Healthcare reform penalizes married couples, says report

By Julian Pecquet
The Hill, October 27, 2011

The report concludes that fewer than 2 million couples — out of 60 million nationwide — are projected to benefit from the insurance subsidies, while “almost half of the beneficiaries of the tax credit will be unmarried individuals without dependent children.”

One reason is that subsidies, which start in 2014, are tied to the federal poverty level, which does not increase proportionally along with household size.

Another problem is a snafu in the law that The Hill first reported back in July.

The law offers insurance subsidies for workers if their employer doesn’t provide affordable coverage, but proposed regulations released in August peg that affordability to individual, not family, coverage. As a result, a worker’s spouse and children would not have access to subsidies if that worker were offered affordable coverage — even if the worker could not afford the family coverage offered by the employer.

The American Academy of Pediatrics is spearheading a sign-on letter to the Centers for Medicare and Medicaid Services (CMS) that decries a “family penalty” that will “negatively impact the opportunity to access quality health insurance for significant numbers of children.”

http://thehill.com/homenews/house/190105-healthcare-reform-penalizes-married-couples-says-report

This is yet one more example of the fundamental strategic flaw of trying to design reform to fit a fragmented system of private health plans and public programs. Instead of a complex set of rules which are designed to protect the insurance industry, it would have been so much easier and much more efficient to design reform around the patient instead by simply declaring that everyone is covered by a single comprehensive program that is equitably funded. We can still do that.

By James Livingston
The New York Times, October 25, 2011

AS an economic historian who has been studying American capitalism for 35 years, I’m going to let you in on the best-kept secret of the last century: private investment — that is, using business profits to increase productivity and output — doesn’t actually drive economic growth. Consumer debt and government spending do. Private investment isn’t even necessary to promote growth.

This is, to put it mildly, a controversial claim. Economists will tell you that private business investment causes growth because it pays for the new plant or equipment that creates jobs, improves labor productivity and increases workers’ incomes. As a result, you’ll hear politicians insisting that more incentives for private investors — lower taxes on corporate profits — will lead to faster and better-balanced growth.

The general public seems to agree. According to a New York Times/CBS News poll in May, a majority of Americans believe that increased corporate taxes “would discourage American companies from creating jobs.”

But history shows that this is wrong.

Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent. Meanwhile, net business investment declined 70 percent as a share of G.D.P. What’s more, in 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor.

In other words, over the course of the last century, net business investment atrophied while G.D.P. per capita increased spectacularly. And the source of that growth? Increased consumer spending, coupled with and amplified by government outlays.

The architects of the Reagan revolution tried to reverse these trends as a cure for the stagflation of the 1970s, but couldn’t. In fact, private or business investment kept declining in the ’80s and after. Peter G. Peterson, a former commerce secretary, complained that real growth after 1982 — after President Ronald Reagan cut corporate tax rates — coincided with “by far the weakest net investment effort in our postwar history.”

President George W. Bush’s tax cuts had similar effects between 2001 and 2007: real growth in the absence of new investment. According to the Organization for Economic Cooperation and Development, retained corporate earnings that remain uninvested are now close to 8 percent of G.D.P., a staggering sum in view of the unemployment crisis we face.

So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.

Why, then, do so many Americans support cutting taxes on corporate profits while insisting that thrift is the cure for what ails the rest of us, as individuals and a nation? Why have the 99 percent looked to the 1 percent for leadership when it comes to our economic future?

A big part of the problem is that we doubt the moral worth of consumer culture. Like the abstemious ant who scolds the feckless grasshopper as winter approaches, we think that saving is the right thing to do. Even as we shop with abandon, we feel that if only we could contain our unruly desires, we’d be committing ourselves to a better future. But we’re wrong.

Consumer spending is not only the key to economic recovery in the short term; it’s also necessary for balanced growth in the long term. If our goal is to repair our damaged economy, we should bank on consumer culture — and that entails a redistribution of income away from profits toward wages, enabled by tax policy and enforced by government spending. (The increased trade deficit that might result should not deter us, since a large portion of manufactured imports come from American-owned multinational corporations that operate overseas.)

We don’t need the traders and the C.E.O.’s and the analysts — the 1 percent — to collect and manage our savings. Instead, we consumers need to save less and spend more in the name of a better future. We don’t need to silence the ant, but we’d better start listening to the grasshopper.

