Letter from President Barack Obama to Senator Edward Kennedy and Senator Max Baucus

The White House
June 2, 2009

Excerpt

The meeting that we held today was very productive and I want to commend you for your leadership — and the hard work your Committees are doing on health care reform, one of the most urgent and important challenges confronting us as a Nation.

I understand the Committees are moving towards a principle of shared responsibility — making every American responsible for having health insurance coverage, and asking that employers share in the cost. I share the goal of ending lapses and gaps in coverage that make us less healthy and drive up everyone’s costs, and I am open to your ideas on shared responsibility. But I believe if we are going to make people responsible for owning health insurance, we must make health care affordable. If we do end up with a system where people are responsible for their own insurance, we need to provide a hardship waiver to exempt Americans who cannot afford it. In addition, while I believe that employers have a responsibility to support health insurance for their employees, small businesses face a number of special challenges in affording health benefits and should be exempted.

http://www.whitehouse.gov/blog/The-President-Spells-Out-His-Vision-on-Health-Care-Reform/

Numerous media reports are proclaiming that President Obama is now open to an individual mandate – a requirement that each uninsured individual purchase a basic health plan. But what did he really say?

He said that if we make people responsible for their own insurance (individual mandate), then we must grant a hardship waiver to exempt people who cannot afford it. But the primary reason that people have not purchased insurance in the individual market is that the plans are not affordable. Most of these individuals will be eligible for the hardship waiver and will remain uninsured.

What else did he say? He said that small businesses should be exempted from the responsibility of supporting health insurance for their employees since they face special challenges in affording health benefits. But for 80 percent of the uninsured, the head of the household is employed, predominantly by small businesses.

So President Obama has endorsed an individual mandate that would expand coverage to everyone – except those who cannot afford to pay for the coverage, and those whose jobs are in small businesses that cannot afford to provide employee health benefits. That is, we’ll cover everyone except most of those who are currently uninsured, nor those who will lose their health benefits as the rate of employer-sponsored coverage continues to decline, especially with a pessimistic job outlook.

The president’s letter is more than a personal communication to a couple of senators. It is a consensus statement, meant for public consumption, on the agreement between the administration and Congress on the most basic fundamentals of the reform legislation to be completed, as the president stated, in the “make-or-break window” before the August recess. Reading the full letter makes you realize how low the expectations are for the final reform product.

Sen. Baucus has expressed remorse for not giving single payer advocates an audience, but he has also stated that it is too late in the process to do so now. However, on June 10, the House Committee on Education and Labor will hold a hearing, “Examining the Single Payer Health Care Option.”

Although single payer legislation has already been introduced in both the House and the Senate, the logistics of lining up the political ducks before the August recess is nigh close to an impossibility. Nevertheless, do not let up on your efforts. In the next couple of months, while health reform is on the front burner, the flames must be stoked with our loud and clear message that we need reform that actually will accomplish the goal of affordable health care for all.

Though we may miss this one, the “make-or-break window” does not close with the August recess. The 2010 election process is already beginning. Individuals and organizations should begin immediately to use strategies and tactics to be certain that candidates understand that they will not be elected unless they support a single payer national health program. That should be the make-or-break litmus test for the 2010 elections.

by Kip Sullivan

President Obama and Democratic congressional leaders are playing a dangerous game with health care reform. They are raising the public’s expectations sky high before figuring out how to meet those expectations. They are promising to give us the moon – significant cuts in health care costs and universal coverage or something close to it – but even at this late hour they have failed to publish anything resembling a detailed plan to do that. And the hints they have given us about the “reforms” they are likely to endorse indicate they haven’t got a clue how to cut costs.

Obama’s response to a question about single-payer health insurance at a town hall meeting in New Mexico on May 14 illustrates the quandary the Democrats are creating for themselves. The question was, “Why have they taken single-payer off the plate?” The woman posing the question was referring to a statement by Sen. Baucus, who chairs the committee with the most influence over health reform issues in the Senate, that “single payer is off the table.” Obama’s response, essentially, was that single-payer is off the table because the insurance industry is too powerful to beat, and there are other ways to cut health care costs that don’t require implementing a single-payer system. He is wrong on both counts.

Obama began his reply to the woman’s question with a statement about the necessity of cost containment: “If we simply insured everyone under the current system we couldn’t afford it. We’d go broke. We’ve gotta drive down costs.” So far so good. Obama is unquestionably correct about this. America’s per capita health care costs are double those of the rest of the industrialized world. Congress will never find the political will to establish a sustainable universal health insurance program unless it finds a way to cut the high cost of health care.

But then Obama went on to imply that we don’t need a single-payer system to cut costs. “There are ways that we can drive down costs,” he said. He cited three ways: greater use of preventive services, (not by making insurance companies pay for them, but by changing the way doctors are paid); electronic medical records; and a public program to compete with private insurers. The first two ideas are straight out of the insurance industry’s hymnal. The third idea, the proposed public program (which its advocates now refer to as “the public option”) will either quickly morph into a single-payer or it will accomplish little or no cost containment.

Here are excerpts from Obama’s response:

If we emphasize prevention and wellness programs … so that we’re reimbursing doctors, not just for treating people after they get sick but for helping people stay well, if we use medical technology to reduce error rates and ensure electronic medical billing …, these are simple things we can do that will save us money…

But the research does not support Obama’s claims. Even assuming the way to deliver more preventive services is to focus on doctors rather than insurance companies, more preventive services will not reduce costs. Proven preventive services definitely improve patient health, but the vast majority of preventive services cost so much, and have to be given to so many people who would not otherwise have gotten sick, that the cost of the services outweighs the savings from reduced illness.

