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By ANNA WILDE MATHEWS
The Wall Street Journal, August 2, 2012

Under pressure to squeeze out costs, some of the U.S.’s biggest health insurers are quietly erecting more hurdles for patients seeking medical care.

The companies are in many cases reaching back to the 1990s and boosting the use of techniques that antagonized patients and doctors alike.

Today’s approaches are tweaked, but may feel familiar to many: Insurers are rolling out plans with more restricted choices of doctors and hospitals, and weighing new requirements for referrals before patients can see specialists.

UnitedHealth Group Inc., Cigna Corp. and others are increasingly requiring doctors to get prior authorization before patients can get certain care such as spinal surgeries.

Earlier versions of these practices were closely identified with the managed-care era of the 90s. They later receded in many parts of the country, as employers switched away from restrictive health-maintenance organizations, and insurers backed off some limits.

Health insurers say today’s versions of 1990s strategies are very different, and use new technology to focus closely on improving care as well as reining in expenses.

UnitedHealth, for one, said it is using prior authorization “surgically” to counter “extreme variations in quality and cost.” But doctors aren’t sure how much things have changed.

“There seems to be a return we’re hearing about to some of the old practices that have been very frustrating to physicians,” said Jeremy A. Lazarus, president of the American Medical Association.

In its 2012 analysis of medical billing claims, the AMA saw a 23% increase in the share that included an insurer pre-authorization review, to 4.7%. For certain types of procedures, the percentage is far higher, according to athenahealth Inc., which provides electronic health records. Still, the company said, only 4.9% of all the prior authorization requests it processed were denied in 2011.

Erica Swegler, a family physician in Keller, Texas, said the growing number of prior authorizations she has to secure for treatments such as high-tech imaging scans “costs me a tremendous amount of time.” The approvals typically take 48 to 72 hours, and sometimes longer if she needs to have a phone conversation with an insurer, she said. “It’s a huge headache.”

Insurers are responding to pressure from employers to tamp down costs and address evidence of disparities in quality. In recent years, employers have shifted a growing share of the expense of coverage onto workers, and companies are betting employees will accept trade-offs they rejected 15 years ago in order to prevent premiums from jumping even faster.

“This is back to the future,” said Eric Grossman, a senior partner at Mercer, a consulting unit of Marsh & McLennan Cos. Employers are interested in “rigorous, aggressive medical management,” including prior authorization, as well as limited networks of health-care providers, he said. Some insurers have promised savings of 3% to 5% from narrow-network plans, he said, and reductions of more than 10% if other restrictions are added, including even fewer choices of medical providers, strong pre-authorization, and requirements for patients to get a referral to access specialty care.

Managed-care limits “did slow the growth of costs in the 1990s,” said David Cutler, a Harvard University economist. But after consumers and doctors revolted, “managed care got neutered.” According to the nonpartisan Kaiser Family Foundation, private health spending flattened in the 1990s, adjusted for inflation, and decreased in one year, 1994, before surging back toward the end of the decade. The foundation’s analysts attribute the dip largely to managed-care practices.

In a move widely seen as a symbolic end of the era, UnitedHealth in 1999 said it would stop second-guessing doctors’ decisions before treatment, and adopted a “care coordination” process that wasn’t supposed to require formal preclearance.

But this spring, UnitedHealth’s insurance arm, the nation’s biggest, told employers that over the next 18 months, care coordination will generally be replaced by a new “prior authorization” process, according to company documents prepared for clients.

For certain services and tests, including joint replacements and spine surgeries, the documents said, “services determined to be not medically necessary” beforehand wouldn’t be covered.

The shift discussed in the documents is aimed at moving to a common standard, and some plans acquired after 1999 were already using forms of prior authorization, a UnitedHealth official said. Insurers also said they are working with doctor groups to smooth the process.

Other insurers are expanding prior authorization in some areas, which they say are targeted narrowly based on patterns of pricey care that doesn’t always match medical guidelines.

WellPoint Inc. is developing a program for certain cancer drugs and this fall will start one for tests that diagnose sleep-related conditions. Aetna Inc. said it generally expects to use the process “more in the future, not less.”

Cigna started requiring prior authorization for certain back surgeries last year, and is considering procedures in radiation oncology and cardiology.

“It’s very low friction, it’s clinical quality, and we lower costs,” said Alan Muney, chief medical officer at Cigna, which he said has also in the past eliminated the requirements in some areas.

