By PAUL KRUGMAN
Op-Ed Columnist
New York Times
Published: February 16, 2007

Is the health insurance business a racket? Yes, literally — or so say two New York hospitals, which have filed a racketeering lawsuit against UnitedHealth Group and several of its affiliates.

I don’t know how the case will turn out. But whatever happens in court, the lawsuit illustrates perfectly the dysfunctional nature of our health insurance system, a system in which resources that could have been used to pay for medical care are instead wasted in a zero-sum struggle over who ends up with the bill.

The two hospitals accuse UnitedHealth of operating a “rogue business plan” designed to avoid paying clients’ medical bills. For example, the suit alleges that patients were falsely told that Flushing Hospital was “not a network provider” so UnitedHealth did not pay the full network rate. UnitedHealth has already settled charges of misleading clients about providers’ status brought by New York’s attorney general: the company paid restitution to plan members, while attributing the problem to computer errors.

The legal outcome will presumably turn on whether there was deception as well as denial — on whether it can be proved that UnitedHealth deliberately misled plan members. But it’s a fact that insurers spend a lot of money looking for ways to reject insurance claims. And health care providers, in turn, spend billions on “denial management,” employing specialist firms — including Ingenix, a subsidiary of, yes, UnitedHealth — to fight the insurers.

So it’s an arms race between insurers, who deploy software and manpower trying to find claims they can reject, and doctors and hospitals, who deploy their own forces in an effort to outsmart or challenge the insurers. And the cost of this arms race ends up being borne by the public, in the form of higher health care prices and higher insurance premiums.

Of course, rejecting claims is a clumsy way to deny coverage. The best way for an insurer to avoid paying medical bills is to avoid selling insurance to people who really need it. An insurance company can accomplish this in two ways, through marketing that targets the healthy, and through underwriting: rejecting the sick or charging them higher premiums.

Like denial management, however, marketing and underwriting cost a lot of money. McKinsey & Company, the consulting firm, recently released an important report dissecting the reasons America spends so much more on health care than other wealthy nations. One major factor is that we spend $98 billion a year in excess administrative costs, with more than half of the total accounted for by marketing and underwriting — costs that don’t exist in single-payer systems.

And this is just part of the story. McKinsey’s estimate of excess administrative costs counts only the costs of insurers. It doesn’t, as the report concedes, include other “important consequences of the multipayor system,” like the extra costs imposed on providers. The sums doctors pay to denial management specialists are just one example.

Incidentally, while insurers are very good at saying no to doctors, hospitals and patients, they’re not very good at saying no to more powerful players. Drug companies, in particular, charge much higher prices in the United States than they do in countries like Canada, where the government health care system does the bargaining. McKinsey estimates that the United States pays $66 billion a year in excess drug costs, and overpays for medical devices like knee and hip implants, too.

To put these numbers in perspective: McKinsey estimates the cost of providing full medical care to all of America’s uninsured at $77 billion a year. Either eliminating the excess administrative costs of private health insurers, or paying what the rest of the world pays for drugs and medical devices, would by itself more or less pay the cost of covering all the uninsured. And that doesn’t count the many other costs imposed by the fragmentation of our health care system.

Which brings us back to the racketeering lawsuit. If UnitedHealth can be shown to have broken the law — and let’s just say that this company, which is America’s second-largest health insurer, has a reputation for playing even rougher than its competitors — by all means, let’s see justice done. But the larger problem isn’t the behavior of any individual company. It’s the ugly incentives provided by a system in which giving care is punished, while denying it is rewarded.

By ROBERT H. FRANK
New York Times
Published: February 15, 2007

In his State of the Union address, President Bush proposed tax cuts to make health insurance more affordable for the uninsured. The next day, Stephen Colbert had this to say on his show on Comedy Central: “It’s so simple. Most people who can’t afford health insurance also are too poor to owe taxes. But if you give them a deduction from the taxes they don’t owe, they can use the money they’re not getting back from what they haven’t given to buy the health care they can’t afford.”

Just so. As health economists have long known, market incentives induce private insurers to spend vast sums to avoid people who may actually require health care. This problem is mitigated (though not eliminated) by employer-provided group policies. Because Mr. Bush’s proposal would steer people toward individual policies, it would actually strengthen the incentive to shun unhealthy people. Such people can now keep their insurance by not changing jobs. But no private company would want them as individual policyholders at a price anyone could afford.