(James Livingston, a professor of history at Rutgers, is the author of “Against Thrift: Why Consumer Culture Is Good for the Economy, the Environment and Your Soul.”)

http://www.nytimes.com/2011/10/26/opinion/its-consumer-spending-stupid.html

Comment: 

By Don McCanne, MD

According to Professor James Livingston, the key to economic recovery is to use tax policy and government spending to redistribute income away from profits and toward wages so that it can be spent on products and services. So what does this have to do with health care?

Our current national policies have moved us in the wrong direction. The tax burden in the United States is one of the lowest of OECD nations. We are told that taxes need to be reduced further to enhance profits that can then be reinvested in our economy. Yet those profits are not being directed to consumer spending. Instead this surplus capital has been used in financial markets to wreak havoc on our economy. The billionaires scoop up more funds while the consumers have even less income to spend. What we need is an infusion of more funds into the economy – spending on real products and services, not on destructive financial instruments.

Health care is one of the most, if not the most, valuable sectors of our economy. Spending on health care is one of the better things that we can do. Yet our current policies are directed to shifting more of the costs to individuals with health care needs, with the result that there will be a decrease in health care purchasing simply because the health care consumer doesn’t have enough money.

Cutting back on spending in Medicare and Medicaid, and shifting to the new standard of unaffordable private underinsurance plans called for in the Affordable Care Act will deprive this important, beneficial sector of our economy of much needed consumer/government funds.

It has long been recognized that health care financing must be progressive if we are going to provide essential care for everyone. The retained corporate earnings and other stashes of wealth are crying out to be tapped to be moved back into our economy, whether it’s for health care or for the multitude of other essential needs that should be met in a well functioning society.

For the health care sector of our economy, we need equitable tax policies and government spending. An improved Medicare for all would work just fine. It would be good for our economy, and good for the health of each and everyone of us.

It’s Consumer Spending, Stupid

By James Livingston
The New York Times, October 25, 2011

AS an economic historian who has been studying American capitalism for 35 years, I’m going to let you in on the best-kept secret of the last century: private investment — that is, using business profits to increase productivity and output — doesn’t actually drive economic growth. Consumer debt and government spending do. Private investment isn’t even necessary to promote growth.

This is, to put it mildly, a controversial claim. Economists will tell you that private business investment causes growth because it pays for the new plant or equipment that creates jobs, improves labor productivity and increases workers’ incomes. As a result, you’ll hear politicians insisting that more incentives for private investors — lower taxes on corporate profits — will lead to faster and better-balanced growth.

The general public seems to agree. According to a New York Times/CBS News poll in May, a majority of Americans believe that increased corporate taxes “would discourage American companies from creating jobs.”

But history shows that this is wrong.

Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent. Meanwhile, net business investment declined 70 percent as a share of G.D.P. What’s more, in 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor.

In other words, over the course of the last century, net business investment atrophied while G.D.P. per capita increased spectacularly. And the source of that growth? Increased consumer spending, coupled with and amplified by government outlays.

The architects of the Reagan revolution tried to reverse these trends as a cure for the stagflation of the 1970s, but couldn’t. In fact, private or business investment kept declining in the ’80s and after. Peter G. Peterson, a former commerce secretary, complained that real growth after 1982 — after President Ronald Reagan cut corporate tax rates — coincided with “by far the weakest net investment effort in our postwar history.”

President George W. Bush’s tax cuts had similar effects between 2001 and 2007: real growth in the absence of new investment. According to the Organization for Economic Cooperation and Development, retained corporate earnings that remain uninvested are now close to 8 percent of G.D.P., a staggering sum in view of the unemployment crisis we face.

So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.

Why, then, do so many Americans support cutting taxes on corporate profits while insisting that thrift is the cure for what ails the rest of us, as individuals and a nation? Why have the 99 percent looked to the 1 percent for leadership when it comes to our economic future?

A big part of the problem is that we doubt the moral worth of consumer culture. Like the abstemious ant who scolds the feckless grasshopper as winter approaches, we think that saving is the right thing to do. Even as we shop with abandon, we feel that if only we could contain our unruly desires, we’d be committing ourselves to a better future. But we’re wrong.

Consumer spending is not only the key to economic recovery in the short term; it’s also necessary for balanced growth in the long term. If our goal is to repair our damaged economy, we should bank on consumer culture — and that entails a redistribution of income away from profits toward wages, enabled by tax policy and enforced by government spending. (The increased trade deficit that might result should not deter us, since a large portion of manufactured imports come from American-owned multinational corporations that operate overseas.)

We don’t need the traders and the C.E.O.’s and the analysts — the 1 percent — to collect and manage our savings. Instead, we consumers need to save less and spend more in the name of a better future. We don’t need to silence the ant, but we’d better start listening to the grasshopper.

