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Health Care Spending and Use of Information Technology in OECD Countries

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Health Care Spending and Use of Information Technology in OECD Countries

Commonwealth Fund – Publications – May 2006

U.S. health spending per capita significantly and consistently outpaces that of other industrialized nations. One proposal for lowering health spending and improving quality is the adoption of health information technology (HIT). Yet the United States lags behind other countries by as much as a dozen years in its efforts to implement HIT.

Heeding lessons from other countries’ experiences with HIT development could facilitate U.S. implementation, finds a new analysis supported by The Commonwealth Fund. In “Health Care Spending and Use of Information Technology in OECD Countries,” (Health Affairs, May/June 2006) the authors present U.S. spending and HIT initiatives within an international context. They also discuss the key issues surrounding HIT implementation: creating incentives, ensuring interoperability, and easing the public’s privacy concerns.

U.S. Health Spending Highest
The U.S. continues to have the highest per capita health care spending among industrialized countries, according to the most recent data from the Organization for Economic Cooperation and Development (OECD). In 2003, U.S. spending per capita ($5,635) was two-and-a-half times the comparable median for OECD countries ($2,280) It also represented a significantly greater percentage of gross domestic product (15% vs. 8%).

Higher prices, not higher utilization or resources, appears to be the main driver. More spending does not translate into more services. In 2003, the U.S. had fewer physicians, nurses, and hospital beds than the median OECD country. And while the U.S. adopts many clinical technologies earlier than other nations, ultimately it does not make them more widely available, nor does it always provide the most sophisticated procedures compared with other countries.

Savings Potential of HIT Investment
The health spending disparity could widen as other countries begin to reap savings from national HIT systems. Although no firm data exist to quantify potential savings, one estimate calculates the adoption of electronic health records could produce efficiency and safety savings of $142 billion in U.S. physician offices and $371 billion in U.S. hospitals over the next 15 years. Yet the long-term savings come with a hefty initial price tag. Establishing a national HIT network would cost the U.S. an estimated $156 billion over five years, with an additional $48 billion in operating costs.

Other OECD countries have already begun making substantial investments in HIT, although the scope and type of systems vary widely. The Canadian government, for instance, originally provided $420 million in funding but now expects to spend $1.2 billion to implement its system. In 2002, the United Kingdom announced that its HIT system would cost $4.3 billion over three years, but later more than doubled its estimate and timeframe to $10.8 billion over 10 years. In Australia, more than $1.1 billion in HIT projects are in the works.

In the U.S., pending legislation would authorize a total of $280 million in the next two years, with unspecified funds through 2010. While not yet law, the legislation would also establish a cooperative to adopt standards and authorize grant programs to encourage HIT adoption.

Other Nations Have Head Start on HIT
It was not until April 2004 that the U.S. established the Office of the National Coordinator for Health Information Technology. Several OECD nations are many years ahead in their efforts. Germany, which in 1993 became the first country to begin investing in HIT, expects to complete this year a national network, including “smart card” technology. Canada, whose efforts date back to 1997, expects to have electronic health records for half the population by 2010. The United Kingdom’s program, the most expensive and comprehensive internationally, plans by 2014 to have incorporated an integrated care record service, electronic appointment and prescription transmission systems, and a national network for all providers. Meanwhile, Norway and Australia have at least a six-year jump on the U.S.

The U.S. could gain ground, the authors say, by avoiding the problems that have plagued other nations’ efforts. For example, lack of interoperability among various providers’ HIT systems has presented difficulties in many countries. In addition to creating standards to ensure interoperability, many governments have made public subsidies contingent upon interconnectivity.

To counter privacy concerns, each country engaged in HIT is developing standards that govern how patient data are collected, used, and disclosed. In Germany, for example, the collection of administrative data (e.g., copyament status) is required, but patients can decide how clinical information\such as diagnoses and drug usage\is used and disclosed.

Other countries also recognized early on the importance of involving physicians. England and Australia, for instance, identified early adopters and used them to convince their colleagues of the value of HIT. In the U.S., proposals suggest paying physicians for each EHR submission or incorporating HIT rewards into pay-for-performance systems.

Efforts to Implement Health Information Technology in Six Countries,
2003
U.S. Australia Canada

Germany

Norway

U.K.
Initial year of national IT
effort		 2006 2000 1997 1993 1997 2002
Expected year of complete
implementation		 2016 Undefined 50% by 2009 2006 2007 2014
Estimate of total investment (as of
2005)*		 $125M $97.9M $1.0B $1.8B $52M $11.5B
Total investment per capita (as of
2005)**		 $0.43 $4.93 $31.85 $21.20 $11.43 $192.79
*In U.S. dollars. Exchange
rates as of September 2005: $1 U.S. = $1.31 AUS; $1.19 CAN; $0.80 EURO;
$6.21 NOR; $0.54 U.K.
** In U.S. dollars. Per capita is based on 2003
population numbers from the Organization for Economic Cooperation and
Development (OECD).
Source: Adapted from G. F. Anderson et al, “Health
Care Spending and Use of Information Technology in OECD Countries,”
Health Affairs, May/June 2006
25(3):819–31.

Citation
G. F. Anderson, B. K. Frogner, R. A. Johns, U. E. Reinhardt, Health Care Spending and Use of Information Technology in OECD Countries, Health Affairs, May/June 2006 25(3):819-31

www.cmwf.org/publications/publications_show.htm?doc_id=372221

Single payer's bold move into the political arena

California Democratic Party
2006 Platform
Adopted At The Democratic Party State Convention, April 30, 2006

California should lead the nation in providing comprehensive quality health care to all our people by transitioning to a single-payer public health care system.

http://www.cadem.org/atf/cf/{BF9D7366-E5A7-41C3-8E3F-E06FB835FCCE}/2006_platform_final.pdf

Comment:

By Don McCanne, M.D.

When the largest political party in the largest state in the nation explicitly endorses single payer, political feasibility becomes ever more real.

