Chapter – Page 1124

Seeking insurance solutions

Seeking insurance solutions
David Lazarus Friday, May 14, 2004

This is Cover the Uninsured Week, and it’s been an especially good week for the insurance industry.

Republican and Democratic lawmakers have come out with competing plans intended to provide health insurance for at least a portion of the roughly 44 million Americans — 16 percent of the population — now lacking coverage.

The plans tinker with the existing system and would cost taxpayers a bundle, but critics say they do little to address underlying problems that result in runaway health care costs for consumers and businesses.

They would, however, provide millions of new customers for a politically powerful, $300 billion industry that is deeply opposed to fundamental change in how Americans receive health care.

“The only winner here is the status quo,” said Ida Hellander, executive director of Physicians for a National Health Program, a Chicago advocacy group with more than 10,000 members nationwide. “These plans are simply subsidizing a sick system. They don’t solve the most serious problems.”

On Tuesday, Senate Republicans unveiled their plan for using tax credits and federal funds to help low-income workers purchase insurance. It also includes government-negotiated discounts for purchases of prescription drugs.

On Wednesday, House Democrats trundled out their plan. It, too, relies heavily on tax credits, as well as spending billions to expand coverage to parents of low-income kids.

While both plans would likely help many people obtain at least rudimentary health insurance, neither achieves the goal of universal coverage.

Similarly, they wouldn’t put a halt to insurance premiums that are climbing by about 12 percent a year. Nor would they address the estimated $400 billion spent annually on administrative costs to process a vast number of insurance forms — a quarter of the $1.6 trillion in total health care spending last year.

Taxpayers foot the bill

Then there’s the sticky question of who pays for reforms comprised largely of tax breaks and subsidies. The unspoken answer, of course, is that you’ll be footing the bill — you and all other taxpayers.

“Businesses complain that they can’t keep up with rising health care costs,” Hellander said. “They should be worried about any solution that doesn’t get at the systemic reasons costs keep going up.”

But Cover the Uninsured Week isn’t about finding such solutions. The event — this is its second year — is backed by a broad array of business and labor groups eager to raise awareness about the seriousness of the health care situation. Former Presidents Jimmy Carter and Gerald Ford are the honorary co-chairs.

“We do not advocate a solution,” said Stuart Schear, organizer of Cover the Uninsured Week and spokesman for the Robert Wood Johnson Foundation, the largest U.S. philanthropic organization devoted exclusively to health care. “What we want is to place this issue at the top of the domestic agenda.”

Sen. John Kerry, the likely Democratic nominee for president, spent much of the week discussing health care at campaign rallies. But his words were drowned out by the furor over increasingly ugly events in Iraq.

President Bush’s health care platform largely mirrors the GOP proposals put forward in the Senate.

In an independent analysis of the two candidates’ approaches released last week, Emory University economist Kenneth Thorpe determined that Bush’s plan would cost taxpayers $90 billion over the next decade but provide coverage to only about 2.5 million uninsured Americans.

Kerry’s plan, meanwhile, would reach 27 million people but would cost more than $650 billion.

How plans differ

A key difference between the two platforms, Thorpe found, is that Bush’s plan would primarily affect people who already have some insurance, whereas Kerry’s plan is intended for workers with no coverage.

Karen Ignagni, president of America’s Health Insurance Plans, the leading trade group for the insurance industry, praised lawmakers for seeking this week to make health coverage more affordable.

“We’re finally seeing momentum to address this serious problem,” she said.

But Ignagni rejected any suggestion that lawmakers look not at fiddling with the existing system but instead explore a so-called single-payer system that would guarantee coverage to all citizens, similar to Canada’s state- backed insurance network.

“In Canada, you have doctors who can’t admit patients for surgery without making them wait for months,” she said. “That’s not the system we want to replicate in the United States.”

No, it’s not. Nor is it precisely the system they have up north either. Hellander at Physicians for a National Health Program noted that weeks or months of waiting for treatment in Canada is only for elective surgery for non- life-threatening conditions.

“If you have a life-threatening condition, of course you’ll be treated immediately,” she said.

Refining the system

In any case, the Canadian system is far from perfect. The United States would need to bring its own refinements to the equation to ensure both quality of care and cost controls.

Meanwhile, funding for a single-payer system is certainly within reach. Researchers at Harvard Medical School have determined that slashing administrative costs under a single-payer system would be sufficient to provide coverage for every uninsured American.

Hellander’s group advocates a payroll tax of about 7 percent to replace all other employer expenses for medical costs, and an income tax of about 2 percent to replace employees’ current insurance premiums, co-pays, deductibles and other out-of-pocket expenses.

Cover the Uninsured Week is a fine idea. This is indeed an issue that requires greater public scrutiny. But if we’re serious about solving this problem, we have to be serious about genuine solutions.

That’s not what we saw this week.

David Lazarus’ column appears Wednesdays, Fridays and Sundays. He also can be seen regularly on KTVU’s “Mornings on 2.” Send tips or feedback to dlazarus@sfchronicle.com.