Care, a health-advocacy firm based in Milwaukee, has seen an uptick in patients like Sandi Kane, a community education director in Shawano, Wis., who says her doctor’s office submitted a request for a machine to help treat her sleep apnea in mid-June, and it’s been tied up in red tape since then. The administrator of her employer’s insurance wanted more documentation for why she needed the pricier model, and she still hasn’t gotten an approval, she said.

“There are just so many steps that need to be taken,” Ms. Kane said, and she feels caught in the middle between the recommendation of her doctor’s office and her plan’s rules. Alliance Benefit Group Medical Services Ltd., which administers Ms. Kane’s coverage under the Auxiant brand name, said it declined to comment on “individual plan participant matters.”

Insurers have been experimenting with smaller provider networks for years, and are now rapidly ramping up, though they continue to simultaneously sell typical broad preferred-provider organization plans. The narrower plans can have closed structures that work like the classic HMOs. But they also have “tiered” designs, with patients facing bigger out-of-pocket charges if they go to providers that aren’t in the top category, then even-larger bills if they go completely out of network.

Plans that include fewer medical providers are seen as likely to appeal to people shopping for their own budget-conscious coverage starting in 2014, since consumers may only need to lock in access to their own favored doctors or hospitals, rather than the broadest variety.

Insurers can reduce costs with narrow networks because they can exclude the priciest doctors and hospitals. Also, they can wring rate concessions from medical providers that fear losing patients.

WellPoint is “rolling out a number of narrow and tiered networks” across its markets, said Ken Goulet, executive vice president. These networks involve around 30% to 70% of the company’s full list of providers, he said. They will be available in six of WellPoint’s 14 states by the end of this year, and are aimed at all of them by January 2014, the company said.

Aetna has long had tiers for specialists, and last year added a new version for hospitals, with the smaller group generally representing 50% to 60% of the insurer’s full network. This year it started creating even skinnier—and cheaper—options that generally include just 30% to 40% of Aetna’s specialists and hospitals, said Carl King, the company’s head of national networks and contracting services. Those will be available in more than 20 markets by the end of next year.

Another 1990s twist, forcing patients to get sign-offs from primary-care doctors before seeing specialists, also may see a comeback. UnitedHealth last year introduced in four states a plan design called “Navigate” that has such a requirement, and the company is expanding it to 16 states this year and more in 2013; the company said it helps build the doctor-patient relationship to “emphasize quality care and more efficient use of care.”

WellPoint’s Mr. Goulet said his company, which is starting to pay primary-care doctors more to help coordinate care, is also considering more plans with such rules; it already has them in some older HMOs.

Insurers said current versions of old approaches are driven by better information, which helps them focus on improving care, not just saving money. The doctors and hospitals in the narrow networks are selected based on quality measures as well as cost, they say, while data help them ensure they use prior authorization only where it is needed.

“Technology is fundamentally different from what it was in the 1990s,” said John Wilson, vice president of analytics at UnitedHealth Group’s OptumInsight unit.

Write to Anna Wilde Mathews at anna.mathews@wsj.com

http://online.wsj.com/article_email/SB10000872396390444840104577552823507551472-lMyQjAxMTAyMDAwMjAwODI3Wj.html

By Paul Jay
The Real News Network, July 31, 2012

PNHP note: The following is an unofficial transcript of a video interview with Gerald Friedman, professor of economics at the University of Massachusetts, Amherst. Friedman recently prepared an economic impact study of how a single-payer system would affect the state of Maryland, a link to which you will find here. You can watch the 10-minute video interview corresponding to the text below here.

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.

The debate about health care is continuing. Supreme Court has found what people call Obamacare constitutional. It will come into full force in 2014. But proponents of what’s called single-payer health care or government-run health insurance plans are continuing to fight, and the evidence seems to be on their side. Those countries that have government health insurance plans, people live longer and the cost of the health care is less. Now the fight in the United States seems to be moving to the state level, because there doesn’t seem to be much that’s going to happen at the national level, at least in the foreseeable future. And one of those states is Maryland. And a recent study looks at what would single-payer health care look like in the state of Maryland.

And now joining us is the author of that study, Gerald Friedman. He’s a professor of economics at the University of Massachusetts in Amherst, and he did this study for Health Care for All Maryland. Thanks for joining us, Gerald.