Now that the business community is beginning to understand better the benefits of the single payer model, maybe there will be interest in placing it in the Republican platform as well. We don’t want to hold our breath yet, but…

Let’s keep working to be sure that the business community fully understands all options for reform. A model that finally truly contains costs while allowing the additional luxury of providing comprehensive coverage for everyone just might be what they are looking for. Let’s be sure that they know what single payer really does, and that it’s available now.

Answer to health care issue

By Dr. Susanne King
Berkshire Eagle
Wednesday, May 10

SMALL BUSINESSES are a mainstay of the Berkshires \ restaurants, stores, garages, contracting and landscaping businesses, and many more, including doctors’ offices. Small business owners are suffering under the weight of the costs of providing and administering health care insurance for themselves and their employees.

Last week I was talking about health care with the chef of one of my favorite restaurants in the Berkshires. He is unhappy about the new health care law passed last month in Massachusetts. He recognizes that the bill will do nothing to reduce his health care costs, but will add millions to the profits of the private insurance companies who helped to craft the bill. He asked about single-payer health care, which would remove the responsibility from businesses to provide health insurance for their employees.

Single-payer health care means that the government (a single payer) would administer the health care funds, rather than the numerous private insurance companies that now administer the funds and keep a significant percentage of the health care dollar for their profits.

In 2005, health plans in Massachusetts reported large profits, posting increased profits from the previous year. United Health Group CEO William McGuire grabbed attention last month with his $1.6 billion (yes, billion) in unexercised stock options. Profit for the company in 2005 was $3.3 billion; United Health had retained 21.4 percent of premiums paid for its own use.

There is no accountability or oversight for the health insurance industry. A recent report from the American Medical Association (AMA) states that while health insurers “are posting record profits, premiums for consumers have increased without any increase in benefits. Instead consumers are paying more out-of-pocket for their health care, through increased deductibles, co-payments and co-insurance.” The AMA did a study which showed that because of mergers and the consolidation of health insurance markets, the health insurance industry is not a competitive industry. In 95 percent of the markets they surveyed, one insurer accounted for at least one-third of the market. This is not a free market.

If we had a single-payer health care system, small business owners would be off the hook. Health care funds would come from a modest payroll tax, and would be administered by the government, at either a state or a national level. It would be like improved Medicare for all. Medicare’s administrative costs are 3 percent: the current system of health insurance consumes 30 percent of the health care dollar.

There would be much more choice in such a system. Patients could chose their own doctors. Patients and doctors would make health care decisions, rather than non-clinical employees of the health insurance industry. And small business owners would be relieved of the financial and administrative burden of trying to provide health insurance for themselves and their employees.

Just imagine such a single-payer system. You go to the doctor, and the office secretary swipes your card \ no deductibles or co-payments. For the doctor, there would be no paperwork or three-month wait for reimbursement or denial of payment from the insurance company: with electronic funds, payment could be immediate. Instead of the headaches and frustrations of dealing with insurance companies, doctors could get back to the job they do best, taking care of their patients.

Small businesses could remain competitive, as they would not have to worry about the financial drain of providing health care insurance for their employees and themselves. And everyone would have much more comprehensive health care insurance, including medical, mental health, dental, prescription drug, and long term care coverage.

Single-payer legislation is the real health care reform that the Massachusetts Legislature should enact, to save the small and struggling businesses that make up the fabric of the communities in our state.

Robert Bazell on health care reform

Bubba blew it. But can U.S. health care be fixed?
Other government programs, healthier nations show it’s possible
By Robert Bazell, NBC News’ Chief Science and Health Correspondent
MSNBC
May 9, 2006

Back in 1992 when Clinton first won the presidency, American health care reform dominated the campaign. When Clinton took office, the Republicans were ready to compromise. Some moderate Republican senators even told me they were willing to discuss extending Medicare, which covers everyone 65 and over, to the entire population. Presto! We would have had universal health insurance.

But Clinton refused to accept it. Instead he allowed Hillary Clinton to set up one of the great farcical bureaucratic efforts of all time – her commission to reform health care.

Why repeat this history? Because health care reform will become a big deal again soon. Right now the Iraq war and gas prices are dominating the political discussion, but lack of affordable heath care impacts so many Americans that it must rise to the top of the agenda again.

Call me old-fashioned (or many other things), but I believe the government can do some things well, and financing health care is one them. That might be worth remembering if someone like Clinton has another shot at universal reform.

MSNBC online survey (not scientific):

Should universal health care coverage be a priority for the U.S. government?
(1446 responses)

80% – Yes. What could be more important than the health of its citizens?
12% – No. It costs too much and isn’t the government’s job.
7.5% – Unsure. It’s a grand idea, but seems like a pipe dream.

http://www.msnbc.msn.com/id/12703029/

Comment:

By Don McCanne, M.D.

When a highly credible representative of the mainstream media is willing to speak up in support of government financing of health care… well… we’re making real progress.

Editorial Independence and the Canadian Medical Association Journal

John Hoey, M.D.
NEJM
May 11, 2006

On February 20, after almost 10 years as editor-in-chief of the Canadian Medical Association Journal (CMAJ), I was fired without cause.

I packed up my few personal belongings and left the editorial offices for the last time. Anne Marie Todkill, the Journal’s senior deputy editor and a 12-year veteran, was fired the same day. Deputy editor Stephen Choi was named acting editor-in-chief. Steve, a former editorial fellow of the CMAJ, conditioned his acceptance of the position on adoption by the CMA of 10 principles of editorial independence that he laid out. The CMA refused to adopt the principles, and he resigned, as did the CMAJ’s current editorial fellow, Sally Murray. Other resignations followed: Anita Palepu and Claire Kendall, both associate editors of the CMAJ; Laura Eggertson, associate news editor; Nick Barrowman, a biostatistician; and most of the CMAJ’s editorial board.1

The CMA gave no reasons for the firings other than, initially, to “freshen” the CMAJ and, later, for “irreconcilable differences” (so far unspecified) between me and the CMA. The most striking irreconcilable difference was the censoring by the CMA of a report describing the difficulties Canadian women had in obtaining Plan B (a nonprescription drug) from pharmacists.1

This action by the CMA was a clear violation of the principle of editorial independence, as formulated by the World Association of Medical Editors and adapted integrally by the International Committee of Medical Journal Editors (ICMJE), of which the CMAJ is a founding member. As required by this statement of principle, I and my colleagues publicly described the transgression in a lead editorial.2

Clearly, our ability to edit the CMAJ had been severely and, as subsequent events revealed, fatally compromised.

