United States Congress
Joint Economic Committee
February 25, 2004

Impact of “Consumer-Driven” Health Care on Consumers Testimony of Gail Shearer, Director, Health Policy Analysis Washington Office of Consumers Union

Excerpts:

One way to reduce the employer premiums for health insurance, and to make
payments more predictable, is to switch to a “defined contribution” approach
to health insurance… In the employer health insurance market, a key dstinguishing feature of its effort to move toward a defined contribution model is high-deductible coverage. As indicated by the title of the Joint Economic Committee hearing, the term that insurers and employers have coined to name this new trend in the marketplace is “consumer-driven health care.” Consumers Union… is troubled by this trend in the marketplace. In our testimony, we plan to explain why we believe this type of coverage is misnamed, misguided from a policy perspective, and a dangerous distraction from the health insurance crisis that faces 43.6 million uninsured consumers and tens of millions of underinsured consumers.

The focus of the President’s Economic Report chapter on health insurance is
more on the alleged problems of over-insurance rather than the problems associated with the lack of insurance and underinsurance. The chapter could
be a primer for a Health Economics 101 course on the virtues of an unfettered free market for health insurance: the reader learns about different consumption choices that consumers make when they have insurance. It posits that patients might over-consume services if they face too little cost-sharing.

Nowhere in this chapter is there recognition of the reality that faces millions of Americans every year: For the most part, people are not uninsured out of choice, but because they can not afford to pay health insurance premiums. Every day, uninsured and underinsured Americans are dying because of the lack of insurance.

When the marketplace shifts to one characterized by pricing to risk, as suggested by the President’s Economic Report, this leads to escalating premiums for the very people who can least afford them – people who face serious health challenges.

The Administration’s proposals, which boost “consumer-driven” health care,
by design, shift more costs to those who are sick. The result will ultimately be a health care system that distributes costs of health care even less fairly than it does today.

Based on survey data from the Medical Expenditure Panel Survey (MEPS) and
adjusted to 2000 levels (by the Lewin microsimulation model), the average
health care costs of those with employer based coverage was $2,628 in 2000.
However, the average masks a large degree of variation: those in the lowest
fifth of spending incurred on average $30 of health care expenditures, while
those in the top tenth of spending incurred costs of $16,710. This variation
of risk goes to the heart of the need to find a way to spread costs broadly
in order to keep costs affordable to those at the highest risk level. Yet the Economic Report of the President suggests that instead of spreading risks broadly so that health coverage will be affordable to those with existing conditions, “pricing to risk” is a primary goal of the health insurance marketplace. This approach sacrifices any notion of community and sharing of our neighbor’s burden, in favor of marketplace efficiency.

Expansion of medical savings accounts (MSAs) under the new name of Health
Savings Accounts (HSAs) adds a new wrinkle to “consumer-driven health care”
plans by making the contributions to the health reimbursement account tax
deductible. This new tax policy, combined with high deductible health coverage, is likely to appeal disproportionately to the healthy and wealthy.

Because of the variation of risks, and different selections made by people of different health status, high deductible plans can not exist in the long-term in a marketplace that offers low-deductible plans as well. Ultimately, low-deductible plans will be driven out of the market, with “premium spirals” driving out comprehensive coverage.

“Fundamentally, those who would likely win from shifting to MSA/catastrophic
arrangements are the healthy who will ‘take back’ some of their ‘excess’ contributions that effectively help to subsidize others.”

“The great savings will be for the employees who have little or no health care expenditures. The greatest losses will be for employees with substantial health care expenditures.”

A recent study of “consumer-directed health benefits” concluded that the young and healthy are potential winners, and that older people are less likely to choose high deductible plans.

In sum, high deductible coverage, combined with the new tax shelter, drive up premiums for those wanting low deductible coverage, are likely to lead to elimination of low-deductible coverage, strain the federal treasury, and will lead to shifting of costs to those who are sick while benefiting the healthy and those in high tax brackets.

As the President’s Economic Report clearly points out, high-deductible (and “consumer-driven”) health care plans are designed to increase out-of-pocket
costs for those who have health care expenditures.

Focusing on transforming our health care marketplace into a high-deductible marketplace is a dangerous distraction from the urgent national goal of extending affordable, quality health coverage to all.