Flu shots are an example. If you consider only the fact that flu shots cost $30 per person to administer, and that the medical costs of treating an adult with flu come to about $8,500, you might be lulled into thinking flu shots pay for themselves hundreds of times over. But when you realize the $30 flu shot has to be given to hundreds of people who wouldn’t have gotten the flu in any case just to prevent one hospitalization for flu (research indicates flu shots have to be given to 1,000 seniors to prevent one hospitalization for flu), you’re forced to reach a different conclusion. A 2008 review of the literature on preventive medicine concluded, “Although some preventive services do save money, the vast majority reviewed in the health economics literature do not” (Joshua T. Cohen et al., “Does preventive care save money? Health economics and the presidential candidates,” New England Journal of Medicine 2008;358:661-663).

The research reaches the same conclusion about a slightly more complex form of preventive services called “disease management.” Whereas preventive services are defined as those given to people without any detectable sign of disease, disease management refers to services given to people who already have signs of a disease. A typical disease management service is education of patients by a nurse on how to follow their doctor’s instructions. Several reviews of the research on disease management have reported that most forms of disease management do not save money and, in fact, like preventive services, probably raise total costs (Soeren Mattke et al., “Evidence for the effect of disease management: Is $1 billion a year a good investment?” American Journal of Managed Care 2007;13:670-676).

During his campaign, Obama claimed that switching all Americans’ medical records from paper to electronic form would save $77 billion a year. He based this claim on a paper financed by Hewlett Packard and other members of the computer industry. This paper was soundly thrashed by the Congressional Budget Office in a report issued in May 2008. (The CBO is a non-partisan research arm of Congress which analyzes the impact of federal legislation on the federal budget.) The CBO’s analysis and other research has shown that electronic medical records have mixed effects on quality of care and are likely to raise total costs. It is true that computers can reduce some types of errors, but they also facilitate new types of errors. And they are not free. Installing the hardware and software necessary to create electronic medical records for all 300 million Americans will probably raise total spending by about 2 percent.

After telling his audience that cost containment is absolutely essential if we’re going to get to universal coverage, and then telling them prevention and electronic medical records will save money when they won’t, Obama took up the question about why Baucus was refusing to take testimony on single-payer. Obama, being the good teacher he is, first defined the term:

For those of you who don’t know, a single-payer system is, Medicare is sort of like a single-payer system. The way it works is, the idea is you don’t have insurance companies as middle-men. The government goes directly and pays doctors or nurses.

There is more one could say about how single-payer systems save money, but Obama’s description captured their most important feature: They save large sums of money by reducing the administrative waste generated by the health insurance industry. Obama was correct to hold up the traditional Medicare program as an example of a single-payer. That program does not funnel tax dollars through insurance companies so they can scrape 20 percent off the top and send the remaining 80 percent to doctors and hospitals with strings attached about how to practice medicine. By bypassing the insurance industry and paying doctors, hospitals and other providers directly, the classic Medicare program (in which 80 percent of Medicare recipients are enrolled now) avoids paying for the wasteful insurance industry overhead costs (including marketing, “managing” doctors, underwriting, lobbyists, and profit). Compared with the insurance industry overhead of 20 percent of expenditures, Medicare’s overhead is 2 percent.

Single-payer or Medicare-for-all-style systems also lower system-wide administrative costs because providers incur lower billing costs when they have to deal with only one cooperative public insurer (or payer) rather hundreds or thousands of obstinate private-sector insurers. The administrative savings alone from switching from a multiple- to a single-payer system will be in the range of 10 to 15 percent. Another 10 percent is easily achievable through a reduction in prices, especially for specialist services and drugs, that single-payers achieve.

Having properly defined a single-payer system, Obama continued:

If I were starting a system from scratch, then I think that the idea of moving toward a single-payer system could very well make sense…. The only problem is that we’re not starting from scratch. We have … a tradition of employer-based health care. …We don’t want a huge disruption as we go into health care reform where suddenly we’re trying to completely reinvent one-sixth of the economy.

Note how cautiously Obama talked about “disruption.” He didn’t say who would be bothered by “disruption.” Under a single-payer or Medicare-for-all system, patients would notice no change in their clinics or hospitals, and all Americans and all employers would be relieved of the immense hassle of buying insurance, paying for it, and playing “captain may I” with the insurance industry when people get sick. The “disruption” Obama is concerned about is the disruption a single-payer system will cause for the insurance industry when it gets knocked off its perch at the top of the health care food chain. Obama’s statement about “disruption,” then, may be translated as, “I don’t want to make the insurance industry mad.”

Having told his audience that cost containment is absolutely essential, and having misled them about the ability of prevention and computers to cut costs, and having asserted that we dare not “disrupt” the insurance industry, he turned to what he would probably call the central plank in his cost-containment platform – a public program that will sell health insurance to the non-elderly in competition with the existing insurance companies:

So what I’ve said is, let’s set up a system where if you already have health care through your employer and you’re happy with it, you don’t have to change doctors and you don’t have to change plans, nothin’ changes. If you don’t have health care or you’re highly unsatisfied with your health care, let’s give you choices … including a public plan that you could … sign up for. That’s been my proposal.