“Independence,” like “freedom,” is a word etched deep in human history. Although both evoke and provoke human emotions and actions, the words themselves are intangible abstract nouns, like “love.” Our understanding of these words comes with experience \ through falling in love or, in contrast, by having our freedom and independence curtailed by opposition and resistance. In Virginia Woolf’s To the Lighthouse, Lily Briscoe (not commenting on editorial independence) notes, “All that in idea seemed simple became in practice immediately complex; as if the waves shape themselves symmetrically from the cliff top, but to the swimmer among them are divided by steep gulfs, and foaming crests. Still the risk must be run; the mark made.”3

Thus, it is highly probable that each editor of a journal and each publisher and owner will have different views of editorial independence. In fact, it may be necessary for them to have differences, else the concept of editorial independence remains an abstraction, empty of meaning.

My experience is limited to editing a general medical journal owned by a national medical association. Journals owned by commercial publishers (for example, the Lancet) and those owned by other types of associations, such as the Public Library of Science (PLoS) journals, swim, perhaps, in different seas. But a common element is that editors and publishers have different perspectives on journal ownership. Owners see their legal rights and responsibilities, their corporate objectives, whereas editors gaze on authors, peer reviewers, editorial boards, journalists, and above all, interested readers, both professionals and members of the broader public. For an editor, the journal is much more than legal ownership. As some of my former colleagues and I have said, a journal is fundamentally about ideas: “The dissemination of medical science is, or should be, ultimately a humanitarian project, and not merely the special preserve of professional associations.”4

Editors must understand this broader journal ownership and convert its traditions, hopes, and aspirations into an editorial direction by recruiting editorial staff and editorial boards with the talents needed to achieve their goals both in the long term and day to day. Failure by journal owners to understand this larger constituency forced the American Medical Association to establish an independent journal oversight committee for its journal, JAMA. In Canada, former members of the CMAJ editorial board and others recently announced that they will launch their own general medical journal as early as this fall.

Medicine can be defined narrowly or broadly. In 1855, Thomas Wakley, founder and editor of the Lancet, editorialized on the Dickensian factory owners who were polluting London and lobbying the government “for the conservation of their right to fatten upon the injury of their neighbours . . . reeking in putrid grease, redolent of stinking bones, fresh from seething heaps of stercoraceous deposits.”5 Wakley saw medicine broadly and wrote about it unflinchingly. Do we? Should we?

For journal owners and publishers, generally risk avoiders, such a wide compass may be perceived (wrongly, I believe) as of little interest to their dues-paying members and as potentially damaging to their political or economic priorities. Owners may wish to limit the scope of their journal, to restrict its editorial perspective to matters of bedside medicine and the narrower interests (as perceived by the usually nonphysician publishers) of their physician readership.

This is neither my vision nor that of the other editors who were fired or resigned from the CMAJ. For Foucault, medicine is a political act. The notion that politically sensitive topics can be expunged from a medical journal is folly. It is also irresponsible. Physicians and their patients must have faith that professional journals facilitate a discourse unencumbered by the economic and political interests of their owners.

“Still the risk must be run; the mark made.”3 This effort must be made by the editor-in-chief and the senior editorial staff on a daily basis. Editorial decisions cannot be discussed or even divulged to the publisher until the articles have been published. To do otherwise, to enter into an operational partnership of some sort with the publisher, is to gut the editorial independence of a journal. The ability of an editor to edit depends to an important degree on the editor’s own outlook and self-assurance (often mistakenly interpreted as arrogance). An eager propensity to poke a stick into something or somebody is also useful. It is a characteristic so widespread, at least among the editors I have known, members of the ICMJE and others, that it may be essential. But the defining characteristic of an editor is quixotic idealism, a characteristic that makes publishers nervous.

The interests of publishers and owners need to converge on the shared objective of maintaining a profitable operation. A journal editor will not last long if the journal does not break even. For the editors of the few journals that make money, the pressures to agree on budgets are similar, since owners want profits maintained or increased.

But once a budget is negotiated, how should the money be spent and the resources allocated? It is here that the objectives of owners (both economic and political) can influence broad editorial direction. Usually, journal budgets have been based on previous years, with slight increases or decreases based on the bottom line. Now, however, even at journals where relations between owners and editors have been tranquil, dramatically expanding online readerships and the growth of open-access journals are beginning to threaten that tranquility, altering the relationship between editorial content and financial success.

Readers of the CMAJ, before it went full-text and free online in mid-1999, were mainly Canadian physicians, members of the CMA, who received the print journal as a benefit of membership. Online readers now outnumber print readers by more than 6 to 1, and only about a third are residents of Canada \ ratios that are undoubtedly similar to those of other general medical journals. Contributing little or no revenue, online readers now contribute most of the CMAJ’s content (manuscripts and letters), interest, and general buzz.

Online readers are a puzzlement to traditional journal publishers, who tend to concentrate on print readers and their associated revenue streams, derived from classified and display advertising. Are what they are reading Canadian, British, and American medical journals, or are they global medical journals? As journal editors stroke eagerly into the more open seas of worldwide readership, will owners be able and willing to follow?

I hope they will. In a world where political correctness obfuscates and public discussions are managed by public-relations firms and paid experts, there is a desperate need in medicine for open, plain-spoken discourse. Without it, the current erosion of public trust in science and medicine will continue and will ultimately translate into poorer individual and population health.

As an editor, I worked with wonderful people at the CMAJ and around the world. I’ll miss it.