For the full testimony:
http://www.consumersunion.org/pub/0225JECTestimonyNoSummary.pdf

Comment: High-deductible coverage, health savings accounts, defined contributions, and plans with Spartan benefits and greater cost sharing are all methods of “empowering the consumer” in the health care marketplace. In health care, an “empowered consumer” means that he or she feels the pain of health care costs. Current trends are intensifying this pain by “pricing to risk.” Those with greater health care risks are being required to pay higher prices if they “choose” to have access to health care. Those who cannot afford the higher prices will “choose” to have impaired health care outcomes (though no other real option is being offered).

Gail Shearer’s testimony should be downloaded and distributed widely. The
nation needs to understand why we should reject current policies that provide the healthy and wealthy with the option of not participating in the risk pools that help to fund care for the sick and poor.

The Boston Globe
2/24/2004
Vocal critic of abuse by clergy found dead
By Brian MacQuarrie

Patrick McSorley, a victim of defrocked priest John J. Geoghan who became one of the most visible critics of clergy sexual abuse, was discovered dead early yesterday in a North End apartment, his lawyer said yesterday.

A close friend said McSorley, 29, occasionally went to the apartment to take drugs owing to a chronic substance-abuse problem that had plagued him for several years.

“To think he had come this far and just to have it end so abruptly — it’s a tragic ending,” said the friend, Alexa MacPherson, 29,…

“I spent a lot of last summer and fall trying to help him get into a drug- rehabilitation program. He definitely was in need of some serious help,” MacPherson said. “There were days when we would spend 10, 12, 14 hours at . . . hospitals, trying to get him in. He wanted their help so badly, and we basically got turned away because he had no health insurance.”

http://www.boston.com/news/local/massachusetts/articles/2004/02/24/vocal_critic_of_abuse_by_clergy_found_dead/

Comment: “… turned away because he had no health insurance.”
Patrick McSorley may or may not be one of the 18,000 young adults who will
die this year merely because of the lack of health insurance. It is quite possible that his disease of chemical dependency may have been lethal even if he were insured. But now we’ll never know.

Some may want to blame the victim. Others may blame clergy abuse. The issues
are complex, as they are in every instance of preventable premature death. But we can very easily eliminate the factor of being insured and move on with efforts to correct the other individual and societal problems that culminate in these tragedies. Just that first step alone would save 18,000 young adult lives.

San Diego Trout
Accounts of Indians

Interview with Babe Ramos, a Native American of the Juaneno Band of the Acjachemen Nation, who was born in the Aguilar Adobe House (in San Juan Capistrano, CA where the Jack-in-the-Box is presently sited):

We asked Babe to talk about his life and to especially recall his or his brothers’ experiences around the steelhead in both the San Juan Creek and Trabuco Creek.

“In ’39 there was a big flood on the Trabuco, but lots of steelheads -they caught steelhead into the 1950’s. The last one I remember was in ’58.”

“I remember back oh, starting at 7 or 8 years old, with my brothers,Julian Junior, Aurelio, and Rudy, we wore uniforms to the Mission school. We weren’t supposed to – well Mother was strict about our uniforms, but one day after school before coming home we followed the creek, and jumped in – jumped in on a 30″ fish, a steelhead. We just had our pocket knife, and would jump in to them and bring them home. Mom, she saw us all wet and had that look – we were in for it, but when I took that big steelhead out from behind my back she showed a small, a little smile. They were very good to eat.”

“I guess (at age) 13 or 14 – I needed an operation right away, so my Dad took me to the closest hospital. Yes, my appendix. This was up in Anaheim, and we didn’t have money to pay for the doctor or hospital bill. Well that doctor told my Dad don’t worry about the hospital bill. Mom told me my end of the bargain was to take the doctor a steelhead once a week. Mom made sure to remind me to take that steelhead – which I did! That was in ’46.”

http://www.sandiegotrout.org/indians.html

Comment: What on earth is steelhead doing in a health policy message? Well,
first of all, steelhead fever is a life-long disorder that, unlike other diseases, dramatically improves quality of life. Any person reading this who has steelhead fever knows he or she has it and knows that the condition cannot be adequately explained to those people who don’t. It also seems to be a familial disorder since my sons have it as well.

That said, the plight of the steelhead in San Juan Capistrano exemplifies some of the dramatic changes resulting from ecological factors, especially in human ecology.