Note that Obama did not claim that setting up a government-run insurance program to sell insurance to the non-elderly in competition with the insurance industry will save money. But other advocates of this idea, which over the last few months has come to be called “the public option,” are making precisely that claim. Their argument starts out on a sound footing, and then veers into the ditch. They assert that Medicare has proven to be more efficient than any insurance company ever will be. That is true. I have already indicated that Medicare spends a much lower proportion of its expenditures on administration than private insurers do. Medicare’s large size also permits it to pay clinics and hospitals roughly 20 percent less than smaller private insurers pay. (However, Medicare’s lower reimbursement rates are offset by its cooperativeness with providers, which results in lower overhead costs for providers.)

So the premise that Medicare is unusually efficient is correct. But then “public option” advocates take a wrong turn. They claim that if a program “like Medicare,” but separate from Medicare, were authorized to start selling health insurance to the non-elderly, it would automatically enjoy Medicare’s advantages (low overhead, low provider rates, and large size) and would, therefore, be able to set its premiums below those of the private insurance industry and seize a very large portion of the non-elderly “market” for health insurance. (Don’t ask me why “public option” advocates want the new program to be separate from Medicare. I would bet it’s because they understand the new program is going to suffer from “adverse selection,” that is, from disproportionate enrollment by the sick, and that this would raise Medicare’s costs dramatically and annoy the elderly.)

But why should we assume that a public program for the non-elderly will enjoy Medicare’s advantages? Medicare enjoys those advantages precisely because it is a single-payer. How can a “Medicare-like” program for the non-elderly be expected to function with Medicare’s efficiency when it won’t be a single-payer – when it will be merely one of more than 1,000 insurers scrambling to make a sale? Won’t the “Medicare-like” program have to open offices around the country and hire a sales force and advertise? Won’t it have to hire bureaucrats to “manage care” like Aetna and Cigna? If it doesn’t, won’t it develop a reputation for being kinder and gentler to sicker patients and attract a disproportionate number of the sick, and won’t that drive up the new program’s premiums?

It is impossible to know what Obama and the vast majority of “public option” advocates think about these issues because there is no “public option” proposal or bill to discuss. There is only the naked claim that a “public option” will “make the insurance companies compete” and that competition always leads to lower costs.

Jacob Hacker is one of the very few people who has actually written in some detail about the public program he envisions competing with the insurance industry. Hacker has recommended that anyone who buys a policy from the “Medicare-like” program receive subsidies from the federal government that people who buy policies from private insurers would not receive. Obviously, this policy would give the new program an advantage over private insurers. But the insurance industry’s lobbyists are no dummies. They understood this might be a feature of “public option” legislation and they have already persuaded key Democrats in the Senate, including Sen. Chuck Schumer (NY), to ensure that the new program enjoys no such advantages.

If the “Medicare-like” program really does turn out to possess some or all of Medicare’s advantages, or if the law Congress passes actually does subsidize purchase of the public program’s policies but not those of the private insurers, then the “public option” idea should permit the public program to undersell the insurance industry and drive the insurance industry off the market. In that event, we will have achieved a single-payer system by a process of “creeping capitalism.” But in view of how eagerly Democrats like Sen. Schumer and people like Hacker are reassuring the insurance industry and their Republican allies that the “public option” will not lead to a single-payer system, it is reasonable to predict that the “public option” will, if it is established, have little or no effect on premium levels across the country and will not bring us closer to a single-payer system.

In fact, if the Democrats, in their zeal to mollify the insurance industry, strip the public program of all advantages and subsidies and the public program suffers adverse selection, the public program might well be bankrupted by the insurance industry. In that event, the industry and its right-wing allies will chortle about how single-payer and “public option” advocates were naïve to think that publicly run health insurance programs could be more efficient than private insurance companies. The single-payer movement, and the entire universal coverage movement, will have suffered a serious setback.

Here is Obama’s final comment in his reply to the woman who asked him why single-payer was “off the plate”:

….I’m confident that both the House and Senate are gonna produce a bill before the August recess. And it may not have everything I want in there or everything you want in there, but it will be a vast improvement over what we currently have. …. I’m confident we’re going to get health care reform this year ….

I voted for Obama. I fervently wish him well. But I’m confident we won’t get anything resembling “health care reform” this year, or even in Obama’s first term or second term, if Obama persists in thinking prevention and computers will save money, and if Obama backs a form of “the public option” that does not possess Medicare’s advantages.

Obama’s Organizing for America project has asked Obama supporters to attend house meetings across the country on June 6 (this coming Saturday). People who care about Obama, universal health insurance or both should attend one of these meetings and warn people that Obama and Congressional Democrats are leading us into an ambush. They are promising universal or near-universal health insurance when they know or should know their proposed methods of cutting costs are not going to cut costs, much less cut costs sufficiently to pay for the $1 to 1.5 trillion it will cost to cover all uninsured Americans over the next decade. The Democrats should tone down their happy talk now or, better yet, put single-payer legislation (HR 676/S703) “on the table.”

Kip Sullivan belongs to the steering committee of the Minnesota chapter of Physicians for a National Health Program.

Medical Bankruptcy in the United States, 2007: Results of a National Study

By David U. Himmelstein, MD, Deborah Thorne, PhD, Elizabeth Warren, JD, Steffie Woolhandler, MD, MPH
The American Journal of Medicine
June 4, 2009

Abstract

Background: Our 2001 study in 5 states found that medical problems contributed to at least 46.2% of all bankruptcies. Since then, health costs and the numbers of un- and underinsured have increased, and bankruptcy laws have tightened.