Source Information

Dr. Hoey, former editor-in-chief of the Canadian Medical Association
Journal, lives in Perth, Ontario, Canada.

References

1. Shuchman M, Redelmeier DA. Politics and independence — the
collapse of the Canadian Medical Association Journal. N Engl J Med
2006;354:1337-1339. [Full Text]
2. The editorial autonomy of CMAJ. CMAJ 2006;174:9-9. [Full Text]
3. Woolf V. To the lighthouse. New York: Harcourt, Brace & Company,
1929:235.
4. Hoey J, Caplan CE, Elmslie T, et al. Science, sex and semantics:
the firing of George Lundberg. CMAJ 1999;160:507-508. [Full Text]
5. Wakley T. Editorial. Lancet 1855;1:634-635. [CrossRef]

Why employer-sponsored coverage is unstable

Why Employer-Sponsored Insurance Coverage Changed, 1997-2003
By James D. Reschovsky, Bradley C. Strunk and Paul Ginsburg
Health Affairs
May/June 2006

Four and a half million Americans gained employer-sponsored health insurance coverage during 1997-2001, while nearly nine million lost coverage in the ensuing economic downturn (2001-2003), after population growth was accounted for. Macroeconomic trends affecting employment, job quality, and incomes drove most of the coverage changes, although key factors varied during the two periods. Take-up rates affected coverage, mostly reflecting the interaction of premium cost trends and labor-market tightness, but take-up also was influenced by the implementation of the State Children’s Health Insurance Program (SCHIP) during 1997-2001. Coverage among low-income people was most affected by economic conditions and premium costs.

http://content.healthaffairs.org/cgi/content/abstract/25/3/774

Comment:

By Don McCanne, M.D.

As if we didn’t have enough reasons to be concerned about using employer sponsorship as a basis for providing health insurance, this study clarifies several of the reasons behind one more important deficiency.
Employer sponsorship provides an unstable source of insurance coverage, in a large part due to factors beyond control of either the employer or the employee.

Once you are insured through an employer-sponsored plan, you have no assurance that you will remain covered until retirement, as this study and others demonstrate.

Once you are insured through an individual plan, you have no assurance that coverage will continue, especially since it has been shown that over two-thirds have left their plans by three years.

Once you are insured by Medicare after reaching age 65, you are assured that you will have coverage for the rest of your life. That’s stability.

We should all have a stable source of health care coverage, throughout life.

Only the government can make that possible.

How To Fix The System

By DONALD BERWICK
Time www.time.com web exclusive
Monday, Apr. 24, 2006

Donald Berwick is a Massachusetts pediatrician and president of the Institute for Healthcare Improvement.

Ask a doctor what’s wrong with America’s healthcare system, and be prepared to pull up a chair. You’ll hear a litany of complaints about Kafka-esque bureaucracies, litigious patients, unreasonable insurance companies, too few nurses, never enough time, too much testing and not enough talk. But complaining gets us nowhere–we need solutions. Here are my top seven reforms for health care.

1. Make Health Care in America a Human Right

The US spends almost twice as much in health care as the next most costly nation, and our system is not even close to the best on earth. The assertion that making health care a human right isn’t feasible — isn’t affordable — makes me mad. It’s just not true; in fact, we are the only developed Western country that fails to view health care as a human right. Leadership for change must come from the President and Congress. Without the promise of health care for all, we aren’t likely to muster the energy and political will we need to meet the needs of our entire population. We’ll limp along, instead, with defects in care and gaps in management that we have trained ourselves to regard as inevitable.

2. Pay for the Care of Populations, Not Events

Our current system of fragmented payment — for hospital stays, office visits, lab tests, drugs, and therapists — destroys the patterns of care that patients need, and leaves them confused and, too often, simply abandoned. Funding care for people over time, instead of for specific medical events, reduces the burden of illness by focusing on high quality preventive care. We need “managed care” as it was originally intended to be — the good kind, not the evil, mutant twin that just tried to cut costs, restrict choice, and limit available care. Correctly conceived, “managed care” addresses the real needs of patients over time and place, guiding them through the technological thicket of modern medicine, and making sure that they get exactly what they want and need, exactly when and how they want and need it.

3. Put the Patient in the Driver’s Seat

The more control patients have over their own care–the more they know, the more involved they are in the design of their care–the better. We haven’t even begun to plumb the real potential of patients who have been taught how to become their own physicians (to the extent that they want to). Despite the rhetoric, most people can’t even get access to their own medical records, and it’s often next to impossible to find data on how one’s own hospital or physician performs compared with others. Some people fear that, given choices, patients will not choose wisely or will demand too much. I doubt it–one study found that when patients actively shared in decisions about whether to have surgery, the rate of surgery fell 23% and satisfaction and outcomes both improved.

4. Computerize Medical Records, Once and for All

My pizza parlor is more thoroughly computerized than most of health care. It’s high time to put the paper medical record where it belongs — in the Smithsonian, next to the typewriter. Proper use of modern information systems for medical records will support much more integrated care, and will allow patients to feel better supported and remembered as they move from place to place and over time. Importantly, a computerized medical record [could] be, and should be, accessible to patients directly, and under their control.

5. Use Modern Engineering Science to Make Health Care Safer and Smoother

The same sciences that allow airplanes to fly safely, that keep the lines moving at Disney World, and that continually reduce the costs and improve the reliability of computers and consumer goods, can help in health care too. To a large extent, health care systems were not designed with any scientific approaches in mind. Too often there are long waits, high levels of waste, frustration for patients and clinicians alike, and unsafe care. A bold effort to design health care scheduling systems, process flows, safety procedures, and even physical space will pay off in better, less expensive, safer experiences for patients and staff alike.

6. Re-Energize Primary Care and Nursing

Our current care system is hospital-centric and physician-centric. We cannot have excellent, coordinated, patient-centered, economical health care without a strong backbone of primary care, and without a vibrant, proud, and joyful nursing workforce. Yet fewer and fewer young people are choosing to go into primary care careers (instead, we are getting an oversupply in specialties like ophthalmology, radiology, anaesthesiology, and dermatology) and the average age of an American nurse is now over 47 years.