That Mr. Bush’s proposal will not shrink the ranks of the uninsured is not its most serious problem. Far more troubling is its embrace of a system under which we spend more than twice as much on health care, on average, as the 21 countries in which life expectancy exceeds ours. American costs are so high in part because the reliance on private insurance multiplies administrative expenses, currently about 31 percent of total outlays.

Most health economists agree that government-financed reimbursement is the only practical way to control these expenses, many of them stemming from insurers’ efforts to identify and avoid unhealthy people. Canada’s single-payer health system, which covers everyone, spends less than 17 percent on administrative expenses.

Annual health spending in the United States currently exceeds $2 trillion. A single-payer system that did nothing more than reduce administrative expenses to the levels of other countries would save roughly $300 billion annually.

Some critics worry that expensive but ineffective medical interventions may proliferate if health care becomes a federal responsibility. But Victor Fuchs, a respected health economist at Stanford University, and Dr. Ezekiel Emanuel, chairman of the department of clinical bioethics at the National Institutes of Health, have outlined a single-payer plan that would limit such interventions far more effectively than the current system. (A copy of their plan is on the links page of my Web site, www.robert-h-frank.com.)

If the single-payer system embraced by virtually all other developed countries is clearly the best solution, why doesn’t the United States adopt it? Some analysts concede its merits, but characterize it as either unaffordable or politically unrealistic. But why should a policy that promises better results for less money be considered a nonstarter?

There are two obstacles, which could both be overcome by intelligent political leadership. One is that the single-payer system would require additional tax revenue. In the current climate, that’s a tough political hurdle, to be sure. Yet how complicated would it be to explain to voters that because the single-payer plan would reduce costs substantially, every additional tax dollar would be offset by an even larger reduction in private insurance spending? Given that such a system is so much cheaper over all, calling it unaffordable makes no sense.

The second obstacle is opposition from private insurers, who would be understandably reluctant to abandon multibillion-dollar annual profit streams. Those who stand to lose from policy changes always battle harder than those who stand to gain — an asymmetry that is exaggerated when losses would be concentrated and gains diffuse. So, yes, the insurance industry would bitterly resist.

But intelligent leadership could overcome that resistance. Whenever a pie gets bigger, everyone can get a larger slice than before. Because moving to a single-payer system would make the economic pie bigger, it should be possible for everyone, including the insurance industry, to come out ahead.

The first step is to acknowledge that insurance companies are not evil, that they invested in good faith under tax laws that favored employer-provided private health insurance. To put them out of business with an overnight switch would be unjust.

Even so, they are not entitled to a permanent license to operate a system that has become economically unsustainable. The move to a single-payer plan would save far more than enough to compensate insurance companies for lost profits. Compensation for losses could start at 100 percent, then be gradually phased out as companies shifted investments elsewhere.

Selling this argument in an era of 15-second sound bites would be challenging, but hardly impossible. Indeed, forceful advocacy of the single-payer approach offers a golden opportunity for any serious presidential candidate. Voters are fed up with rising insurance costs and dwindling coverage. On the merits, single-payer coverage is an unassailable solution to both problems. Its rationale is simple enough to articulate clearly during a long campaign. And if the proposal were devised so that everyone stood to win, corporate interests would have little reason to attack it.

Critics of the single-payer plan have long railed against the specter of socialized medicine, suggesting that it means being treated by government functionaries. Yet people who have experienced single-payer coverage firsthand seem unconcerned. When one of my sons needed surgery for a broken arm during a sabbatical in Paris, for example, the medical system we encountered was just as professional as the American one and far less bureaucratic. And in France, which spends half as much on health care as the United States and has more doctors and hospital beds per capita, everyone is covered.

We live in challenging times. Does a candidate who couldn’t persuade voters to embrace the single-payer approach deserve to be president?

Robert H. Frank, an economist at the Johnson School of Cornell University, is the author of “The Economic Naturalist,” which will be published this spring. Contact: www.robert-h-frank.com

Note from PNHP: The Fuchs Plan is actually not a single-payer plan. It is a quite regressive proposal that involves vouchers and maintaining the private insurance industry. A side from this error, Frank’s article is right on.