Methods: We surveyed a random national sample of 2314 bankruptcy filers in 2007, abstracted their court records, and interviewed 1032 of them. We designated bankruptcies as “medical” based on debtors’ stated reasons for filing, income loss due to illness, and the magnitude of their medical debts.

Results: Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance. Using identical definitions in 2001 and 2007, the share of bankruptcies attributed to medical problems rose by 49.6%. In logistic regression analysis controlling for demographic factors, the odds that a bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 2001.

Conclusions: Illness and medical bills contribute to a large and increasing share of US bankruptcies.

Medical impoverishment, although common in poor nations, is almost unheard of in wealthy countries other than the US. Most provide a stronger safety net of disability income support. All have some form of national health insurance.

The US health care financing system is broken, and not only for the poor and uninsured. Middle-class families frequently collapse under the strain of a health care system that treats physical wounds, but often inflicts fiscal ones.

http://pnhp.org/new_bankruptcy_study/Bankruptcy-2009.pdf

In the United States, medical bankruptcy is very real, it is common, and it impacts primarily the insured middle class. And Congress is going to fix it with more of the same broken financing system?

Health Insurers Balk at Some Changes

By Reed Abelson
The New York Times
June 2, 2009

The insurance industry says it wholeheartedly embraces a health care overhaul, promising Congress and the president that it will make it much easier for individuals to buy insurance on their own.

Insurers, for example, have agreed to sell policies even to people with pre-existing medical conditions, and to stop basing prices on how healthy or sick someone is.

But so far, the industry has made no such promises about another segment of the health insurance market, one responsible for many people being uninsured in the first place: the market for small employers. By some estimates, about half of the nation’s uninsured are people who are self-employed or work for a small business.

Employer-provided medical insurance remains the bedrock of the nation’s health care system. And yet, while most big employers still provide health benefits, soaring premiums have meant many small businesses can no longer afford to cover their workers. But the small-employer market remains one of the most profitable segments of health insurance, which may be why the industry is not eager to overhaul this lucrative part of the business.

… one of the biggest insurers, WellPoint, opposes changing the way coverage is sold to small employers.

“Those markets generally work today,” said Bradley M. Fluegel, the chief strategy officer for WellPoint, which is a big operator of Blue Cross plans and a major player in the small-business market.

Much of the Congressional talk about health care has not yet focused on what federal oversight, if any, might be necessary for the small-business market. Proposals before the Senate Finance Committee seem to envision the same kind of rules for both the individual and small-business markets.

Mr. Fluegel, the WellPoint executive, warned that if the federal government intervened in the small-business market so that insurance companies could no longer assign the highest premiums to employers with the highest medical costs, insurers would be forced to spread the costs over all their small-business customers.

http://www.nytimes.com/2009/06/03/business/smallbusiness/03insure.html?ref=business&pagewanted=all

WellPoint/Anthem/Blue Cross has become the largest provider of private health plans through its highly successful business model that has kept their premiums very competitive. How have they done that? In the individual market, they have limited their exposure to risk by medical underwriting – not selling policies to individuals who might need health care. In the small-business market, they also limit loss by increasing premiums to unaffordable levels for any business that has an unfavorable claims experience, causing those firms to drop coverage.

The insurance industry’s offer to agree to guaranteed issue in the individual market is dependent on a mandate to require every uninsured individual to purchase insurance. That would distribute risk broadly even if it doesn’t specify how such coverage could be paid for. Guaranteed issue has been opposed by WellPoint since it is not compatible with its business strategy of selling only to the healthy.

What about guaranteed issue in the small-business market? Since current proposals also would permit the continuation of the employer-sponsored market, insurers such as WellPoint would remain successful only if they could continue to use underwriting and premium flexibility in the small-business market. If they were required to issue coverage to every small business that applied, then they would have to have a mandate for all small businesses to purchase coverage. Though that would distribute risk more evenly in the small-business market, it still would defeat WellPoint’s successful strategy of keeping premiums competitive by selling their products to healthy individuals and only to small businesses with healthy employees.

WellPoint worked very hard to defeat reform efforts in California since it would have destroyed its dominance as the insurer of the healthy. There is every reason to believe that WellPoint likewise will oppose reform on a national level if Congress includes measures that would require private insurers to participate in a regulated social insurance program.

Yesterday President Obama told Democratic Senators that he would like Congress to take broad action before the August recess. Can you imagine Congress creating a program of private sector social insurance by then? Right now I’d rate WellPoint stock a very strong BUY!

Trends In Underinsurance And The Affordability Of Employer Coverage, 2004-2007

Employer coverage helps, but it does not shield workers from health care costs deemed “unaffordable” as a percentage of their incomes.

by Jon R. Gabel, Roland McDevitt, Ryan Lore, Jeremy Pickreign, Heidi Whitmore, and Tina Ding
Health Affairs
June 2, 2009

Based on simulated bill paying, this paper examines trends in comprehensiveness of coverage, out-of-pocket spending for medical services, underinsurance, and the affordability of employer-based insurance from 2004 to 2007. Data are from MarketScan medical claims and an annual survey of employer health benefits. Health plans covered slightly fewer expenses in 2007 than in 2004, but out-of-pocket spending grew more than one-third because of growth in overall health spending. For people at 200 percent of poverty, the percentage spending more than 10 percent of their income out of pocket on premiums plus services increased from 13 percent to 18 percent.