GERALD FRIEDMAN, PROF. ECONOMICS, UMASS AMHERST: Thank you for having me.

JAY: So before we dig into some of your research, just sort of give us the bigger picture of why this would make sense for Maryland.

FRIEDMAN: Well, the big picture is that health insurance provided by competing private companies is inherently inefficient and destructive of people’s health. I mean, that’s a strong statement, but I think it is well founded.

The problem with private health insurance is that it’s not like selling shoes. If you’re a shoe company, you want to sell more shoes, you want to make a better quality shoe at a better price to attract more business. Health insurers don’t want more business. They want to get rid of sick people. Eighty percent of your costs as a health insurer are incurred for about 20 percent of your people. You know, in some places it’s 90-10 — 90 percent of your costs go to 10 percent of the people. If you can find those people, identify those people, and figure out a way to get them to go away, go to a different company, then you will be in a position to lower your prices and increase your profits. That is what health insurers try to do.

JAY: Let me interject for a second. There kind of is that in Maryland, is there not, where the state actually takes people that a lot of the private insurance companies don’t want and puts them through this Maryland plan.

FRIEDMAN: Yes, exactly, exactly. One aspect of — the president’s law, Obamacare, the Affordable Care Act, has provisions to try to restrict this behavior by companies. Until those provisions, the ban on pre-existing conditions, until that kicks in, states have been subsidized from the federal government to set up these care pools for special insurance for people who can’t get insurance otherwise.

Overall throughout the United States about 100 million people have some condition that an insurance company would look twice at or three times at before giving you insurance. Certainly if you’ve ever had cancer, insurance companies don’t want you. If you have HIV, insurance companies don’t want you. If you have an obsessive-compulsive disorder, a history of chronic depression, if you’re overweight, if you have heart disease, if you have high blood pressure —

JAY: Or if you’re pregnant.

FRIEDMAN: Or if you’re pregnant, that’s right, or if you’re pregnant, insurance companies don’t want you.

JAY: Unless they already have you. Like, if you haven’t been insured — and I happen to know this through personal experience recently — if you haven’t been insured, you can’t go out and get new insurance if you’re pregnant, except through this pool that the state creates. So isn’t this some form of indirect subsidy to the insurance companies? Like, we’ll take the most serious conditions, publicly finance them one way or the other, and you can keep your pool nice and profitable.

FRIEDMAN: Exactly. Exactly. The high-risk pool is a subsidy to the insurance companies during this interregnum until 2014 when the whole law kicks in, and then they are supposed to take everybody. But in fact they’ll still find ways. They’ll — the fastest-growing cost center in American health care is administration of the health insurance industry. That has risen in cost eightfold since the 1970s. And that — if you compare the United States and Canada, two-thirds of the extra increase in cost for health care in the United States is accounted for by rising administrative burden in the United States compared to Canada.

JAY: Now, I know in one of the papers you wrote, there’s a cartoon, and it’s kind of ironic, that one of the arguments against a government insurance plan is it would be too bureaucratic. But the facts don’t lead you there, do they?

FRIEDMAN: No, they don’t. They don’t. Just to give you the raw number, the cost of administering the existing Medicare system, the traditional fee-for-service Medicare, is 2 percent — that is, 98 cents out of every dollar that goes into Medicare goes out to pay for services, health care services. By contrast, the mandate in the Affordable Care Act is that insurance companies get up to 80 percent.

So the health insurance industry admits that it is ten times less efficient than Medicare. They have ten times as high an administrative burden in the private insurance system. And the reason they do that is not because they like to waste money; it’s that they use their bureaucratic apparatus to screen out sick people. They make it hard for you, they try to identify you, they try to scare you away from procedures that you need, in the hope that you will leave after a while.

JAY: I’ll give it a — I can give a — now let me just explain the parameters of all of this interview we’re doing for our viewers. We’re going to do a series one after the other where we’re going to dig into this proposal for Maryland and talk about this health care issue. So this is part one. And I won’t know how many parts it is until we get to the end.

I’ll give you one example recently. We’ve just had two little twins, and they’re in the neonatal unit, and the decision to move them from the neonatal unit to a lesser-care facility is essentially going to be made by the insurance companies. The insurance companies have people that are micromanaging these files, and they’re looking at exact — studying individual care of people and then deciding what the next step should be. I mean, they won’t fight it based on a hospital saying the hospital must keep the kid here, but they’ve created the criteria when the kid should move, not the hospitals.