By ROBERT H. FRANK
New York Times
Published: February 15, 2007

In his State of the Union address, President Bush proposed tax cuts to make health insurance more affordable for the uninsured. The next day, Stephen Colbert had this to say on his show on Comedy Central: “It’s so simple. Most people who can’t afford health insurance also are too poor to owe taxes. But if you give them a deduction from the taxes they don’t owe, they can use the money they’re not getting back from what they haven’t given to buy the health care they can’t afford.”

Just so. As health economists have long known, market incentives induce private insurers to spend vast sums to avoid people who may actually require health care. This problem is mitigated (though not eliminated) by employer-provided group policies. Because Mr. Bush’s proposal would steer people toward individual policies, it would actually strengthen the incentive to shun unhealthy people. Such people can now keep their insurance by not changing jobs. But no private company would want them as individual policyholders at a price anyone could afford.

That Mr. Bush’s proposal will not shrink the ranks of the uninsured is not its most serious problem. Far more troubling is its embrace of a system under which we spend more than twice as much on health care, on average, as the 21 countries in which life expectancy exceeds ours. American costs are so high in part because the reliance on private insurance multiplies administrative expenses, currently about 31 percent of total outlays.

Most health economists agree that government-financed reimbursement is the only practical way to control these expenses, many of them stemming from insurers’ efforts to identify and avoid unhealthy people. Canada’s single-payer health system, which covers everyone, spends less than 17 percent on administrative expenses.

Annual health spending in the United States currently exceeds $2 trillion. A single-payer system that did nothing more than reduce administrative expenses to the levels of other countries would save roughly $300 billion annually.

Some critics worry that expensive but ineffective medical interventions may proliferate if health care becomes a federal responsibility. But Victor Fuchs, a respected health economist at Stanford University, and Dr. Ezekiel Emanuel, chairman of the department of clinical bioethics at the National Institutes of Health, have outlined a single-payer plan that would limit such interventions far more effectively than the current system. (A copy of their plan is on the links page of my Web site, www.robert-h-frank.com.)

If the single-payer system embraced by virtually all other developed countries is clearly the best solution, why doesn’t the United States adopt it? Some analysts concede its merits, but characterize it as either unaffordable or politically unrealistic. But why should a policy that promises better results for less money be considered a nonstarter?

There are two obstacles, which could both be overcome by intelligent political leadership. One is that the single-payer system would require additional tax revenue. In the current climate, that’s a tough political hurdle, to be sure. Yet how complicated would it be to explain to voters that because the single-payer plan would reduce costs substantially, every additional tax dollar would be offset by an even larger reduction in private insurance spending? Given that such a system is so much cheaper over all, calling it unaffordable makes no sense.

The second obstacle is opposition from private insurers, who would be understandably reluctant to abandon multibillion-dollar annual profit streams. Those who stand to lose from policy changes always battle harder than those who stand to gain — an asymmetry that is exaggerated when losses would be concentrated and gains diffuse. So, yes, the insurance industry would bitterly resist.

But intelligent leadership could overcome that resistance. Whenever a pie gets bigger, everyone can get a larger slice than before. Because moving to a single-payer system would make the economic pie bigger, it should be possible for everyone, including the insurance industry, to come out ahead.

The first step is to acknowledge that insurance companies are not evil, that they invested in good faith under tax laws that favored employer-provided private health insurance. To put them out of business with an overnight switch would be unjust.

Even so, they are not entitled to a permanent license to operate a system that has become economically unsustainable. The move to a single-payer plan would save far more than enough to compensate insurance companies for lost profits. Compensation for losses could start at 100 percent, then be gradually phased out as companies shifted investments elsewhere.

Selling this argument in an era of 15-second sound bites would be challenging, but hardly impossible. Indeed, forceful advocacy of the single-payer approach offers a golden opportunity for any serious presidential candidate. Voters are fed up with rising insurance costs and dwindling coverage. On the merits, single-payer coverage is an unassailable solution to both problems. Its rationale is simple enough to articulate clearly during a long campaign. And if the proposal were devised so that everyone stood to win, corporate interests would have little reason to attack it.

Critics of the single-payer plan have long railed against the specter of socialized medicine, suggesting that it means being treated by government functionaries. Yet people who have experienced single-payer coverage firsthand seem unconcerned. When one of my sons needed surgery for a broken arm during a sabbatical in Paris, for example, the medical system we encountered was just as professional as the American one and far less bureaucratic. And in France, which spends half as much on health care as the United States and has more doctors and hospital beds per capita, everyone is covered.