In the United States, if you are sick and earn a modest income, then you are probably underinsured – even if you have employer-based health coverage. In 2007, among people at 200 percent of poverty ($41,300 for a family of four in 2007) who were among the top 25 percent of spenders on health care services, 71 percent were underinsured.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.4.w595v1

And…

Cost Sharing In Medicaid And CHIP: How Does It Affect Out-Of-Pocket Spending?

by Thomas M. Selden, Genevieve M. Kenney, Matthew S. Pantell, and Joel Ruhter
Health Affairs
June 2, 2009

Rapidly rising spending has prompted debate about increasing cost sharing in Medicaid and the Children’s Health Insurance Program (CHIP). In this paper we assess the role of cost sharing in Medicaid and the CHIP and its potential financial burden on low-income families with children. We find that many families would face high health spending burdens even with minimal cost sharing for their publicly insured children. Adding even modest cost sharing for such children could greatly increase high financial burdens.

Our survey of state policies reveals that a growing number of states are using cost sharing in the form of premiums or copayments, or both, for services in their public coverage programs for children. Premiums and copayments vary greatly across states and generally increase with family income level. Most states have provisions that specify caps on family spending – generally at 5 percent of family income – and premiums are capped in most states for families with more than three children. Yet our analysis of state policies suggests that systems to track family spending and to ensure free access once caps have been reached are generally not well developed.

Higher cost sharing in public programs may reduce public spending. However, half of all publicly insured children in our analysis were poor, and even modest cost sharing can be burdensome for many poor families. Exempting poor children reduces budgetary savings unless much larger cost-sharing burdens are imposed on the remaining families. Optimal targeting of cost sharing is difficult, moreover, when family incomes fluctuate from month to month and when health needs, such as the presence of a an SHCN (Special Health Care Needs) child or a parent in poor health, vary so widely across families.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.4.w607v1

With the reform debate having been diverted to issues such as offering a public option, changing the tax status of employer-sponsored coverage, or mandating individuals to purchase insurance, little attention is being paid to some of the most fundamental flaws in our dysfunctional system of financing health care. One of the most important has been the ever-increasing incidence of underinsurance that has created financial hardship for individuals and families who do have health insurance coverage.

Underinsurance has long been a prime feature of the individual insurance market as insurers have continued to introduce innovations in an effort to keep their premiums competitive. These innovations inevitably shift more costs to individuals and families that actually have health care needs. In fact, one of the purposes of the proposed insurance exchanges would be to reduce underinsurance by offering individuals plans that are more comparable to the group plans of the employer-sponsored market. Is this an adequate response to this problem?

The Health Affairs article on underinsurance in the employer market answers that question. As the authors state, “In the United States, if you are sick and earn a modest income, then you are probably underinsured – even if you have employer-based health coverage.” The emphasis on slowing the cost of insurance (as opposed to the costs of health care) has extended from the individual market to the employer-sponsored market.

The perversity of this strategy is well exemplified by the expansion of cost-sharing policies in the programs designed to protect lower-income families – Medicaid and CHIP. As the authors of the Health Affairs article on cost sharing in these public programs state, “even modest cost sharing can be burdensome for many poor families.” To minimize the negative financial impact on families, it has been suggested that caps be placed on the total out-of-pocket spending for these families. The problem is that “systems to track family spending and to ensure free access once caps have been reached are generally not well developed.” Furthermore, “Optimal targeting of cost sharing is difficult, moreover, when family incomes fluctuate from month to month and when health needs… vary so widely across families.”

The latter is also true of employer-sponsored coverage. Now that underinsurance is a problem for the workforce, some system of capping out-of-pocket spending would be necessary. But because of ever-changing variables, an equitable and efficient system of caps would be almost impossible to design – not to mention the additional administrative efforts that would be required in our system already over-burdened with costly administrative excesses.

Is cost sharing really necessary? How much impact would it have on our total national health expenditures (NHE)? Keep in mind that 80 percent of health care is consumed by about 20 percent of the population. Most of that 80 percent of spending would fall into the category of catastrophic, and almost everyone agrees that catastrophic costs should be fully covered.

Cost sharing policies impact primarily the remaining 80 percent of us who have comparatively few health care needs. Even if cost sharing were fully effective in eliminating non-beneficial health care (it isn’t), how much would that save? Cost sharing might reduce spending by as much as 30 percent (a number in dispute), but at least half of that is for beneficial services. The 15 percent of marginal or non-beneficial services as a portion of the 20 percent of NHE spent on the 80 percent who are healthy would produce a savings of about 3 percent of our NHE.

Since cost sharing is a very imperfect policy, the net benefit would be no where near this ideal. Not only would cost sharing continue to pose barriers to beneficial health care services, it would continue to perpetuate the plague of underinsurance now permeating the employer-sponsored market. The net cost of eliminating cost sharing, thereby ensuring that everyone has the health care that they need without facing financial hardship, would be very small indeed.

But let’s not digress into policies that would impact our health and our finances. Let’s go back to the cat fight over a public option. The private insurance industry must be popping the champagne corks now that they have deceived us into thinking this non-issue is the reform debate that we must be engaged in. They won again, and this time they didn’t even need to bring out Harry and Louise.