(James Livingston, a professor of history at Rutgers, is the author of “Against Thrift: Why Consumer Culture Is Good for the Economy, the Environment and Your Soul.”)

http://www.nytimes.com/2011/10/26/opinion/its-consumer-spending-stupid.html

According to Professor James Livingston, the key to economic recovery is to use tax policy and government spending to redistribute income away from profits and toward wages so that it can be spent on products and services. So what does this have to do with health care?

Our current national policies have moved us in the wrong direction. The tax burden in the United States is one of the lowest of OECD nations. We are told that taxes need to be reduced further to enhance profits that can then be reinvested in our economy. Yet those profits are not being directed to consumer spending. Instead this surplus capital has been used in financial markets to wreak havoc on our economy. The billionaires scoop up more funds while the consumers have even less income to spend. What we need is an infusion of more funds into the economy – spending on real products and services, not on destructive financial instruments.

Health care is one of the most, if not the most, valuable sectors of our economy. Spending on health care is one of the better things that we can do. Yet our current policies are directed to shifting more of the costs to individuals with health care needs, with the result that there will be a decrease in health care purchasing simply because the health care consumer doesn’t have enough money.

Cutting back on spending in Medicare and Medicaid, and shifting to the new standard of unaffordable private underinsurance plans called for in the Affordable Care Act will deprive this important, beneficial sector of our economy of much needed consumer/government funds.

It has long been recognized that health care financing must be progressive if we are going to provide essential care for everyone. The retained corporate earnings and other stashes of wealth are crying out to be tapped to be moved back into our economy, whether it’s for health care or for the multitude of other essential needs that should be met in a well functioning society.

For the health care sector of our economy, we need equitable tax policies and government spending. An improved Medicare for all would work just fine. It would be good for our economy, and good for the health of each and everyone of us.

NOTE: The Swiss have a universal, highly regulated system of social insurance based on nonprofit private insurance plans. Many consider their system to be superior to ours and one that ours might eventually emulate. Though this message is long, you should save it if you don’t have time to read it now. It explains why an “ideal” system based on private health plans is not such a great idea after all.

OECD Reviews of Health Systems: Switzerland 2011

OECD, World Health Organization
Organization for Economic Cooperation and Development (OECD)
October 18, 2011

Chapter 2 – Health Insurance

(Excerpts)

In 1996, Switzerland implemented the Health Insurance Law (LAMal), which sought to achieve three main objectives: strengthening solidarity in the Swiss health system, containing health spending, and guaranteeing high-quality coverage.

2.1  General trends in the Swiss health insurance market

The Swiss health insurance market relies on regulated competition based on a set of key principles: health insurers cannot make profits on contracts for mandatory health insurance, consumers have free choice of insurer, and insurers are compelled to accept any applicant. The benefit basket covered by health insurance is defined at national level for all insurees and health insurers must offer the same premium to all enrollees with the same health insurance contract provided they are in the same age category and same region. Health insurers can propose optional health insurance contracts which provide lower premiums in exchange for higher deductibles or “managed care” contracts. Insurers can also offer “bonus” contracts, where insurees receive premium reductions if they do not claim any reimbursement from their insurance fund.

#  Swiss health insurance offers comprehensive coverage of health care

In principle, all medical treatments and diagnostics prescribed by doctors and dispensed by licensed professionals are covered, unless they are explicitly excluded from the benefit basket. Mandatory health insurance also covers the costs of medical care provided to patients receiving long-term care in institutions or at home.

After paying a deductible, patients contribute to the cost of care through coinsurance rates – usually 10% of costs – up to an annual ceiling.

“Rationing” has not been part of the political agenda. The level of user charges, however, is one of the highest in the OECD.

#  Consumers can choose between different options for health insurance plans

Ordinary contracts offer the highest level of financial protection against health care spending but also have the highest level of premiums. Other forms of health insurance contracts offer lower premiums with either higher deductibles or restrictions in the choice of doctor or hospital.

The take-up of ordinary plans has been continuously declining, first to the benefit of high-deductible health plans. However, since 2004, the popularity of plans with restricted choice of provider has increased dramatically, with the share of insurees choosing such plans (36.9%) now higher than ordinary plans (35.2%), high-deductible plans (27.9%) and bonus plans (0.1%).