I arrived in San Juan Capistrano and San Clemente in July, 1966, the same month that Medicare and Medicaid provided coverage to many with health care
needs who could not otherwise afford to pay for it. The decimated steelhead
population could no longer serve as a source of payment for health care services, and other sources of barter were totally inadequate. Medicare
and Medicaid were a great advance forward in ensuring affordable access to
health care.

37 years later, what further advances have we made? Universality? Sustained
comprehensive coverage? Affordability? Accessibility? It seems that the dynamics of human ecology have not been very kind. We do have the resources. We do have the health policy knowledge on how to improve utilization of our resources. But we seem to lack solidarity and egalitarianism. Does it really have to remain that way?

Although a few steelhead have been spotted in Orange County in the past decade, sadly, human ecological factors will prevail. And what fate does human ecology hold for native Americans, for descendents of more recent European arrivals, and for all of the rest of us in the mix of the great American melting pot?

Maybe it’s time to turn to the sociologists to show us how to apply human ecology for the betterment of mankind, at least as it applies to health care. We can certainly continue to try to use what we have also learned from the economists, political scientists and others who have attempted to show us the light. There must be a solution. Steelhead bartering certainly won’t do it anymore.

Date: Mon, 23 Feb 2004 09:57:02 -0800
Does solidarity exist in the United States?

Los Angeles Times
February 23, 2004
State Cutbacks Harm Kids’ Health Program

Re “Budget Signals Narrowed Ambitions,” Feb. 18: Gov. Arnold Schwarzenegger’s finance director, Donna Arduin, suggests that expanding California’s Healthy Families insurance program for low-income children was indulging a policy whim. To the contrary, the state-federal Children’s Health Insurance Program is recognized widely as the one genuine health policy success of the last decade. Although the numbers of uninsured have continued to increase, they would be even greater without this program.

The political agenda on both the state and federal levels is to create nearly intolerable debt in place of modest taxation of significant private revenue sources. But the voters surely didn’t intend that more children be excluded from this essential health insurance program. Or did they?

Don McCanne MD
San Juan Capistrano

http://www.latimes.com/news/opinion/letters/la-le-priests23.2feb23,0,7725486.story?coll=la-news-comment-letters

And…

Los Angeles Times
February 23, 2004
In health, Canada tops U.S.

An impressive array of data shows that Canadians live longer, healthier lives than we do. What’s more, they pay roughly half as much per capita as
we do…

Exactly why Canadians fare better is the subject of considerable academic
debate. Some policy experts say it’s Canada’s single-payer, universal health
coverage system. Some think it’s because our neighbors to the north use
fewer illegal drugs and shoot each other less often with guns…

Still others think Canadians are healthier because their medical system is tilted more toward primary care doctors and less toward specialists. And some believe it’s something more fundamental: a smaller gap between rich and poor.

Perhaps it’s all of the above. But there’s no arguing the basics. “By all measures, Canadians’ health is better,” says Dr. Barbara Starfield, a university distinguished professor at Johns Hopkins Medical Institutions.

Gerald Kominski, associate director of the UCLA Center for Health Policy Research, puts the Canadian comparison this way: “Are they richer? No. Are
they doing a better job at the lower end of the income distribution? For
lower-income individuals, they are doing a better job.”

“The summary of the evidence has to be that national health insurance has
improved the health of Canadians and is responsible for some of the longer
life expectancy,” says Dr. Steffie Woolhandler, an associate professor at
Harvard Medical School and staunch advocate of a single-payer system.

Of course, some causes of death, such as homicide, wouldn’t be much affected
by having a single payer system.

“Other things might be differences in seat belt usage,” adds Robert Blendon,
a professor of health policy and political analysis at the Harvard School of
Public Health. “We are also disproportionate consumers of illegal drugs… ”

The health of Americans would be better with universal healthcare, he says.

The bottom line is that Canada is doing something right, even if “the reasons are not totally understood,” says Kominski of UCLA.

http://www.latimes.com/features/health/la-he-canada23feb23,1,6443349.column?coll=la-headlines-health

Comment: Although there are many differences between the United States and
Canada, there is absolutely no dispute that affordable access to comprehensive health care has improved health care outcomes in Canada. How have they been able to achieve so much more at a significantly lower cost? Based on the well documented, universal support of their medicare system, Canadians have demonstrated the importance of national solidarity.