7. Give Up the “More Is Better” Myth

Good evidence now shows that the areas in the US with the highest rates of use of hospital beds, intensive care units, specialist consultations, and invasive testing don’t have the best quality of care and outcomes. In fact, they often have the worst. It would be a great advance in both quality and cost if somehow the American public came to understand that “more care” is not by any means always “better care,” and that new technologies and hospital stays can sometime harm more than they help. Patients need to ask more, “Are you sure I need that?” and to trust that, often, the best care is the most conservative care.

Proof that insurers selectively advertise to healthy

The Relationship Between Health Plan Advertising And Market Incentives:
Evidence Of Risk-Selective Behavior
Health Affairs
May/June 2006
By Ateev Mehrotra, Sonya Grier and R. Adams Dudley

Previous Medicare managed care efforts were undermined by risk selection or “cream skimming,” in which health plans selectively enrolled healthier patients and avoided sicker ones.

Most of the time, health plans are paid a fixed premium for each enrollee, regardless of the enrollee’s health status. In such a situation, patients with chronic illnesses are a potential financial liability, because they are more likely to incur high costs. Compared with reducing costs or improving quality, risk selection is a relatively easier mechanism for health plans to increase profits. A substantial body of research demonstrates that Medicare managed care enrollees are, on average, healthier than Medicare fee-for-service (FFS) enrollees. Provisions in MMA attempt to deter risk selection, but there is concern that these provisions are insufficient and that health plans will still have an incentive to engage in risk selection.

Some believe that health plans actively recruit healthier patients through advertising, but this has never been empirically demonstrated. Others believe that health plans deliberately structure their benefits so that sicker patients voluntarily leave the plan. However, since risk selection is seen even at the time of initial enrollment, pre-enrollment factors such as advertising probably contribute to it a great deal.

We found that the use of ads that are attractive to healthy patients increased nationally from the 1970s through the 1990s as HMOs became more common and gained market share. Furthermore, in 2000, the use of such ads was more common in markets with higher HMO market share than in those with lower market share.

These correlations suggest that as competition increases, health plans attempt to risk-select through advertising.

…health plans spent more than $70 million on newspaper advertising alone in 2000. The total advertising budget is much higher if all media types are included. Our findings imply that health plans are using that advertising to attract healthier patients. From a societal and clinical perspective, these resources are being misused.

http://content.healthaffairs.org/cgi/content/abstract/25/3/759

Comment:

By Don McCanne, M.D.

Advocates of free markets insist that competition between private health plans (e.g., Medicare Advantage) will always result in lower costs than is possible through a single public insurance program (e.g., traditional Medicare). All evidence to date indicates that this is simply not true. The government spends more per Medicare beneficiary in private plans than it does for Medicare beneficiaries, with equivalent health status, in the traditional public program.

One reason that private plans may spend more is the inclusion of pharmaceutical benefits. A much more important reason is the very high administrative costs plus profits that are not characteristic of the public Medicare program. The meme that markets always produce relatively lower prices through greater efficiency has been disproved when applied to health insurance.

Health insurance has a unique feature which allows the administrators to reduce prices without the necessity of increasing efficiency. That feature is risk pooling. If insurance administrators can keep higher risk individuals out of the pool that they are insuring, then costs per beneficiary can be reduced.

This study is important because it confirms, through objective evidence, what we’ve surmised all along. Private insurers are targeting their advertising to a healthy subset of the population.

Where do we draw the line? Is this merely smart business practice in the private market? Or is this a dishonest effort to shift a significant portion of the costs of health care to purchasers of other plans and to the taxpayers through public programs? Whether it’s labeled smart business or a method of cheating the rest of us, it’s clearly wrong!

Some contend that the answer is in risk adjustment, but prior efforts have been feeble or ineffective. Regardless, the success of the private insurance industry primarily has been due to the ability to keep patients with significant needs out of their risk pools. If we are ever successful in ending this perversity of risk pool manipulation, the private insurers will have to charge premiums that will price them out of competition with a publicly-administered program such as Medicare.

It is ironic that an equitable system would require private insurers to charge premiums that are so high that they would result in a death spiral, requiring them to withdraw from the market. But isn’t that the way markets are supposed to work?

A doctor speaks out

Dr. Stack wants “Medicare for everyone”
by David Hoppe

Until his retirement in 2004, Dr. Christopher Stack was known as one of the city’s leading orthopedic surgeons. Stack graduated from the Indiana University School of Medicine in 1979 and began his practice at the IU Medical Center. He subsequently practiced at the Hamilton Orthopaedic Clinic, Indiana Orthopaedics and Sports Medicine and, after 1997, Drs. Ireland and Stack Orthopaedics.

Stack was appointed by Gov. Kernan to the Indiana Mandated Benefits Task Force and served as its chairman. Stack is a member of Physicians For a National Health Program, as well as Hoosiers for a Commonsense Health Plan. He is an active advocate for single-payer health coverage, the idea of “Medicare for everyone.” Stack recently spoke to NUVO about what’s wrong with our approach to providing health care – and what can be done about it. Here are his thoughts on the issue, in his words.

What’s always puzzled me is why businessmen don’t go down to Anthem and say, “Hey, what are you guys actually doing for us?” They don’t do anything. Employer-based health insurance amounts to a huge middleman.

Socialized medicine, rationing, two-tier health systems – all of these labels are thrown out to scare people. But the truth is we ration health care now. It’s just unofficially rationed by income. You get the health care you can afford. If you can’t afford it, you don’t get good health care.

If you have no insurance you can’t go into a lot of doctor’s offices – unless you’re going to die.

Private health insurance is dealt with as actuarial, not as social. Medicare is a social insurance. The understanding is that the larger number of healthy people are going to have to pay for the smaller number of unhealthy people. Actuarial insurance is not based on that notion. It says that if you can afford to protect yourself against this contingency, good for you. And if you can’t, too bad.