#  Consumer choice has increased at cantonal level, in spite of market concentration nationally

#  Private supplementary health insurance covers one third of the population

2.2  The 1996 Health Insurance Law has strengthened solidarity, but health financing inequalities remain

#  Switzerland has reached universal coverage

Health insurers have been required to refuse payment for health care bills presented by negligent defaulters (366,000) until they have fully recovered unpaid premiums and related interests. In March 2010, the parliament revised the law with the objective of protecting people facing serious financial problems for paying premiums.

#  Health insurance premiums vary widely across and within cantons

These intra-cantonal premium differences persist because of insurers’ risk-selection activities and also because relatively few insurees switch insurers from year to year, although this number has been rising recently.

#  Public subsidies help some individuals and families pay health insurance premiums

By nature, non-income related premiums are very regressive. In 2008, premiums accounted for 11.8% of household income for the lowest income quartile and 3.4% for the highest income quartile.

The LAMal requires premium reductions of at least 50% for children and young adults in training in low and middle income households, but lets cantonal authorities define the thresholds used to define “low and middle income.”

Sixteen cantons fix a maximum percentage of households’ income to be spent on premiums and subsidise any additional amounts. While this limits the households’ effective burden, premium payments remain regressive.

It is worth noting that achieving horizontal equity in health financing is not an explicit policy goal in providing premium subsidies in Switzerland. Furthermore, subsidies do not address health financing inequities resulting in out-of-pocket expenditure, such as copayments and deductibles which are independent of household incomes.

#  Swiss patients face relatively high out-of-pocket payments for health care

Per capita out-of-pocket payments in Switzerland are significantly higher than in all other OECD countries: they are 60% higher than the United States and almost three times as high as the OECD average.

#  Out-of-pocket payments are usually regressive and thus the least equitable means to finance health care.

The fact that an increasing number of consumers are opting for high-deductible plans is very likely to increase user charges for “essential care” and weaken the solidarity of the health insurance system.

#  Contributions to the financing of health spending are inequitable

#  Financing health care is a high burden for low-income families

There is some indication that people forego health services due to high out-of-pocket expenditure, and that this is related to socio-economic status.

2.3  Competition in health insurance markets does not deliver all its promises

#  Switching rates are still low, though increasing in the recent period

#  Fragmentation increases administrative costs and premiums

Multiple fund systems, especially with small pools, often coincide with relatively higher administrative costs. Moreover, a risk equalisation mechanism also creates additional administrative costs. Switzerland has relatively higher administrative costs for both social and private health insurance. Those accounted for respectively 5.9% and 17.0% of total health insurance costs.

#  Health insurers mainly compete on risk-selection

Van de Ven et al. (2007) listed possible strategies for insurers to select good risks despite their obligation to accept any applicant. The list includes:

*  Marketing through targeted advertisements aimed at the healthier.
*  Selective contracting with providers (i.e., in managed care contracts) likely to attract the healthier who are more willing to accept limited provider choice.
*  Designing complementary insurance benefits packages and setting premiums such that low-risk individuals are attracted.
*  Exclusively offering contracts with high deductibles, which will offset higher risk individuals.
*  Establishing insurance conglomerates to channel new enrollees to specific contracts depending on their
health risks; this strategy most often works due to the huge number of different contracts on offer, limiting the consumer’s ability to be fully informed.
*  Identifying high risks via a health status declaration for those seeking complementary insurance.
*  Delaying reimbursements for chronically ill persons in order to make them leave the insurance.
*  Terminating insurance activity in areas with any high-cost patients.

Many of these strategies are indeed manageable options for Swiss health insurers. The extent to which they really use them is not easy to determine.

#  Managed care plans have taken off since 2006 but insurers only modestly “manage care”

The extent to which current managed care networks increase quality and efficiency in health care delivery is not well known. By nature, the impact of managed care is difficult to assess and disentangle from risk-selection, since these specific forms of contracts are known to attract people with good health risk profiles. Thus, age and gender adjusted comparisons of health care spending of managed care policy holders and other insurees are not sufficient to estimate savings achieved through managed care.

#  The inclusion of another risk factor into the risk-equalisation formula is a good step but may not be enough

Initially, the risk equalisation mechanism was based on two simple risk factors only: age and gender.

A new and third risk factor – hospitalisation beyond three days in the previous year – has been included in the risk equalisation formula and will be applied from January 2012 onwards. While this new factor will not fully avoid risk selection, it will now also be profitable for insurers to invest in product innovation, i.e. further develop managed care contracts.