The British National Health Service

In a number of ways, the United Kingdom’s National Health Service (NHS) is a unique experiment, springing from the fusion at the end of World War II of a number of synergistic elements: a powerful desire for social change; a determination on the part of the populace not to repeat the experience of the broken promises after World War I; the presence on the table in 1945 of a plan for social service reform, including health care, a plan made, remarkably, in the middle of the war; and the arrival on the scene of a single-minded, charismatic politician who saw the establishment of a national health service as his mission.

Click here to read the article

15 Reasons Why the 2003 Medicare Law Fails Seniors

15 Reasons Why the 2003 Medicare Law Fails Seniors

Alliance for Retired Americans, April 2004, www.retiredamericans.org

It is more about dismantling the Medicare program than providing a prescription drug benefit.
Background: The addition of a prescription drug benefit to Medicare accounts for 181 pages of the legislation; the remaining 500 pages of the law includes the measures to reform Medicare.

It is not part of any other insurance plan and creates a gap in benefit coverage.
Background: Beneficiaries will pay a monthly premium of $35 as well as a $250 deductible. The benefit will cover 75 percent of drug costs up to $2,250. While continuing to pay premiums, beneficiaries will pay 100 percent of drug costs between $2,250 and $5,100, after which the plan will kick in again and cover 95 percent of costs. Nearly one-half of Medicare beneficiaries will fall into the coverage gap or “donut hole” and will not have any assistance with their drug costs for at least part of the year.

The prescription drug benefit will be unaffordable for most seniors, particularly in future years.
Background: The Congressional Budget Office projects that after one year, the $250 deductible and the $2,250-5,100 gap both will jump 10 percent. By 2013, the eighth year of the program, the deductible and gap are projected to grow by 78 percent; seniors will pay a $445 deductible and those with the largest drug bills will be entirely responsible for more than $5,000 in drug costs.

The law does not provide the drug choices beneficiaries want.
Background: The expanded “choice” in the law will result in a great deal of confusion. For example, beneficiaries who use several medications will have to
research and compare drug plans to find the one that will cover most of their medications. Each plan will have its own list of drugs, or formulary, which is approved for use or payment. Plans are required to have two drugs per class
but not all drugs in that class, are free to design restrictive preferred drugs lists and may change these lists after a beneficiary has enrolled.

The complexity and lack of information place beneficiaries at a severe disadvantage in choosing a plan.
Background: Beneficiaries will need to research extensively to determine which plan is best for them. Nearly a quarter of Medicare beneficiaries have health problems such as hearing or cognitive impairments that make it difficult for them to make decisions. Yet the law does not allow beneficiaries to access the preferred drugs lists of the competing prescription drug plans before
enrollment. Also, the law does not provide additional monies for independent resources such as the State Health Insurance Programs (SHIPs) to provide information on the new law.

The law provides greater benefits to providers, private insurers and drug companies than it does to beneficiaries.
Background: Most health legislation usually includes increased
payments for providers such as doctors and hospitals. Remarkably, this legislation contains sizeable financial gains for private insurers and pharmaceutical companies. It is estimated that pharmaceutical companies will reap additional profits estimated at $139 billion over 10 years. In contrast, the typical Medicare beneficiary will receive approximately an $800 a year drug benefit. The law substantially increases subsidies to managed care plans. Starting in 2004, two years before the prescription drug benefit begin, managed care plans will receive $20 billion in subsidies. By 2006, the plans will be paid as much as 25 percent more than the traditional fee-for-service Medicare pays for each enrollee.

The protections and benefits for low-income individuals will likely be less than they currently have.
Background: For those who fall below 100 to 135 percent of the Federal Poverty Level (FPL), Medicare will pay the premiums and deductibles. These low-income beneficiaries will be responsible for co-payments between $1-2 for generics and $3-5 for brand drugs. However, co-pay amounts are projected to increase by about 10 percent per year, according the Congressional Budget Office (CBO).
In contrast, CBO projects Social Security checks will increase about 2.5 percent per year. The law also includes a restrictive assets test of $6,000 for individuals and $9,000 for couples. The assets test excludes a house and car but could include savings and personal property. It is estimated that the assets tests will eliminate 2.8 million low-income individuals from assistance.

Low-income individuals who are currently covered under both Medicare and Medicaid (called “dual eligibles”) will likely have to pay more for their drugs or lose access to coverage for drugs they need. The law prohibits Medicaid from supplementing (“wrapping around”) the Medicare drug benefit. Medicaid generally covers all drugs that a beneficiary receives. Under the new law, plans will be able to limit coverage to two drugs per therapeutic class.

Consequently, low-income individuals who typically live on very fixed incomes will find that the co-pays will increase at a pace that will become increasingly unaffordable and those who currently have Medicaid coverage will have less assistance than they have now. Overall, 6.4 million low-income seniors will be harmed by the Medicare Act.

The law does nothing to control prescription drug price inflation.
Background: The legislation explicitly prohibits the federal government from using its purchasing power on behalf of 40 million beneficiaries to bargain with drug companies. Drug companies lobbied for this because they prefer to deal with dozens of small plans than a single federal agency. Thus, Medicare must pay whatever drug companies want to charge. The pharmaceutical industry
consistently collects after-tax median profits from revenues at a percentage higher than any other industry and five times the profit level for the other fortune
500 companies combined.