We live in challenging times. Does a candidate who couldn’t persuade voters to embrace the single-payer approach deserve to be president?

Robert H. Frank, an economist at the Johnson School of Cornell University, is the author of “The Economic Naturalist,” which will be published this spring. Contact: www.robert-h-frank.com

Note from PNHP: The Fuchs Plan is actually not a single-payer plan. It is a quite regressive proposal that involves vouchers and maintaining the private insurance industry. A side from this error, Frank’s article is right on.

Congress of California Seniors Joins New Coalition, “It’s OUR Healthcare!”

By Gary Passmore
Director, Congress of California Seniors
February 14, 2007
CaliforniaProgressReport.com

At the instigation of our state political leadership, 2007 is shaping up to be the year of health reform in California. The central issue is how to provide quality, affordable coverage to more than six million Californians who are not covered by employer-based health insurance, public insurance programs (such as Medicare, Medi-Cal, or Healthy Families), or who purchase their own coverage.

In addition to expanded access, there are other key goals which are important to millions of Californians such as controlling costs that threaten the coverage of people with insurance, expanding prevention programs, and improving the quality and safety of health services.

Although most seniors are covered by Medicare, we have a huge stake in the reforms being advanced. Of course we care deeply about people under age 65, but we also recognize the need to control health inflation to preserve the level of benefits under Medicare…and we are vitally concerned about quality care and consumer protections. Because of these concerns, we will speak out in the public debate which lies ahead. That is why the Congress of California Seniors has joined a broad-based consumer coalition to speak out on the needs of California families. The group is called “It’s OUR Healthcare!” and we will engage in a vigorous advocacy campaign to educate people and push policymakers for an effective solution…not a band-aid approach.

Very different ideas for dealing with health reform have been advanced, ranging from Senator Sheila Kuehl’s expansive single-payer universal coverage proposal to Senate President pro Tem Don Perata’s plan to create a large state pool for the uninsured combined with employer and individual mandates, and House Speaker Fabian Nunez’s call for insuring all California children and creating a public insurance pool for the uninsured to the Governor’s broad proposal to force greater shared responsibility, place closer restrictions on private health insurers, and expand public coverage. There are other legislative proposals to fix specific pieces of the problem.

In this mix are some ideas that are bad. Health savings accounts don’t help the vast number of uninsured people…they only drain resources needed to fix the access problem. Cutting back on existing consumer protections (such as hospital safety and HMO regulation) to lower costs would be a setback rather than an advance. And high deductible coverage or individual mandates that shift responsibility to families that cannot afford coverage accomplishes nothing.

The goal is not to pretend to solve the problem, but rather to guarantee that everyone gets the health care they need when they need it and at a price they can afford.

Last November, voters made clear that they expect bipartisan problem solving in Sacramento, and health coverage reform will test the capacity of our system to find workable compromises. Ultimately, political leaders may have to turn to the voters to make some of the decisions.

Whatever happens, we believe that the effective, lasting reforms will recognize that we must eventually move from an employer-based health insurance model to a broader tax-based model to keep American business competitive, to allow people to move between jobs or to change careers, and to allow families to live with greater security and peace of mind.

Background Information on Where We Stand

Principles of Concern to the Congress of California Seniors in the Implementation of Health Care Reform