Does solidarity exist in the United States? Some believe that it is only a matter of educating the public. If people really understood that we could raise the standards for lower-income individuals with relatively modest public support, then we would unite in solidarity.

But many states have had ballot measures that required voters to choose between taxes or the necessity to reduce public programs for the most vulnerable citizens. The results have revealed our dirty secret. Of all ndustrialized nations, the people of the United States are unique in lacking solidarity. Is it possible for us to change that?

The Progressive
February 2004
Gouging the Poor
By Barbara Ehrenreich

There’s been a lot of whining about health care recently: the shocking cost of insurance, the mounting reluctance of employers to share that cost, the challenge–should you be so lucky as to have insurance–of finding a doctor
your insurance company will deign to reimburse, and so forth. But let’s look
at the glass half full for a change. Despite the growing misfit between health care costs and personal incomes, it is not yet illegal to be sick.

Not quite yet, anyway, though the trend is clear…

… it’s not just the dodgier, second-rate hospitals that are relying on the police as collection agents. Yale-New Haven Hospital, for example, has obtained sixty-five arrest warrants for delinquent debtors in the last three years.

Of course, if you work for Yale-New Haven, it’s not your body that gets “attached.” On a recent visit to Yale hospital workers, I met Tawana Marks, a registrar at the hospital, who had the misfortune to also be admitted as a patient. Unsurprisingly, her hospital-supplied health insurance failed to cover her hospital-incurred bill, so Marks now has her paycheck garnished by her own employer–a condition of debt servitude reminiscent of early twentieth century company towns.

But for those of you who still imagine that illness and pain should elicit kindly responses from one’s fellow humans, I have one last half full observation: Our prisons do offer health care–grossly inadequate care to be sure–but at least it’s free, even for child molesters, ax murderers, and those miscreants who have the gall to be both sick and uninsured.

http://www.progressive.org/feb04/ehr0204.html

And…

The New York Times
February 20, 2004
Hospitals Can Provide Discounts to Uninsured and Needy Patients, Bush
Administration Says
By Robert Pear

The Bush administration encouraged hospitals on Thursday to give discounts
to uninsured patients and to financially needy Medicare beneficiaries. Such discounts are permissible under federal fraud and abuse laws, the government said, in a clarification requested by the hospital industry.

The new guidelines are a bit stricter for Medicare beneficiaries than for uninsured patients.

Consumer groups say the billing practices of some hospitals have been too aggressive. Medicare will pay hospitals for a share of their bad debt if they make “reasonable efforts” at collection, but the Bush administration said hospitals did not have to seize patients’ homes or other assets.

http://www.nytimes.com/2004/02/20/politics/20INSU.html

Comment: Routine discounting of fees for the uninsured and routine waiving of deductibles for the insured are usually prohibited by Medicare and by private insurance provider contracts. Third party payers rely on deductibles as disincentives, in order to reduce utilization of health services. Also, contracts are usually granted at rates below the usual fees charged. Routine discounts establish a lower usual fee than the list prices that then would be rarely collected. Thus Medicare and private insurance contracts have prohibited the routine waiving of list prices and deductibles.

The result was fully predictable. Aggressive collection practices have continued in order to demonstrate compliance with these requirements, whether it is for fear of reprisal or as an excuse to improve collection ratios. Personal bankruptcies because of medical bills have become commonplace. And non-payment of medical bills has even been criminalized by legal mechanisms such as “body attachment.”

It is a relief that the Bush administration does recognize the seriousness of the inability of many individuals to pay for essential medical care, even though they are hedging on the Medicare requirements. But rather than merely reducing penalties against providers for failing to aggressively pursue bill collection, wouldn’t it be better to find a way to provide everyone with comprehensive health insurance? Unfortunately, the current official position of the Bush administration is that it can’t be done.

We can show them how.

Los Angeles Times
February 18, 2004
Budget Signals Narrowed Ambitions
By Peter Nicholas and Virginia Ellis

For decades, California distinguished itself by pioneering easy and inexpensive access to college and championing broad medical coverage and a generous financial lifeline for the poorest families.

Now, driven by financial necessity, political leaders are redefining California’s government, positioning it as a follower instead of a leader.