FRIEDMAN: Yeah, yeah, as if they have a license to practice medicine. I mean, this is standard practice in America these days, that health insurers are practicing medicine, they’re dictating which drugs are approved on their list, so that if your doctor wants to prescribe a different — give you a different prescription, well, sure they can prescribe, but the insurance company won’t necessarily cover it. They say, no, you should take this other drug. They want to prescribe how long you’re going to stay in the hospital, which second opinion, which specialist opinions are needed, which procedures are appropriate. I mean, this is all done by insurance companies.

JAY: And let me add, because people that watch The Real News know I’m a dual citizen, and I still get health care in Canada as well, and you don’t get the micromanaging that — like this in the Ontario health care system, for example. There’s very broad parameters that are established by the insurance system, but then all the decisions are really made by doctors after that, not, you know, getting phone calls from the insurance company.

FRIEDMAN: And we see the difference. The United States and Canada had about the same life expectancy in 1971 when Medicare, Canada’s health insurance, was enacted. You know, about the same life expectancy, and we were both paying about 7.5 percent of our gross domestic product to pay for health care. So we have very similar situations.

Now, since then, Canada has added 6.5 years of life expectancy, compared to five years of life expectancy added in the United States. So Canadians now live longer than people in United States, a year longer, and Canada’s expenses have gone up to 10 percent of gross domestic product while we’ve gone up to 17 percent.

So we’re spending a lot, lot more to get less than Canada’s doing. The difference is the cost of administering these health insurance companies, all those people supervising the doctors, and all the time that the doctors have to spend dealing with the health insurers.

JAY: So I’m going to jump in. So we’re going to pick this up in part two of this series of interviews and we’re going to dig into this proposal for Maryland and just see where these cost savings would be and compare what a single-payer plan in Maryland would look like compared to the existing for-profit insurance plans. So join us for the next in this series of interviews with Gerald Friedman on The Real News Network.

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=8638

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What a single-payer health insurance plan looks like (cont’d)

Transcript of Part 2. You can watch the video version here.

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore, Maryland.

A recent study looking at a potential single-payer or government-run health insurance plan for Maryland comes to the conclusion there’d be enormous savings over the existing plan.

Now joining us to talk about all of this is Gerald Friedman. Gerald is a professor of economics at the University of Massachusetts Amherst, and he did this study for Health Care for All Maryland. Thanks for joining us again, Gerald.

GERALD FRIEDMAN, PROF. ECONOMICS, UMASS AMHERST: Thank you for having me.

JAY: So this is part two in a series. If you haven’t watched part one, well, you should, and then come back and watch part two.

So let’s dig in into your study and what you found. So you have a section on savings, and point one is administrative costs. So explain what you found there.

FRIEDMAN: Okay. Well, first of all, there are the administrative costs of the health insurers themselves, who devote a great deal of energy and resources to, first, screening people and supervising what doctors do in order to drive away people who will need extensive care.

The average health insurer in Maryland has what they call a medical loss ratio of 85 percent. Now, the medical loss ratio is the proportion of health insurance premiums that are actually paid out to provide the health care. In Medicare, the medical loss ratio is 98 percent.

Wall Street doesn’t like high medical loss ratios. To them, to Wall Street, a high medical loss ratio means that you have too many sick people, you’re not running enough profit. They like the medical loss ratios to be low. We, the consumers of health care, normal people, we like a high medical loss ratio. We want the money we put into the insurance plan to be paid out in benefits.

JAY: So just to be clear, 98 percent of the money in Medicare is going to pay for health care and 2 percent for administration. And in Maryland I think you said 15 percent is going for administration in Maryland.

FRIEDMAN: That’s right. That’s right. And that’s a difference of billions of dollars.

JAY: Yeah, I think you say $3.1 billion in Maryland alone.

FRIEDMAN: Yeah. Yeah.

JAY: And how much of that is profit in what you’re saying is administration costs?

FRIEDMAN: Oh, some of that is profit. You can’t tell for sure how much is profit. You know, health insurance companies aren’t very forthcoming about that. But a rough estimate would be about $1 billion of that is going as profits to the owners of the health insurance companies. And they would lose out with a single-payer system.

JAY: Why is there such savings, then? I mean—.