“People get ready, there’s a train a’comin’, Don’t need no ticket, you just get on board.”
- Curtis Mayfield

“If not now, If not now, tell me when?”
- Carrie Newcomer

….The closing songs sung by Carrie Newcomer at the Affordable Healthcare For All Rally on Monument Circle, across from WellPoint’s headquarters, May 20, 2009

Jim Mitchiner from PNHP Michigan arranged for me to speak to the House of Delegates at the annual meeting of the Michigan State Medical Society this April. There I met David Share, a physician working for Blue Cross of Michigan, which is still an independent non-profit insurance company like all the Blues were less than 20 years ago. They can’t turn down anyone with a pre-existing condition. Their board is made up of consumers and providers whose average annual compensation is under $50 thousand a year, compared with over $300 thousand per year on the WellPoint board. They support 42 free clinics throughout the state. It’s what the Blue Cross brand used to stand for. The idea of calling for WellPoint to re-mutualize was born.

Think globally and act locally. Some years ago I realized that we could do both by taking our message to one of the state’s largest employers, WellPoint based in Indianapolis. Starting as a non-profit state-based Blue Cross program like all the others, Blue Cross of Indiana de-mutualized in the 90’s. It went from non-profit to for-profit, raised a ton of money with a Wall Street stock offering, and started a rampage of mergers and acquisitions. In 2003 they merged with WellPoint, better known as Blue Cross of California, and became the largest health insurer in the country. For closing that deal, CEO Larry Glascock got a $42.5 million bonus. The HQ remained in Indiana, but WellPoint stayed as the name of the new company.

My wife Karen and I bought 5 shares (WLP, currently about $45 a share) a few years ago just so we could go to the annual meeting. Other members of our PNHP affiliate Hoosiers for a Commonsense Health Plan had stock as well, and a tradition was born. We have annually harangued them about recission, Medicare Advantage, Ingenex,and many other scandals – they are an easy target.

We needed something new this year in order to keep their attention and that of the media. I wrote an Op-Ed for the Indianapolis Star published 5 days before the meeting/rally with my critique of the company, including my dismay that our shareholder dollars were being spent trying to influence the healthcare reform debate. I noted “Last month the Sacramento Bee reported that in California WellPoint was making 3 million computer generated phone calls a week to try to influence the debate on reform. BusinessWeek magazine‘s headline called them ‘Robo-Calls.’ In 2007 the company spent $2 million on a publicity campaign to sink Governor Schwarzenneger’s proposal for a state universal care system.”

I concluded with:

“I fear that the for-profit insurance industry in America is the biggest barrier to achieving affordable universal coverage.

“With that in mind, I have a proposal for the board to consider – For the good of the company and the good of the country, I propose that WellPoint re-mutualize. That WellPoint return to its not-for-profit Blue Cross roots and spin back off all the state Blues that it acquired over the last 15 years.

“Give up this grand effort to become a behemoth astraddle the insurance market – you have only become a dinosaur.”

Having that published in the state’s largest newspaper, the stage was set for May 20. At 8 AM five of us were seated in the meeting room, and when the time came, I read my statement. Other members of thegroup shared their concerns, most notably that Susan Bayh’s position on the board, with her husband Evan in the Senate as it considers healthcare legislation, has the appearance of a huge conflict of interest. No one outside of our group spoke, except, of course, for the talking heads of the CEO and Chairman of the Board.

At 11 AM, under a clear blue sky in the center of town, Monument Circle, we opened our rally with folk singer Carrie Newcomer. We had 150 people decked out with signs and our blue Medicare For All T-shirts. My comments focused on the for-profit insurance gang being the biggest threat to meaningful reform. We closed with more music, and then 75 of us marched to Senator Bayh’s office a block away. The march made for particularly good TV footage. Thirty of us were able to get into his office and spent a surprisingly good hour with his chief of staff, as the Senator was in DC.

Should WellPoint return to non-profit status and is that part of our PNHP mission and message? In Indiana it’s an effective way to put our local insurance behemoth on the spot, and to get the media to spread our message that the insurance giants are the real enemy of healthcare reform. For those of you in Minnesota (United Health), Kentucky (Humana), Connecticut (Cigna and Aetna), California (HealthNet), Maryland (Coventry), or wherever, the strategy will be different. Confronting the local face of the for-profit health insurance industry has been a successful approach to raising awareness in our state, motivating our supporters, and putting the insurance gang on the defensive.

We’ll be back at WellPoint again next year. We’re all looking forward to it.

People Get Ready, performed by Carrie Newcomer 5/20/09

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If Not Now, Tell Me When, written and performed by Carrie Newcomer

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More Small Firms Drop Health Care

By Dana Mattioli
The Wall Street Journal
May 26, 2009

Accelerating health-care premiums and sharp revenue shortfalls due to the recession are forcing some small companies to choose between dropping health insurance or laying off workers — or staying in business at all.

About 10% of small businesses are considering eliminating coverage over the next year, up from 3% in 2005, according to a recent survey by National Small Business Association.

That follows earlier declines in coverage, with just 38% of small businesses providing health insurance last year compared to 61% in 1993, according to the trade group. A Hewitt Associates survey found that 19% of all companies plan to stop providing health-care benefits in the next three to five years.

http://online.wsj.com/article/SB124329442612051953.html

Rampant health care cost escalation is a problem for everyone. In bad economic times the problems are compounded, threatening the viability of employer-sponsored coverage. Small businesses that operate on very narrow margins have no choice but to reduce health benefits by either shifting more of the health care costs to their employees, or by eliminating health plans altogether. The fault lies not with the small business owners, but with the flawed U.S. system of financing health care.