Medicare’s administrative overhead is 5 percent or less, depending on who you read. Compare that to 20-30 percent in the private sector health insurance industry. The calculations I’ve read, done by people who promote a single-payer idea, would eliminate the current insurance industry and provide enough money to cover everyone at current levels.

The idea that people are sloppy with their health care because they have health insurance is nonsense. They make it sound like if you have good health insurance you’re going to step out in front of a car and get hit because you won’t care.

Medicare for everybody makes the most sense. If you want continuity of care, if you want choice, Medicare is the only way to go. I’ve heard Anthem say the reason why a single-payer plan doesn’t work is because it’s one size fits all, whereas they have thousands of programs to meet your specific need. But that costs them a fortune to administer and it’ll cost you a fortune to pay for it.

Medicare for everybody is not socialized medicine. It is simply a single-payer, which means all your reimbursements are going to come from one place. Medicare is not a sign on the door that says: National Health Service, Dr. Stack. It’s not government ownership of anything. It’s the only way, in my opinion, we can control costs.

There’s a lot of talk about paying for performance and paying for quality, but the fact is that quality is so hard to measure in medicine – and it’s usually being measured by the people who do the work. Every doctor and every hospital will rigidly maintain that they are three standard deviations above the mean.

People will be paying less for fancy procedures and more for a family doctor who will take an hour with somebody to find out exactly what the hell is wrong with them, instead of spending five minutes and trying to guess.

Medicare is one of the most lucrative things that ever happened. We started getting paid for stuff that used to be considered charity work. My father was a doctor in Chicago and I saw that first-hand. He’d get payment-in-kind sometimes.

Every hospital has a charge master, which is their list of what they charge for everything. You can’t get these right now. If St. Vincent’s put their list online you could shop before you went there. But you don’t know what you’re going to need and you don’t know what it’s going to cost. It’s like going to buy a car and saying, “Maybe I should buy this limousine.” It turns out you don’t really need it, but it’s a nice car.

Doctors don’t know what things cost. When I was practicing, I could get some information from the hospital about what an operating room charge was. But you didn’t know what any of the items on the bill would cost. You didn’t
know what an anesthesiologist was going to charge. Radiology is completely separate. All you can say is, “Here’s my bill for this procedure.”

We spend more on health care than we do on primary education, and our health isn’t any better compared to other industrialized nations.

Between 50 and 60 percent of health expenditures are tax-funded. So we’re more than halfway there. There’s nothing radical about what’s being proposed, it’s just a different form.

If everybody had Medicare, you would never be obliged to change your family doctor. Nobody’s going to tell you where to go. They don’t have closed panels of providers. A few doctors don’t see Medicare patients. But the rest
of the world has to take care of sick people and sick people, by and large, are enrolled.

Dr. Stack is a member of Hoosiers for a Commonsense Health Plan, a group of citizens that support a statewide universal health plan. HCHP is working to develop and promote a bill in the 2007 Indiana State Legislature to achieve that goal. In Indiana, over 800,000 people have no health insurance, and significantly more are under-insured, all of whom face barriers to getting needed medical care and financial ruin if they get sick. The HCHP meets the first Friday of every month at the Monroe County Library, 303 E. Kirkwood Ave., Bloomington, at 4 p.m.

For more information, or to get involved, visit these Web sites:

Physicians for a National Health Program: www.pnhp.org

Healthcare – NOW!: www.cnhpnow.org

The Conyers bill for single-payer national insurance:
www.house.gov/conyers/news_hr676_2.htm

Chris Stack, MD, stackc@aol.com

Consumer decisions in the individual insurance market

Consumer Decision Making In The Individual Health Insurance Market
A study in California suggests that the individual market is an important source of long-term coverage for many who purchase it.
Health Affairs
May 2, 2006
by M. Susan Marquis, Melinda Beeuwkes Buntin, José J. Escarce, Kanika Kapur, Thomas A. Louis, and Jill M. Yegian

Abstract:

This paper summarizes the results from a study of consumer decision making in California’s individual health insurance market. We conclude that price subsidies will have only modest effects on participation and that efforts to reduce nonprice barriers might be just as effective. We also find that there is substantial pooling in the individual market and that it increases over time because people who become sick can continue coverage without new underwriting. Finally, we show that people prefer more-generous benefits and that it is difficult to induce people in poor health to enroll in high-deductible health plans.

Study Results

Continuity of coverage.

Our study of the California market… suggests that the market is an important source of long-term coverage for a sizable fraction of those who purchase it. About 60 percent of new coverage episodes continue more than one year, and more than 30 percent continue for more than three years.

Access for poor health risks.

Underwriting might prevent some high-risk market candidates from obtaining insurance because insurers are free to deny coverage. Those who obtain health insurance are in better health than those who remain uninsured.

Turnover and pooling of health risks.

Although the individual market is a source of long-term coverage for a large share of subscribers, as reported above, it also serves a population of people who enroll for only a short period of time.

The role of price in consumers’ decisions.

Although price has only a small effect on the decision about whether or not to buy, it has a bigger effect on the decision about which product to buy.

The role of benefit design on demand.

Consumers in poor health are more likely than healthier consumers to demand generous benefits.

Nonprice barriers to purchasing coverage.

Choice in the individual market means that the complexity of the shopping task is also high.

http://content.healthaffairs.org/cgi/content/full/hlthaff.25.w226v1/DC1

Comment:

By Don McCanne

This RAND study celebrates the fact that only 69 percent of beneficiaries in the individual insurance market have left their plans by the end of three years. Their finding that substantial pooling takes place over time certainly does not apply to the great majority of these individuals.

Rather than the positive message of how well the individual market is working, the other results reported only further confirm the inequities and deficiencies of the individual insurance market. The flaws won’t be repeated here since you can read several of them above.