FRIEDMAN: Okay. Well, first there are the savings because you wouldn’t be supervising doctors the way private health insurance companies do. You wouldn’t be paying for advertising. You wouldn’t—you’d have much more efficient billing. Medicare’s really efficient at paying bills because it’s a very large system; so, as you get more people into one plan, you get some of these what economists call economies to scale in the billing and administration operations.

JAY: Back up on the billing. You get a figure of $1.6 billion of savings in your report. How do you get to that number?

FRIEDMAN: Okay. Okay. Now, the second area of savings is within doctors’ offices, because doctors these days incur enormous expense for billing and insurance-related operations. If you go into your doctor’s office, look around. There’s people there who work full-time dealing with the insurance companies, processing claims.

In Maryland in the 1990s there was a study that found about 15 percent of clean insurance claims submitted by doctors were automatically returned by one of the insurance companies. They were just sent back. There was nothing wrong with the bill—they just sent it back in the hopes that the doctor and the, you know, individual would give up. You know, if they resubmitted the claim, the insurance company paid it. There was a bit of a stink about this and an investigation in the legislature. But I think things like that go on all the time.

So you get a lot of savings in providers’ offices. To give you a Canadian example, Toronto General Hospital—well, I first gave this using numbers from the 1990s. Toronto General Hospital back then had two people working on insurance claims. Massachusetts General Hospital in Boston, with about the same number of doctors and about the same number of patients, had 250 people working on insurance claims. Now, when I gave this to a legislative committee in Massachusetts, one of the people there came up to me afterwards and told me that my numbers were out of date because her husband worked at Mass General and they now have 450 people working in billing and insurance operations. That’s 450 people in Mass General who are not providing care. They’re being paid to process paper because the insurance companies want—every insurance company has different forms, has different numbers, different codes.

JAY: And I guess this also goes back to something we talked about in the first part of our interviews, the amount of micromanaging that takes place from the insurance companies. I suppose that creates a counterpart having to deal with the micromanaging on the side of the hospitals.

FRIEDMAN: And the doctors. My family physician—you know, we have a family doctor—he spends Friday afternoons, a couple of hours every week, filling out forms for the insurance company, the stuff that he has to do. He has to write things out, he has to sign them, he has to make sure, you know, the T’s are crossed and the I’s are dotted and all that.

JAY: Okay. So, now, in your paper you—so you come up with, I think, a $4.6 billion saving in administrative costs when you compare a single payer to existing. And then your next point is something—savings from reduced monopolistic pricing. What is that?

FRIEDMAN: Now, here—there are two aspects here. The first is pharmaceuticals, drugs. McKinsey Global Institute, hardly a left-wing body, estimates that U.S. drug prices are 60 percent higher than the prices paid by people in other advanced capitalist economies—Canada and Western Europe, Japan. The reason is we are the only country that has a decentralized system of buying drugs. You know, every pharmacy negotiates its own drugs, insurance companies all negotiate, and the drug companies are in a very strong position to bargain and to drive hard bargains and high prices.

I take stuff for my thyroid. It happens my dog takes chemically the same thing. My drug is twice as expensive as his. My wife said, well, why don’t you take the dog’s? I was like, ah, well, okay.

JAY: I think it’s important to point out, too, that when President Obama was stickhandling his health care legislation, which—at the time, he was still supporting public option, eventually gave up on that. But as part of the keeping public option, he made a deal with PHrMA not to undercut PHrMA’s prices in the U.S., not to let Canadian drugs into the United States. And they wound up giving up on the public option, but he never went back and undid the deal with PHrMA.

FRIEDMAN: That’s right. That’s right. You know, you can only take on so many battles politically. I’m not going to argue about his handling of that. But it’s—a lot of people in northern New England cross the border to Canada to by their drugs. It’s cheaper, about 60 percent cheaper.

I’m saying that if the state of Maryland set up a single drug purchasing agency, it could go to, you know, the drug companies (and there are only a handful of them) and, you know, bargain down the prices. Then people from Delaware and Virginia would start crossing the border into Maryland to buy their drugs.

JAY: Now, in your report you talk about elite hospitals and providers—. What is that point about?

FRIEDMAN: That is a very low number that I use. Massachusetts Attorney General Martha Coakley—who has a bit of a history in health care, given that she lost a Senate race to Scott Brown. But Martha Coakley has been putting out these reports showing the enormous range in pricing for the same procedures, for a CAT scan, for an MRI, for a simple appendectomy, for a simple birth—not talking about the complicated births of prenatal units, etc., but for a simple birth—and the range will be two-, three-to-one, going from a local hospital in Northampton to a more elite hospital in Springfield, Massachusetts, or not to mention going to Johns Hopkins or Massachusetts General Hospital.

