the World Bank, puts it this way:

“Markets do not lead to efficient outcomes, let alone outcomes that comport with social justice.  As a result, there is often good reason for government intervention to improve the efficiency of the market.  Just as the Great Depression should have  made it evident that the market often does not work as well as its advocates claim, our recent Roaring Nineties should have made it self-evident that the  pursuit of self-interest does not necessarily lead to overall economic efficiency.”

In our next post, we will look at how inflating health care costs driven by market forces
cause financial insecurity and economic hardship for a large and growing part of our population.

____________________________________________________________________

Adapted from Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008 by John Geyman. With permission of the publisher, Common Courage Press.

Buy This Book: http://www.commoncouragepress.com/index.cfm?action=book&bookid=376

10 Excellent Reasons for National Health Care

Edited by Mary O’Brien and Martha Livingston

From the Foreward by Representative John Conyers Jr.:

This insightful book will provide you with the information you need to be an informed participant in the public debate about how to achieve health care for all. This information is especially important now, during this election year.

Within the chapters of this book and in the resource guide in the back, you will find cutting-edge information to help you work toward the only sensible solution to our health care crisis: a single-payer national health insurance program. Contributors to this book include doctors, nurses, patients, and an international union leader. They discuss the benefits of a single-payer plan: that it is cost-effective; will provide choice, quality, and better health for Americans; will help to reduce health care disparities; will make doctors and nurses better able to do their jobs; and will benefit both workers and businesses. They also explain why single-payer universal health care is the only approach that can guarantee Americans the health care that they need when they need it, and explain how, by working together, we can achieve the goal of health care for all.

The New Press: 10 Excellent Reasons for National Health Care
http://www.thenewpress.com/index.php?option=com_title&task=view_title&metaproductid=1711

This compact, easy to read book should be circulated widely so that all Americans can understand that there is an effective and equitable solution to our health care crisis. Read it. Then recommend it to the various organizations and grassroots coalitions with which you are now associated, and initiate efforts to expand activism to yet more individuals and organizations.

The threshold required for reform will be met once the public understands that there really is a solution.