The recent Medicare trustees report indicates that Medicare is facing similar economic challenges. But there is a very crucial difference. Everyone recognizes that the high costs of Medicare reflect the excessive rate of increases in total health care spending, and that runaway costs must be harnessed. The stewards of Medicare would never consider reducing legitimate health care benefits, or worse, eliminating many Medicare beneficiaries from coverage.

The point is that the structure of the financing system really matters. We can have a system in which individuals or employers are forced by economic circumstances to reduce or eliminate the financing of essential health care services, or we can have a system in which the government is forced by economic circumstances to demand greater efficiency by the health care delivery system so that everyone can have the health care that they need.

Unfortunately, members of Congress are moving forward with a model that will leave individuals and employers financially vulnerable for our health care needs – a patchwork of private plans and public programs that grow ever less affordable for most of us.

The model that would work is a single payer national health program. But last week, after a recital of several options that are still on the table, Sen. Baucus finally admitted, “Just to be honest, (single payer) is not on the table because it cannot pass.”

Hmmm… bad policies can pass but good policies can’t? Is there something wrong with the way Congress operates?

The Democratic National Committee (DNC), at its Organizing for America website, barackobama.com, has initiated nationally coordinated local events in June, the “Health Care Organizing Kickoff.”

Organizers will call local contacts using an “Invite Call Script:”

“For decades, health care reform has been blocked by special interest lobbying and political point-scoring in Washington. We’re doing everything we can to make sure real reform happens this year. We’re starting by doing something real here in our own community.”

The DNC hope is to solicit personal stories “about the importance of health care reform in your life” and to organize house parties to discuss the President’s “principles” and to plan volunteer activities on the weekend of June 27, a “local Health Care Day of Service.” Participants will be asked to “brainstorm” about volunteering for a day at a community health center, or hosting an SCHIP education program, or holding a blood donation drive, or running “a healthy food drive/health care fair.”

Back in December the Obama-Biden transition team organized thousands of “Health Care Community Discussions.” The President-elect (with Tom Daschle) issued a call for “health care reform that comes from the ground up.”

As the community meetings occurred, PNHP received a flood of reports from participants that single payer was the unanimous recommendation from hundreds of gatherings. The official report confirmed that single-payer reform was discussed by 27% of 3,276 house parties (at least 884 meetings) and admitted that “the majority of those groups supported this idea.”

This support came in spite of the fact that participants and moderators were instructed to follow a script that appeared custom-tailored to keep single payer out of the discussion. The official instructions offered reform based upon employer-sponsored health insurance as the only option:

“In addition to employer-based coverage, would the group like the option to purchase a private plan through an insurance-exchange or a public plan like Medicare?”

Even so, more than 1 of 4 meetings proposed that a single publicly financed national health program was the answer to the American health care crisis.

The transition team report blamed the popularity of single payer on “encouragement by advocacy groups,” characterized the proposal as “radical change” and devoted about one solitary page in a 122-page document, enough to dismiss single payer proposal and its advocates. So much for health reform that comes from the ground up.

This year a nationwide movement for single payer national health insurance has taken root progressively. At every turn — from the White House summit to the regional White House forums to the Senate Committee on Finance to the halls of the Capitol to our home congressional districts — single payer advocates have been there. So often now we are the only ones at the meeting not paid to attend. Our movement has grown strong enough to inspire righteous and dignified civil disobedience.

Obviously it is time for the Democratic National Committee to “kickoff” and do “something real” for “real reform.” Let us hope that millions join the campaign. Really.

Imagine a day of service in which volunteers organize a free personal bankruptcy clinic, or a bus trip to Canada to purchase prescription drugs, or an advance-planning workshop about Medicaid enrollment to cover nursing home costs, or a session on how to appeal the hospital bill, or a day of tabulations of insurance industry profits, overhead and campaign donations, or a seminar on how to raise the most money — raffles, dances and bake sales — when the volunteer fire company goes all out for the local child with leukemia who has exhausted the parents’ insurance benefit…

The majority of the nation knows that the only proposal that will fulfill your principles, Mr. President — reduce costs, expand our choice of health care provider and give access to excellent health care to everyone — is a single payer national health program.

Mr. President, your nation needs you to get real, get back to health reform that comes from the ground up and keep the promise:

“The system we have now might work for the powerful and well-connected interests that have run Washington for far too long, but I don’t. I work for the American people. I didn’t come here to do the same thing we’ve been doing or to take small steps forward, I came to provide the sweeping change that this country demanded when it went to the polls in November.”
— President Obama, February 28, 2009, “Keeping Promises.”

Health Care Reform Newsmaker Series: Sen. Max Baucus

Kaiser Family Foundation
May 21, 2009

John Reichard, CQ HealthBeat: I understood you to say, Senator, that you don’t expect to get to universal coverage, that you’re going to get it as close as you possibly can. Is that correct, and then, if so, what does that mean in terms of the ability to keep the health insurance industry at the table? You know, they’re saying that an individual mandate is necessary for guaranteed issue and rating reforms. Do those things then go away?

Senator Max Baucus: Oh, not at all. As a matter of fact, they’re very much there, and you’re correct in your sort of implications. A key to this is everyone having health insurance. It’s very, very hard to accomplish our objectives without everybody having health insurance. A primary objective is that everybody should have health insurance. That’s an objective in itself. Without that then… groups falling out, then it’s much more difficult to accomplish delivery system reform. We want the public and private health providers to be basically working together on delivery system reform. One way to get at that is to work with CMS.. work with the private sector. We want metrics, quality metrics so that CMS, Medicare and other providers are kind of working off the same page.