And it’s not just the elite hospitals. It’s also certain medical suppliers, you know, certain wheelchair manufacturers and, you know, producers of MRI machines, whatever, have serious market power and they’re overcharging.

So I put in we could drive down their prices 5 percent. You know, that’s a low number, I think.

JAY: And the number you come up with is about $1 billion, and you think that it could be significantly more than that, you’re saying.

FRIEDMAN: There are two other aspects of that. One is that these elite hospitals are seriously overcharging. The second is that they engage in practices that lead to duplication of services, etc. A certain unnamed physician (I won’t say who told me this) who used to practice at an elite hospital in Boston told me that if you walk into his hospital holding a CAT scan that just—at a facility in Northampton or Massachusetts or someplace else, you know, but a respectable facility, you walk in with your CAT scan, they will insist on doing another CAT scan, because they will charge for that other CAT scan. You know, it’s a complete waste, it means extra radiation for the patients, but they will make money from it and they will charge twice as much for that CAT scan, or three times as much, according to Martha Coakley, as your local hospital.

JAY: Now, in your next point you talk about some kind of integration of this single-payer plan with Medicaid, which the states are already spending money on, and you come up with another $1.2 billion. How do you get that?

FRIEDMAN: Well, there are extra expenses associated with a single government-run health care system. Part of the problem we have now—and this shows up for people in the cities and—you know, more and more Americans are on Medicaid. And the doctors are very reluctant to take on Medicaid patients, and when they do, they provide worse care.

There was just a recent study by the Organization for Economic Co-operation and Development about this, that American—poor people in the United States get significantly worse care compared to other people in the United States relative to the situation of poor people in other countries, other advanced countries. And part of that is because Medicaid underpays. In Maryland I believe it’s something on the order of 19 percent—prices provided by our Medicaid are that much lower than prices paid for the same service by Medicare.

The result is doctors avoid Medicaid patients, Medicaid patients have to travel further to find a doctor, often cannot find any doctor at all. Now, if we had a single—a one-payer system, then you couldn’t discriminate against people on the basis of, you know, whether they were rich or poor. That would be a boon for the doctors providing for Medicaid patients, and it would be a boon for Medicaid patients, who would be in a better position to get decent care.

JAY: Right.

FRIEDMAN: But it would cost money.

JAY: Okay. Now, in the final analysis, you total up all the savings you found. You come up with something like just over 24 percent saving over the existing system in terms of the overall expenditure on health care in Maryland. So in the next part of our interview, we’ll pick up on this. And we’ll also have to go a little further, because even with all this saving, if I understand things correctly, that still doesn’t really pay for all the costs of what a single-payer system would be in Maryland. And we’ll talk about, well, then, how does that get addressed.

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=8648

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What a single-payer health insurance plan looks like (cont’d)

Transcript of Part 3. You can watch the video version here.

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.

This is a continuation of our series of interviews looking at single-payer or government-run health insurance plan and focusing particularly on Maryland. And as I said, I’m in Baltimore, and I guess I should have said earlier in this series of interviews that I guess we have some kind of conflict of interest here because we live in Maryland and if there was a single-payer plan system, I guess we would benefit from it. Oh, we’re ordinary people. We would benefit from this. Oh, terrible thing, isn’t it that? Okay.

So now we’re going to continue our series of interview, and now joining us again is Gerald Friedman. Gerald is a professor of economics at the University of Massachusetts Amherst and we’re—if you haven’t watched part ones and two and—. I can’t remember. Are we three or four now? Anyway, you’ll see all the other parts down below this video player. So thanks for joining us again, Gerald.

GERALD FRIEDMAN, PROF. ECONOMICS, UMASS AMHERST: Thank you.

JAY: Alright. So in the last segment we went through your report and we looked at the savings, which came to just over 24 percent over existing insurance coverage and health care expenditure. But that doesn’t cover everything, does it? And then so what isn’t paid for out of these cost savings, and how are you going to pay for it?

FRIEDMAN: Okay. Well, first of all, the cost savings are there. There are also extra expenses, as we were saying, with the Medicaid rate fix. Also, we would be covering everybody. Now, 15 percent of the population of Maryland is currently without health insurance. Extend health insurance to them, they’re extra expenses. Also, the plan for the Maryland Health Security Act does away with copayments, deductibles, and all of those expenses. We expect that people would use health services more.