1. Avoid actions that may negatively impact on Medicare or MediCal…cost structure, access, or quality.
2. Encourage cost controls to rein in health care inflation that threatens benefits to people already insured, including Medicare recipients. Focus especially on overhead costs and excess profits.
3. If single payer, universal health insurance is not immediately achievable, develop a system which begins to blend coverage into a few options and marshals all possible financial resources so that a reformed model can eventually “morph” into broad-based Medicare type universal coverage system with less disruption in the future.
4. Recognize that, in the not too distant future, health insurance must shift from an employer-based model to some form of broad tax-based model if the United States is to remain economically competitive.
5. Use public insurance programs to promote information technology (electronic medical records) and to force standardization of forms and reports.
6. Do not further restrict access to the courts or the legal system as a means of reducing costs.
7. Avoid repeal or diminution of consumer protections in HMO regulations, hospital staffing ratios and the like.
8. Maximize federal funding for coverage expansion and improved services through Medicare, Medicaid and Healthy Families.
9. Recognize that solutions such as health savings accounts rarely help the majority of those who are uninsured because of income tax liability disparities, and they reduce public revenues needed to expand access for those who cannot afford health coverage.
10. Don’t simply “cherry pick” easy-to-cover populations such as children or healthy young adults.
11. Develop different coverage options which recognize that people with diagnosed chronic diseases need access to special plans providing more services and are unlikely to get coverage in the private market.
12. Make any coverage as inclusive as possible by including chronic disease management, health prevention, mental health, oral health and vision care.
13. Recognize that good nutrition and quality home and community-based care giving for elderly and dependent adults can lower costs by reducing reliance on high cost in-patient hospital care, doctor visits and remedial therapy.
14. Build incentives into the funding system to promote robust discharge planning and stronger transition to long term care.
15. Avoid creating the appearance of a solution with limited coverage or high deductible plans that technically give people insurance but do not provide them with needed health care.

Gary Passmore has been the Director of the Congress of California Seniors, a nonprofit advocacy/education organization with over 500,000 members, whose goal is to advance the interests of seniors and their families since January of 2003. He is retired from active employment. In the 1970’s and 80’s, before coming to California, he served as the Chief Executive Assistant to the Governor of Missouri and was the State Budget Director for Missouri.

New York Times
Published: February 12, 2007

To the Editor:

Paul Krugman lauds former Senator John Edwards’s health care proposal, claiming that it would trim insurance bureaucracy. But Mr. Edwards’s plan forgoes at least 90 percent of the $350 billion in potential administrative savings available through single-payer reform.

Insurance overhead accounts for only a quarter of the bureaucratic waste. The rest is useless paperwork imposed on hospitals and physicians by insurers trying to avoid payment.

Moreover, marketing costs would not melt away as Mr. Krugman suggests. Medicare pays H.M.O.’s using Mr. Edwards’s proposed community rating system, but H.M.O.’s still market heavily to healthy, profitable seniors.

Finally, Mr. Edwards’s “Health Markets” (middlemen between enrollees and insurers) add bureaucracy. Under Massachusetts’ new reform, our health market imposes a 4 percent surcharge on premiums.

Mr. Edwards assumes that public plans and private insurers will compete on a level playing field. Yet Mr. Krugman has previously shown how H.M.O.’s undermine competition in Medicare, lobbying for and winning huge overpayments.

Absent savings, universal coverage won’t happen.

David U. Himmelstein, M.D.
Steffie Woolhandler, M.D.
Cambridge, Mass., Feb. 9, 2007

The writers are associate professors of medicine at Harvard Medical School and founders of Physicians for a National Health Program.

By David Lazarus
San Francisco Chronicle
Friday, February 9, 2007

It caused quite a stir when some of the biggest names in the business world came together this week to declare that they want nothing less than” a new American health care system by 2012.”

Among those seeking this revolutionary change are Wal-Mart, the country’s biggest private employer, and the Service Employees International Union, the country’s biggest labor union.

“What unites us here today is our shared belief that it will be a far greater America when we get affordable health care for all Americans,” Andy Stern, president of the union, said at a news conference Wednesday.

And no one would dispute that. But what precisely are these powerful economic forces seeking?

At this point, not even they seem to know.

“It’s symbolic — all these people coming together,” Dave Tovar, a Wal-Mart spokesman, told me Thursday. “Now we need to get some ideas on paper and figure out how we’re going to do this.”

Yeah, that’d be a good start.

Health care experts are reluctant to dismiss this private-sector initiative as a headline-grabbing publicity stunt. Any discussion of health care reform is better than none, they say.

But they point out that everyone knows the health care system is broken. What’s lacking now is a serious plan to fix things.

“Unless they’re actually willing to give us a plan, they’re being dishonest,” said Steffie Woolhandler, an associate professor at Harvard Medical School and longtime advocate of overhauling the U.S. health care system.

“They’re saying that they want to give us an omelet but they don’t want to break any eggs,” she said.

Wal-Mart and SEIU are being joined in the “Better Health Care Together” campaign by AT&T, Intel, Kelly Services, the Howard H. Baker Jr. Center for Public Policy, the Center for American Progress, the Committee for Economic Development and Communications Workers of America.