When I say we won’t get full universal coverage, CBO tells us we’ll get up to 94, 96 percent. There are always are going to be some people who just, you can’t find them, you know, don’t get health insurance. You never attain perfection. And this is going to be good. I think 94, 96 percent is pretty good. There will be, like undocumented aliens for example. We’re not going to cover undocumented… undocumented workers. That’s too politically explosive. But the main point that you want to make, the main point you are making is we will get near universal coverage. I like that word. Nearly everyone is going to have health insurance.

http://www.kff.org/healthreform/hr052109video.cfm

So according to Sen. Baucus, a key to reform is “everyone having health insurance.” By that he means that everyone will have health insurance – except the 12 to 18 million who won’t. That’s “pretty good,” he says.

Under single payer, instead of assigning an insurance product to each individual, everyone is automatically provided the health care that they need. They provide only their identification when they access care. Those individuals that you “can’t find” in advance will still receive care when they show up with medical needs. In a single payer system, everyone means everyone – no exceptions.

Injecting the immigration issue into the dialogue on health care reform is a very unfortunate diversion. Should undocumented immigrants be included? That happens to be an easy question for me. I’m a physician. Everyone who needs health care should get health care. Period.

There should never be any test applied to any individual that would disqualify him or her from receiving the health care that he or she needs. In my opinion, that includes immigration status, financial status, but especially the possession of an arbitrary document – a health insurance policy – that has a total disconnect with whether or not the person needs health care. Yet Sen. Baucus would use that “uniquely American” disconnect to leave about 15 million people out of the system, give or take a few million, even though that would cost more to do than to adopt a single payer system that would automatically include absolutely everyone.

2009 Milliman Medical Index

Milliman, Inc.
May 2009

The fifth annual Milliman Medical Index (MMI) measures average annual medical spending for a typical American family of four covered by an employer-sponsored preferred provider organization (PPO) program.

The total 2009 medical cost for a typical American family of four is $16,771.

http://www.milliman.com/expertise/healthcare/products-tools/mmi/pdfs/milliman-medical-index-2009.pdf

The Milliman Medical Index (MMI) provides us with a very important measure of health care spending in the United States. For 2009, average annual medical spending for a typical American family of four covered by an employer-sponsored preferred provider organization (PPO) program is $16,771. That number should be front and center in our national dialogue on reform. It is important that we understand what it means.

Over 160 million of us receive our health care coverage through an employer. This sector is the healthy workforce and their young healthy families. This is the largest and least expensive sector to insure. It is the sector that we have presented to the private insurance industry either to insure risk or to provide administrative services for self-insured employers.

Group insurance wastes less on non-medical services than does insurance for individuals or small employers. So between the greater efficiency of employer-sponsored plans, and the low-cost, healthy status of the population insured, the spending on this group (represented by the MMI) shows us the best value that we can expect under our current multi-payer system of financing care.

The MMI is nominally broken down into an employer contribution ($9,947), an employee contribution ($4,004), and employee out-of-pocket costs ($2,820). But virtually all economists agree that the employer contribution is paid by the employee in the form of forgone wage increases. So the entire $16,771 represents the average health care costs for a family of four covered by an employer-sponsored PPO. That is what the average family is actually paying today.

Since this is average, those families with greater medical expenses are actually paying more in out-of-pocket costs. So reform proposals need to take into consideration not only the average $16,771 per family, but also the additional costs for those families with greater health care needs.

It is also important to understand that that the combined employer and employee contributions ($9,947 + $4,004 = $13,951) do not represent the premiums paid. Although the average family is defined as a family with an employer-sponsored PPO, the PPO reflects only the fact that the health care system provided discounts for the care provided. The employer and employee contributions represent the actual payments made for health care (minus the out-of-pocket spending). The MMI specifically excludes the non-medical administrative component of health plan premiums.

Read that again. The MMI ($16,771) represents the actual payments to the health care delivery system and excludes the funds retained by the insurance industry for administrative costs and profits.

Many in the policy community believe that health care costs that exceed 10 percent of family income create a financial hardship for that family. Based on the MMI, the average family with an employer-sponsored PPO would have to have an income of $167,710, though adding the administrative costs of private plans plus any additional out-of-pocket spending that might be required would drive that income threshold further upward.

The 2007 median household income was $50,233. Although that does not represent precisely the family of four with employer-sponsored coverage, it does give us a rough perspective of why the numbers no longer work. Any effective reform proposal based on private plans would have to provide taxpayer-financed subsidies for a typical family with an income below $167,000, plus additional subsidies for administrative costs, and even more subsidies for larger than average health care spending. That means that almost the entire workforce would require subsidies.

So what does the MMI tell us? Only an idiot would isolate the largest and healthiest sector of society into the collective employer-sponsored risk pools, assign a package of benefits to each family, assess contributions to be paid based on that package, shift all non-benefit costs to that family, add a hidden charge for wasteful administrative services, and still leave many families exposed to financial hardship. What does that say for those members of Congress who are hashing out this model of health care reform behind those closed doors?

We need a health care financing system that is funded equitably, based on ability to pay, and that uses the power of our own public monopsony to be certain that each of us receives the care that we need. The MMI tells us that it’s time to enact a single payer national health program.