JAY: And let me just—I may not have made this clear enough in the earlier segments, or I may have missed in one of the segment, but this Maryland Health Security Act is an actual piece of legislation. It’s been proposed in the Maryland assembly. It’s not been passed yet, and this debate is sort of going on. Okay, go on, Gerald.

FRIEDMAN: Okay. Yeah. Yeah. The study I did projects that it would be enacted this year and looks at the savings and expenses for next year. And as I said, covering everybody, doing away with copayments would lead to greater utilization of health care. That’s a good thing. You know. So, you know, people would be healthier. They would live longer. They would be more productive. They wouldn’t be sick as much, so they wouldn’t miss as much work. Kids would be healthier in school and would do better.

JAY: And if I understand correctly, infant mortality amongst the poor in Maryland is actually getting worse.

FRIEDMAN: Yes. Yes. It’s really quite appalling. Overall the United States is about 45th in the world in life expectancy and infant mortality with one of the richest countries in the world. How is it that we’ve gotten to a position where we’ve gone from second or third in the world 35, 40 years ago to 45th? We’re obviously doing something wrong. We’re putting tons of money inefficiently into the health care system. So fixing that would involve spending some extra money.

Now, even taking account of those extra costs, there would be savings of billions of dollars for Maryland, but we’d also be reallocating what we’re spending. Much of the spending now comes through premium dollars paid by individuals or companies. We would do away with those. There would be no private insurance. You wouldn’t be buying private insurance. Instead, that bill for that, for what used to be paid for by the private insurance, would be picked up by the government, by this health security trust, which would be funded through taxes. We could try to use a better word, a general word than taxes, but that’s—.

JAY: [unintel.] I mean, it’s funded through taxes, and where I—you know, I still spend a lot of my time and grew up in Ontario. Yeah, you pay your taxes, you get a health card, you go see the doctor. And it’s a progressive tax system, so that people that are richer pay a little more—or, hopefully, a lot more, one wishes.

FRIEDMAN: That’s right. And, in fact, what we’ve proposed here would be we would use payroll taxes and progressive income taxes to pay for the health insurance plan. What happens now is if you have health insurance, you buy it yourself or you pay for it through work, a certain fixed amount gets paid for everybody. And that is a trivial amount for the heads of large companies but is a very large amount for people who are earning minimum wage or something close to it. So what happens now is poor people and working people pay a very high proportion of their earnings for health coverage. We would switch that by taking a percentage of people’s payroll and then a percentage of your earnings. We would be taxing the rich more than the poor. It would be a little bit progressive. But compared to the current system, it would be a huge gain for working people and certain loss for people at the very highest income.

JAY: And what would it mean for businesses? One of the arguments that’s often given against this is that it would make, for example, Maryland uncompetitive compared to other states that don’t have this.

FRIEDMAN: I so want to go to chambers of commerce and to businesses and talk to them about what a great savings this is for them. This is the best thing that could happen for Maryland business that the Maryland state government could do, because, first of all, businesses would get this off their to-do list. Small businesses around Amherst that I talked to, they hate having to do health insurance. They feel obligated to provide health insurance to their workers. They’ve been providing it. They have to keep providing it. But dealing with it is a gigantic hassle. Also, it’s a big expense and it’s an unknown expense. Every year you find out, oh my God, my insurance premiums are going to go like this.

We would take care of that. It would be handled every year by the state. It would be—you wouldn’t have to think about it. You wouldn’t have to explain to your worker why this thing is not covered. Also, because it would be more efficient—remember the 24 percent savings—because it would be more efficient, Maryland would be able to provide health care to its population at lower cost than their businesses are paying now. Businesses in Maryland would save several percentage points of payroll every year because of this, the single-payer system.

JAY: Yeah. If people want some evidence of this, they should go look at—one of the biggest supporters of the Ontario health care plan was General Motors, which found that their costs towards health care and their costs per employee in Ontario was far lower than it was, like, for example, in Windsor, right across the border in Detroit. And General Motors was very much in favor of this kind of system.

FRIEDMAN: That’s right, because it’s saving them money. And I would expect that businesses in Maryland, when they realize how much they’d be saving and how they would be able to outcompete businesses in Virginia or Pennsylvania—I mean, a restaurant in Maryland would be less expensive to operate than a restaurant across the border in D.C. or in Virginia.