Even as California’s finances were strained by the dot-com collapse, former
Gov. Gray Davis plowed resources into the subsidized health insurance program for poor children, Healthy Families (California’s SCHIP program). Enrollment rose from about 100,000 to 700,000.

Donna Arduin, Schwarzenegger’s finance director, questioned the sincerity of
recent officials who had approved such largess. With no steady source of money for the expansion, the state was not so much preserving a progressive legacy as indulging a policy whim, Arduin suggested.

“If the policymakers that preceded our being here had a long-term plan for those programs, the argument would be much stronger that these were the priorities of the state,” Arduin said in an interview. “I don’t see that long-term funds were planned and made available to keep these expansions going.”

In navigating the financial crisis – preserving essential services while wiping out the state’s deficit – California may yet prove to be a model for the rest of the country, she added.

http://www.latimes.com/news/local/la-me-budget18feb18,1,1991364.story?coll=la-home-headlines

Comment: The only truly significant advance in health care reform in the past decade was the federal enactment of the State Children’s Health Insurance Program (SCHIP). Intensive enrollment efforts within the states were effective in providing health care coverage for low income, uninsured children. Although the total numbers of individuals without insurance continued to increase, the numbers would be even greater without this program.

There was bipartisan consensus that this program was worthy of tax support, and that the long term plan was to continue to fund it through tax revenues. A separate issue in California is that one-third of the members of either the Assembly or the Senate can prevent approval of the state budget. As we are seeing on the federal level as well, this partisan element is forcing us into nearly intolerable debt in order to prevent modest taxation of significant private revenue sources.

Donna Arduin, who slashed Gov. Jeb Bush’s budget, is now swinging the cleaver in California. She, with Gov. Schwarzenegger’s blessing, considers tax supported health insurance for low income children to be “indulging in a policy whim.” Is this really the change that Californians voted for? Excuse me; I’m nauseated.

Don

The Age
February 19, 2004
Private health insurers are on shaky ground
By Kenneth Davidson

Despite the billions of dollars the Howard Government has poured into private health insurance with no better purpose than to destroy Medicare as a universal system, the future of the private health insurance industry is by no means assured.

It is a myth that the 30 per cent private health insurance rebate has led to an expansion in private health insurance. Neither the penalty 1 per cent tax surcharge for those on incomes above $50,000, which was introduced in July
1997, nor the 30 per cent subsidy effective from January 1999 had a discernible impact in increasing the percentage of the population with private health cover.

This suggests that the 30 per cent subsidy to private health insurance was a
waste of money – a straight income transfer to the mainly rich who already
had private health insurance.

Based on surveys that show that Australians are prepared to pay higher taxes
if they are geared to extra services such as Medicare, (University of Canberra health economist Ian) McAuley observes: “Most people who arrange health insurance deductions from their pay packet probably don’t care that much whether the deductions are made to HCF, Medibank Private or the Australian Taxation Office.”

But then again they might, if they understood that 11.3 cents of every dollar raised by the private health funds is spent on administration, compared with 4.8 cents of every dollar spent by Medicare.

If the nexus between private health insurance and private medicine can be broken in the minds of the public, the private health insurance industry would have a much diminished future – despite its powerful friends in high places.

http://www.theage.com.au/articles/2004/02/18/1077072708014.html

Comment: Australians now are understanding that private insurance plans, which have been granted government subsidies, are a scheme to destroy their medicare as a universal system of funding health care.

In spite of our record-setting budget deficits, the Bush administration has just provided the private Medicare Advantage plans with a massive infusion of our taxpayer dollars, paying them much more per patient than they would cost in our traditional Medicare program. The Australian experience demonstrates what a terrible idea this is.

Let’s cut the gift of taxpayer funds to these private Medicare Advantage plans and, instead, spend the funds on a better Medicare program, beginning with a genuine prescription drug benefit for all of us.

Message: 2
Date: Wed, 18 Feb 2004 10:23:14 -0800
Subject: qotd: The reference for today’s “quote” on Australia’s
private health plans

Australian Healthcare Association and
Australian Consumers’ Association
January 2004
Stress on public hospitals – why private insurance has made it worse A discussion paper by Ian McAuley, University of Canberra, for the Australian Consumers’ Association and the Australian Healthcare Association

Conclusion

Private health insurance is the wedge the Government has used to break the
universalism of Medicare. It has failed even its stated objective of shifting the burden of health service delivery from the public to the private sector.