The article also “offers some lessons for policymakers looking for strategies to encourage more of the uninsured to participate in this market.” The suggestions offered constitute minimal tweaking of the plans, only perpetuating the injustices permeating the individual insurance market.

The primary lesson for policymakers should be that we need efficient, affordable, comprehensive coverage for everyone through a single, national health insurance program. As a think tank, RAND should go back and do some more thinking on this one.

Unions Should Break With Managed Care

by Kip Sullivan
May 2006

During the 1980s and ’90s, cost-control tactics pioneered by HMOs spread throughout the entire health insurance industry. Those tactics, known collectively as “managed care,” were applied by the insurance industry first to employees of large-employers, and then to small-employers.

Even though it has been obvious since the mid-1990s that managed care has failed to cut costs or improve quality of care for private-sector employees, the insurance industry is attempting to take over the last islands of unmanaged medicine – the nation’s Medicare and Medicaid programs. They argue that managed care is just the ticket for what allegedly ails these programs, and their arguments are succeeding. About half of all Medicaid recipients, and at least 13 percent of Medicare recipients, are in HMOs, and the percents grow every year.

UNIONS EMBRACED HMOS

The AFL-CIO helped create this mess. It did so by endorsing the concept of the “health maintenance organization” when it was first proposed by Richard Nixon in 1971, and, over the ensuing decades, by repeatedly endorsing the diagnosis of the health care crisis promoted by HMO advocates (namely, that doctors order too many services and someone has to do the dirty work of telling doctors and patients no).

The Nixon administration concocted the phrase “health maintenance organization” in February 1970. In March 1970, the administration announced that this new-fangled form of insurance would be the centerpiece of Nixon’s health policy. With the critical support of the AFL-CIO, Nixon’s proposal, known as the HMO Act, became law in 1973. This is the law that created the planet’s first HMO industry. The HMO Act subsidized the formation of HMOs and required employers with more than 24 employees to offer an HMO to their employees if an HMO existed in their area.

The definition of an HMO in the 1973 law was extraordinarily vague. Informally, experts said then, and say now, that an HMO is an insurance company which uses managed care tools – financial incentives to get doctors to deny care and second-guessing of doctors if the financial incentives don’t work – and which imposes restrictions on choice of doctor. HMOs limit choice of doctor because that enhances the power of managed-care tools (doctors with higher proportions of their patients insured by an HMO are more likely to cooperate with the HMO).

BIPARTISAN SUPPORT

Because Democrats controlled Congress at the time, Nixon obviously needed considerable Democratic support to get his HMO Act passed. He got it, in part because the AFL-CIO was so enthusiastic about HMOs. Democrats such as Senators Ted Kennedy, Walter Mondale, and Warren Magnuson, and Representatives Wilbur Mills and Paul Rogers, all lent their names to HMO legislation introduced during the 1971-73 period.

In testimony presented to the Senate Subcommittee on Health on October 5, 1971, the AFL-CIO heaped lavish praise on HMOs. The testimony was presented by Andrew J. Biemiller, then director of the federationfs Department of Legislation. Biemiller, a former member of Congress himself, opened his testimony with this statement: “Let me say at the outset that the AFL-CIO has had differences … with this [the Nixon] Administration. However, we are in complete accord on the importance of utilizing public funds to stimulate the development of … Health Maintenance Organizations.”

Biemiller went on to say that HMOs “can provide better quality medical care at lower cost than the fragmented fee-for-service system” and that the savings HMOs could achieve were “enormous.” His only significant reservation about Nixonfs HMO bill was that it would have subsidized for-profit HMOs. But because there is no evidence that managed care is less toxic in the hands of nonprofit than for-profit HMOs, this reservation was of little significance.

At the time that Biemiller testified in favor of HMOs, there were only three dozen HMOs in existence in the country. In part because of AFL-CIO support, the 1973 HMO Act passed, and that in turn facilitated the takeover of the U.S. health insurance industry by managed care insurers.

Whereas there was no powerful industry promoting HMO propaganda in 1971, today there is, thanks in part to the AFL-CIO. Today, virtually the entire health insurance industry promotes managed care.

BLOCKING SINGLE PAYER

Today the insurance industry uses its great economic power to oppose single-payer legislation (which would drastically reduce the size and influence of the industry) and to support further privatization of Medicare and Medicaid. They support their arguments the same claim Andrew Biemiller presented in 1971 – that managed care is a necessary tool in the fight against health care inflation.

Despite solid evidence that turning Medicare and Medicaid over to HMOs raises the costs of these programs and damages quality of care, politicians of both parties continue to support the further privatization of both programs.

To give you some idea of how solid the data against privatization of Medicare and Medicaid are, consider just two studies. A 2003 study of California’s Medicaid program, which is partially privatized, by a University of Maryland economist concluded that privatization raised that program’s cost by 20 percent.

In a 1999 report to Congress, the U.S. General Accounting Office stated, “[N]umerous studies conducted by us … and others demonstrated that the Medicare program spent more on beneficiaries enrolled in health plans than it would have if the same individuals had been in FFS [‘fee for service,’ which refers to the traditional Medicare program].”

Unions do not wield as much influence with Democrats today as they did in 1971, but they remain a critical part of the Democratic base and could play a very important role in sharpening and strengthening Democratic health policy. The AFL-CIO could help the nation extract itself from this health care mess if it were to renounce its endorsement of managed care and undertake a campaign to roll back the privatization of Medicaid and Medicare.

It would be even more helpful if the federation would also endorse single-payer legislation that has been introduced every year in the U.S. House of Representatives since 1991. But the mere renunciation of the AFL-CIO’s longstanding support for managed care would be very helpful to the single-payer movement.

Kip Sullivan is the author of The Health Care Mess: How We Got Into It and How We’ll Get Out of It.

Massachusetts' 'Universal Coverage' Bill is No Such Thing

By Kip Sullivan
In These Times, May 8, 2006

Odds are good that Romney will rue the day he took credit for this bill.