JAY: Well, one of the arguments will be is that there’s a lot of businesses that don’t provide health care at all and they will become less competitive if all of a sudden they have to start making some payments towards this plan.

FRIEDMAN: That’s right. That’s right. Small businesses and some large businesses don’t provide health care. Now their workers are getting free care, are getting Medicaid, are getting some sort of subsidized care, and their workers are not getting care at all and are being unhealthy and sick. They would benefit if their employees were healthier and had a more reliable source of care. On the other hand, they would be paying somewhat more in the payroll tax than they’re paying now.

JAY: But in your study you looked at the overall jobs affect. What did you find?

FRIEDMAN: Oh, the overall jobs—Maryland would benefit. It’s a little hard to say exactly, but I would estimate over 100,000 additional jobs would be created by this because of this competitive interstate effect that Maryland employers would be able to outcompete employers in Pennsylvania and Virginia and elsewhere.

Probably some businesses would move to Maryland. You know, if you are in Northern Virginia, hey, locate in Montgomery County, get the cheaper health insurance—your life is easier and it’s cheaper. So you’d get maybe 100,000 extra jobs. And also, though I didn’t put this in, I didn’t factor this in, if you actually did get those 100,000 extra jobs, the tax rate could be lower for health care. So that would—the effects would become more [crosstalk]

JAY: Because the bigger the pool, the more economy of scale.

FRIEDMAN: As the economy expands, yes, exactly, exactly, costs become lower and you get on this virtuous cycle.

The biggest beneficiaries would be employers who are currently providing health care, and the biggest group there are local governments, because local governments not only provide health care to their workers, but they provide health care to their dependents. What I found was the so-called pickup rate, the proportion of people actually using the health insurance that’s offered, it’s only about 60 percent of private employers, but it’s over 90 percent for public employers. So local governments would be benefiting even more, which would mean lower taxes, lower [inaud.] and better-supported public schools.

JAY: Okay. So this whole thing’s a no-brainer. I mean, if you look at the data, it’s really a no-brainer. And, you know, as someone who, again, grew up in Canada, we always shook our heads and just could not understand how Americans can live with the system they have. But what are the politics of this in Maryland now? What do you get a sense of? Is there support for this? And what’s the role of the insurance companies?

FRIEDMAN: Well, what I hear in Maryland, what I hear in other places as well, is politicians saying, yes, yes, you’re right, this has been studied before. I’m not the first one to find these sorts of savings. And we’ll get there eventually, but we need incremental steps.

And right now the major focus is on working out how to implement the Affordable Care Act, which is a little bit of a step towards universal coverage and single-payer, but it’s a small step in that direction. What I think will happen in the next couple of years is people are going to learn that the Affordable Care Act covers a lot of people; it doesn’t cover everybody, so it doesn’t provide the universal coverage that we want. And it doesn’t control costs, which is something that the people involved in writing the Affordable Care Act admitted. You know, they have a lot of things in there that they hope will maybe help control costs, but it’s not expected to control costs very much, with the result that the share of income going to health insurance and health care is going to keep on rising. We’ll still have the private insurers with rising administrative burden, and in five years were going to be back where we are now, except instead of 17 percent of our income going to health care, it will be 25 percent.

JAY: And one of the points you make in your paper is that one way or the other these costs are going to have to be contained. So if you’re not getting this out of the private insurance plan, you’re going to have to get it by not providing as much health care.

FRIEDMAN: Yes, which is the point we’re getting to in Massachusetts, where there’s talk about ways to cut back on health care. A lot of the talk about consumer-driven health care is basically how can we get people to stop asking for health care. As it is, Americans go to the doctor and go to dentists less often than people in other countries. We’re less healthy. We go to the doctor less often. I mean, it’s like, put the two together and it starts to make sense.

But it’s—we’re already underserved as a population, and we will be in a worse position in several years, spending more, getting worse service. And I think at that point a lot of the people who have been looking for incremental gains will say we’ve got to go all out.

JAY: Okay. And we’re going to—you’ll find below this video player a link to Gerald’s report, and it’s worth looking at the detail of this, because it’s about time we had this discussion based on public policy with research and not just some rhetoric in either direction. Thanks very much for joining us, Gerald.

FRIEDMAN: Thank you. Bye-bye.

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