Proposals to make private insurance work to provide equitable and efficient
outcomes are bound to fail. There is little policy sense in using a high cost financial intermediary to achieve what can be so much more easily achieved through taxation and Medicare – with their low collection costs, built-in progressivity, and capacity to control cost and resource allocation.

The confusion of the issues of public funding and public provision has given rise to a policy assumption that private hospitals must necessarily be funded through private insurance. This confusion serves vested interests, for it means that any proposal to reduce subsidies for private insurance can be framed as a proposal to do away with ‘the private health system’. The main purpose of this paper has been to expose that fallacy.

The report summary:
http://www.aha.asn.au/publications/publication_details.asp?pid=86

The full report:
http://www.aha.asn.au/documents/publications/86/040216%20Private%20hospitals%20private%20insurance%20(McAuley).pdf

Economic Report of the President
and
The Annual Report of the Council of Economic Advisors
February 2004

Chapter 10
Health Care and Insurance

This chapter discusses the roles of innovation, insurance, and reform in the health care market. The key points in this chapter are: U.S. markets provide incentives to develop innovative health care products and services that benefit both Americans and the global community.

. Over reliance on health insurance as a payment mechanism leads to an inefficient use of resources in providing and utilizing health care.

. Reforms should provide consumers and health care providers with more flexibility and information.

http://www.gpoaccess.gov/eop/index.html

And…

The New York Times
February 17, 2004
The Health of Nations
By Paul Krugman

The Economic Report of the President, released last week, has drawn criticism on several fronts. Let me open a new one: the report’s discussion of health care, which shows a remarkable indifference to the concerns of ordinary Americans…

When I saw that the president’s economic report devoted a whole chapter to
health care, I assumed that it would make some attempt to address these public concerns.

Instead, the report pooh-poohs the problem. Although more than 40 million
people lack health insurance, this doesn’t matter too much because “the uninsured are a diverse and perpetually changing group.” This is good news? At any given time about one in seven Americans is uninsured, which is bad enough. Because the uninsured are a “perpetually changing group,” however, a much larger fraction of the population suffers periodic, terrifying spells of being uninsured, and an even larger fraction lives with the fear of losing insurance if anything goes wrong at work or at home.

The report also seems to have missed the point of health insurance. It argues that it would be a good thing if insurance companies had more information about the health prospects of clients so “policies could be tailored to different types and priced accordingly.”

Having brushed off the plight of those who, for economic or health reasons, cannot get insurance, the report turns to a criticism of health insurance in general, which it blames for excessive health care spending.

Is this really the crucial issue? It’s true that the U.S. spends far more on health care than any other country, but this wouldn’t be a bad thing if the spending got results. The real question is why, despite all that spending, many Americans aren’t assured of the health care they need, and American life expectancy is near the bottom for advanced countries.

Where is the money going? A lot of it goes to overhead. The result is that American health care, which at its best is the best in the world, offers much of the population a worst-of-all-worlds combination of insecurity and high costs. And that combination is getting worse:insurance premiums are rising, and companies are becoming increasingly unwilling to offer insurance to their employees.

What would an answer to the growing health care crisis look like? It would surely involve extending coverage to those now uninsured. To keep costs down, it would crack down both on drug prices and on administrative costs. And it might well cut private insurance companies out of the loop for some, if not all, coverage.

But the administration can’t offer such an answer, both because of its ideological blinders and because of its special interest ties. The Economic Report of the President has only negative things to say about efforts to hold down drug prices. It talks at length about insurance reform, but it mainly complains that we rely too much on insurance; it says nothing about either expanding coverage or reducing insurance-company overhead. Its main concrete policy suggestion is a plan for tax-deductible health savings accounts, which would be worth little or nothing to a vast majority of the uninsured.

http://www.nytimes.com/2004/02/17/opinion/17KRUG.html

Comment: Perhaps the easiest way to attack the dual problem of high health care costs with a grossly inadequate system of insurance is to condemn our over reliance on insurance. That takes care of the healthy and wealthy. But what do we do about those with health care needs?

Perhaps the easiest solution is really in the opposite direction – provide comprehensive coverage for everyone.