(Single payer)

The high levels of fragmentation in a country with a small population raises questions about a single health insurer. In theory, a single insurer could pool risks more effectively. In light of risk equalisation mechanisms that are imperfect as long as there remain incentives for risk selection, a single insurer might in principle better ensure health financing equity across the population and strong purchasing, in addition to a tendency for lower administrative costs. Moreover, it provides incentives to focus more on prevention. A single insurer system thus has some important advantages. However, it has also its drawbacks, since it eliminates consumer choice, may inhibit innovation in insurance products or risk under-provision and rationing care when negotiated prices are too low.

Shifting from a multiple insurer system to a single insurer system is with no doubt a tremendous challenge, although Korea demonstrated that a step-wise merging into a single fund is possible. However, this is likely to be particularly difficult for Switzerland, which has a very long history of multiple insurers for over 100 years, a strong preference for choice, and as a reflection of its federalism, an attachment to cantonal organisation. Moreover, there are considerable transaction costs to consider, not least the question about where to place all staff from the current health insurers. Any such reform option thus needs to be critically assessed as to its overall financial implications, its practical implementation as well as political feasibility. In fact, the option of a single insurer in Switzerland has already been rejected several times so far by the population, although a new initiative was launched in 2011.

OECD Reviews of Health Systems: Switzerland 2011 (160 pages):
http://www.oecdbookshop.org/oecd/display.asp?sf1=identifiers&st1=9789264120907

Comment: 

By Don McCanne, MD

It is not clear why so many in the U.S. are enamored of the Swiss health insurance system when this OECD/WHO report confirms that it is highly inefficient and fragmented, with profound administrative waste, inequitably funded, with regressive financing and with wide variations in premiums, has the highest out-of-pocket costs, has an increasing prevalence of managed care intrusions, and is controlled by a private insurance industry that has learned how to game risk selection at significant cost to those on the losing end.

There is one bit of good news buried in this report. A single payer system would correct these deficiencies. Although the report mentions the drawbacks of eliminating consumer choice and inhibiting innovation in insurance products, these are actually advantages. The loss in consumer choice is the loss in the ability to choose from a large market of private health plans which often take away provider choice. Eliminating the plans returns choice of providers to the patient. Innovations in insurance products are designed to benefit the private insurers by gaming the system to the detriment of the patients. That’s innovation that they can do without.

The report also cautions that a single payer could “risk under-provision and rationing care when negotiated prices are too low.” This is a criticism of single payer systems that does have some merit, but it ignores the fact that this risk is even greater in privately insured managed care models. All systems face capacity and access problems, but the public stewards of a single payer system are in a position to act in the public interest, whereas private insurers use tools to deliberately obstruct access in order to reduce spending. Public single payer stewards are much more capable than private insurers of using capacity refinement and queue management to reduce the risk of under-provision (rationing) of care. It is true that conservative fiscal hawks, when they are in control, continually threaten excessive budget constraints, but the behavior in the private sector is much worse as ever more of the costs are shifted to those with greater health care needs, creating a formidable financial barrier to care. Our U.S. system of inhumanely rationing care by ability to pay is far worse than systems that struggle with capacity and queues because of budgetary limitations, especially when you consider that we already have by far the largest per capita health care spending of all nations.

The important take-home point is that an “ideal” social insurance program based on the mandatory purchase of highly regulated, nonprofit private health plans, such as that in Switzerland, is far from ideal in that it fails to prevent the flaws inherent in the private insurance model – including segmentation and fragmentation, costly administrative excesses and inefficiency, inequitable regressive financing, excessive premium variation, shifting of costs (risks) to patients in order to protect insurance plans, and, perhaps most fundamentally, rejecting a public service model in favor of a private business model that intrudes in the relationship of patients and their health care professionals and institutions by gaming the system for the primary purpose of achieving success as a business, while relegating serving patients to a secondary role.

In 2007, even though the Swiss understood the advantages of a single payer system, they rejected it in a ballot measure. The predominant reason was that 70 percent of the Swiss were not willing to trade their private insurance plans, which were perceived to be functioning fairly well except for high premiums, for a public program for everyone that they feared would be like their existing health welfare program for the poor, which most believed was plagued by bureaucratic inefficiency and cost overruns. They feared that they would be worse off in such a public program. In their campaign against the single payer proposal, the organization representing Switzerland’s private health insurers, santésuisse, deliberately mislead the public by modeling the single payer proposal as a welfare program that would be funded primarily by middle-inc
ome citizens, creating this widely held misperception that resulted in the measure’s defeat.

The Swiss voters will get another chance with a new initiative launched this year. The question is, when will we get our chance?