Legislators around the country are looking to the law recently passed in Massachusetts for answers on how to cope with the health care crisis in their states. Will Massachusetts really be the first state to achieve universal health insurance? Should Republican voters across the country see this legislation as evidence that Republican Governor Mitt Romney, who is likely to seek his party’s nomination for president, is an effective leader, or a “Republican In Name Only” who believes in too much government?

Proponents of the new law say it will result in near-universal coverage in the state by 2010, reducing the uninsured rate in Massachusetts to 1 percent from its 2004 rate of 11 percent. Beginning July 1, 2007, the law will require uninsured Massachusetts residents to either buy health insurance or face fines. Romney signed the bill on April 12.

The law has drawn an enormous amount of media coverage, much of it superficial. On April 12, the Associated Press reported, “The bill, intended to extend coverage to Massachusetts’ estimated 550,000 uninsured, is being touted as a national model, thrusting the state to the forefront of the national debate about how to provide near-universal health care coverage without creating a single government-controlled system. It’s also a political coup for Romney as he weighs a potential run for the Republican presidential nomination in 2008.”

Romney, who has repeatedly stated that the bill represents his thinking more than that of the Democratically controlled House and Senate, told the New York Times, “This is really a landmark for our state because this proves … that we can get health insurance for all our citizens without raising taxes and without a government takeover. The old single-payer canard is gone.”

However, Romney’s expectations of the law are going to be dashed, and his obituary for single-payer will prove to be premature. The fundamental flaw of the Massachusetts law is that it does little to reduce health care cost inflation. The bill attempts to improve coverage by funneling money through the bloated insurance industry. Insurance companies allocate roughly 20 percent of their revenue to cover their administrative costs (which include marketing, telling doctors how to practice medicine, providing dividends, and financing high management salaries). That is 10 times the overhead of Medicare, which allocates only 2 percent of its expenditures to overhead, and about 20 times that of Canada’s single-payer system, which allocates 1 percent. Moreover, a system of multiple insurers drives up the administrative costs of clinics and hospitals. This is especially true if all or most of the insurers practice managed care.

Nor is it likely that lowering the uninsured rate in Massachusetts will lower total health spending and premium inflation. Although the argument is often made that the cost of extending coverage to the uninsured will be more than offset by the reduction in medical costs due to improvements in the health of the formerly uninsured, there is little evidence for this claim. It is true that having health insurance is associated with better health. But it is also true that the insured use many more medical services than the uninsured do–some studies have estimated nearly twice as many.

The failure of the Massachusetts law to cut health care costs will be aggravated by its method of reducing the number of uninsured: It requires all Massachusetts residents to buy health insurance. Health insurance, in other words, will be treated like car insurance–you have to have it or youfll be in violation of state law and subject to a fine.

This provision, known as an “individual mandate,” is supported primarily by Republicans. AFL-CIO president John Sweeney characterized it as a regressive measure that only Gingrich Republicans would support. “Forcing uninsured workers to purchase health care coverage or face higher taxes and fines is the cornerstone of Mr. Gingrich’s health care reform proposals,” Sweeney said. “It is unconscionable that Massachusetts has adopted this misguided individual mandate.”

To meet their obligations under the mandate, most employed Massachusetts residents will continue to buy health insurance from their employer. But because the law does little to reduce premium inflation, employer flight from the health insurance market will continue, forcing more and more employees to purchase insurance on their own. In Massachusetts today, it costs employers about $4,000 per year to insure an employee without dependents and $11,000 a year to insure an employee with dependents.

So, how will the state’s uninsured be able to afford such a big-ticket item? The law requires the state to pay the entire premium for those under the federal poverty level (about $10,000 in annual income for an individual), and to provide sliding scale subsidies for those between poverty level ($20,000 for a family of four) and 300 percent of poverty (about $29,000 for an individual). Unfortunately, it is impossible from reading the law to know what the minimum level of coverage will be, how much insurance companies will charge for it, and how much the subsidy will be for any given income level. The law merely tells us that a state board with the odd name “board of the connector” will determine what constitutes “minimum creditable coverage,” and that this board will determine how big the subsidies have to be to make the coverage “affordable” to residents. (The term “connector” in the board’s title reflects its central task of assembling individuals who don’t have insurance through work and small employers into a large pool so that they can purchase insurance at the lower rates large employers get.)

To get some sense of how the law is going to work, we must turn to statements by the lawmakers who wrote it. They claim they can reduce insurance premiums for individuals, for example, from $4,000 down to $2,400 a year. This seems extremely unlikely. The only way the Massachusetts insurance industry can reduce premiums even a little, never mind by 40 percent, will be by offering substantially reduced coverage. This will not endear residents to Governor Romney and his “model” legislation. If, on the other hand, coverage is not reduced and premiums therefore remain near current levels, subsidies will have to be raised, which means taxes will have to go up, which won’t endear Romney to Massachusetts residents or to voters, especially Republican voters, in other states.

What will probably infuriate residents most will be the enforcement of this bill. The bill requires employers, providers, and residents to make reports to the government about who has insurance, and it punishes the uninsured with fines enforceable by the Department of Revenue. Residents who donft have insurance in 2007 will lose their personal income tax exemption (worth about $150). In succeeding years they will be fined half the price of the cheapest health insurance policy that the “connector” deems to be “creditable coverage”: about $1,200 if premiums indeed fall to the $2,400 range, and closer to $2,000 if premiums are in todayfs $4,000 range. Penalties for families will apparently be even higher.

The spectacle of hundreds of thousands of Massachusetts residents having to buy insurance with awful coverage that they cannot afford, and many refusing to buy insurance and taking steps to avoid paying their fines (such as not filing income taxes) will come into focus in the latter half of 2007 and the first half of 2008–that is, in the year leading up to the 2008 Republican national convention. The media, in short, will have plenty of time to unearth horror stories about Romney’s “model” legislation. Odds are good that Romney will rue the day he took credit for this bill.

Kip Sullivan sits on the steering committee of the Minnesota Universal Health Care Coalition. He is the author of The Health Care Mess, available at authorhouse.com.