(Many Chronicle employees, including me, are represented by the Newspaper
Guild, a CWA labor group.)

Here, in their words, are the “four common sense principles” that the coalition partners announced this week as the cornerstone of their efforts:

* We believe every person in America must have quality, affordable health insurance coverage.

* We believe individuals have a responsibility to maintain and protect their health.

* We believe that America must dramatically improve the value it receives for every health care dollar.

* We believe that businesses, governments and individuals all should contribute to managing and financing a new American health care system.

The first principle is a commitment to universal coverage, but it doesn’t say how this can be achieved. The second points to a need for greater personal accountability in limiting health care costs, but once again avoids saying how this can be accomplished.

The third principle reflects statistics from the Organization for Economic Development and Cooperation showing that the United States spent an average $6,102 per person on health care in 2004 (the latest year for which figures are available). By contrast, Canada spent $3,165 per person, France $3,159, Australia $3,120 and Britain a mere $2,508.

At the same time, life expectancy in the United States was lower than in each of these other countries as of 2004, and infant mortality was higher.

And the fourth principle, well, it doesn’t say anything at all, except that nobody should be off the hook when it comes to paying for any of the changes that the group hasn’t actually called for.

“We want better health care for all Americans,” said Wal-Mart’s Tovar. “If that were simple, it would have been accomplished already.”

True, but there are no shortage of proposals already on the table, ranging from expansion of our current employer-based insurance system to switching to a government-run system similar to programs that exist in all other industrialized democracies.

The problem isn’t a shortage of ideas. The problem is finding the political will to make changes that would reinvent how medical coverage is delivered in this country and, in so doing, potentially devastate the powerful insurance and pharmaceutical industries.

Colin Evans, director of policy and standards for Santa Clara’s Intel, said members of the coalition deliberately avoided making any specific proposals in their news conference this week.

“We want to have a discussion about health care, and we want to have the right discussion about health care,” he said.

By that, Evans said he means that people shouldn’t just focus on the financial aspects of health care reform.

“That’s the wrong question,” he said. “The real question is why does health care in America cost twice as much per capita as it does in any other country with running water?”

Not much of a mystery. According to researchers at Harvard, about a third of the $2 trillion spent each year on health care in the United States is squandered on bureaucratic overhead — the result of having a wide variety of insurance plans and a wide variety of clerical procedures.

Yet despite the vast amount of money devoted to medical coverage annually, 47 million Americans remain uninsured.

“The burden of paying for health care can’t just be placed on individuals, and it can’t just be placed on business, and it can’t just be placed on the government,” said Sara Howard, a spokeswoman for SEIU. “We need to figure out a way to get all these sectors together.”

Again, not much of a mystery. A government-run insurance system funded by individual and business taxes could serve as the basis of a universal-coverage program, with private insurance plans providing additional coverage for anyone who desires it.

In 2005, the Lewin Group, a health care consulting firm, was commissioned to study the economic impact of a government-run insurance system proposed for California.

It determined that if such a system had been in place in 2006, the state would have saved about $8 billion in health care spending. From 2006 to 2015, the group concluded, total savings would run as high as $343 billion.

Nationwide, of course, the savings would be even greater, thus allowing for coverage of all uninsured Americans without an additional cost to taxpayers.

As it happens, a government-run system is one of four proposals already put forward by the National Coalition on Health Care, a separate grouping of business, financial and labor entities that for years has been calling for change in the U.S. system.

However, the National Coalition on Health Care (which includes the California Public Employees’ Retirement System but not Wal-Mart, SEIU and most other members of the new coalition) has yet to place its collective weight behind a single proposal.

Therefore, like the new coalition, it isn’t advocating anything specific — just change.

But Henry Simmons, president of the National Coalition on Health Care, said his group is already out front in seeking reform. The implication is that another business coalition will only muddy the health care waters on Capitol Hill.

“I’m not sure what their principles are,” Simmons said of the new group. “It’s not enough to just say that we ought to work on this problem.”

No, it’s not.

David Lazarus’ column appears Wednesdays, Fridays and Sundays. He also can be heard Saturdays, 4 to 7 p.m., on KGO Radio. Send tips or feedback to dlazarus@sfchronicle.com.

Copyright 2007 SF Chronicle