The law would also continue the ban on reimporting safe, affordable drugs from countries such as Canada by requiring safety certification from the Secretary of Health and Human Services, which HHS has refused to do.

The federal government is prohibited from negotiating for lower prices under the new law.
Background: (same as background above – #*8)
Medicare beneficiaries will be penalized for each year they do not join a private plan.

Background: The Act imposes an unfair penalty on beneficiaries who do not sign up for the drug benefit by increasing the premium amount one percent per month for each month an individual without coverage delays enrollment. Thus, if individuals with low drug costs decide they don’t want to pay the premium for a service they won’t use and then two years later have high drug costs and join, the premiums will be 24 percent higher for the rest of their lives. This penalty is especially unfair because there will likely be a great deal of confusion during the early years of the new program.

Beneficiaries will no longer be able to buy Medigap policies that provide prescription drug benefits.
Background: Most beneficiaries enroll in Medigap plans because they need prescription drug coverage. The law prohibits the sale of any Medigap policy that would help pay for drug co-payments and deductibles when the new drug benefit becomes available.

It undermines Medicares universality by requiring wealthier beneficiaries to pay more for the first time in Medicares history.
Background: Medicare has been a successful program because of its universality. Individuals with incomes above $80,000 and couples with incomes above $160,000 will pay more of their Medicare Part B premiums. If upper income individuals have to pay more for Part B, they may choose not to participate, and Medicare may become a program for lower and middle income seniors only. Additionally, there is no guarantee that the upper income limit will not be brought down in future years when Medicare needs additional monies.

Millions of retirees with employer-provided health coverage will likely lose their coverage.
Background: The Congressional Budget Office projects that 2.7 million retirees will lose the drug coverage they currently receive through former employers who will drop such coverage when the drug benefit becomes available, even with employer subsidies.

There is no guarantee the interim drug discount card will deliver the promised savings.
Background: The drug discount cards, which will become available in May or June 2004, will cost $30 a year. It is estimated that savings will be only about 10-15 percent, approximately the same or even less than discount cards currently in use. Some low-income beneficiaries will have credit for $600 worth of drugs but will still pay 5-10 percent of the costs of each drug they buy.

Medicaid beneficiaries will not receive the $600 subsidy. Medicare beneficiaries can use only one of the discount cards at a time and must use the card they select for at least one year. The law does not set any rules about the base prices from which these discounts will occur.

Beneficiaries in rural areas will have limited options with higher costs.
Background: The law provides fallback Medicare coverage, only if there is less than two prescription drug plans available in a region. Beneficiaries, particularly in rural areas, are likely to have a choice between one high-priced, drug-only plan and one preferred provider organization, which restricts choice of doctor and imposes high costs for out-of-network care.

U. S. health care: lower quality at higher cost

The Des Moines Register
5/10/2004
U.S. has the best? Think again
We’re tops in health-care costs, but not in quality
By Register Editorial Board

Most Americans know this country spends more money per person on health
care than any other country in the world. The United States spends twice as much as Australia, England and Canada. Yet Americans seem to think this spending is OK. After all, we have the best health care in the world, right? Don’t you get what you pay for?

No.

And no.

In fact, Americans are not getting what they pay for when it comes to health care because a poorly constructed system yields poor results.

Consider three studies that made the news last week.

The Robert Wood Johnson Foundation reminded everyone what a mess the U.S.
system of health care is when its study concluded about 20 million U.S. workers are uninsured. In a few states, one in five working adults doesn’t have coverage. The United States has a system that irrationally ties health care to employment, making a job the source of coverage for millions of Americans. But apparently even having a job doesn’t guarantee health insurance.

A study published in Health Affairs, a policy journal, looked at five countries and found the quality of care in the United States is no better, even though this country spends far more money. A fragmented system was given as one of the reasons for the higher costs, and the study found the United States had the worst five-year survival rates after kidney transplants of the nations examined.

Then there was the especially troubling study conducted by Rand Corp. This took the most comprehensive look yet at the quality of health care in this country. What did researchers find? Patients get about half the care recommended for conditions from heart disease to diabetes, regardless of where in the United States they live.

Imagine that. This country spends more than $1 trillion a year on health care, and patients are only getting half the care they need. Americans ought to feel like a shopper who pays too much for a product that turns out to be a lemon. But the U.S. system isn’t just a waste money; it costs people their lives.

How does the United States fix the system?

It doesn’t need to spend more. It needs to spend wisely. Health-care dollars
in this country are gobbled up by red tape. Money that could be spent directly on helping people is eaten up in the administrative costs and high profit margins of a fragmented and gap-riddled system.

The best system in the world, huh?

http://desmoinesregister.com/apps/pbcs.dll/article?AID=/20040510/OPINION03/405100303/1035/OPINION

Health Affairs: How Does The Quality Of Care Compare In Five Countries?:
http://content.healthaffairs.org/cgi/content/abstract/23/3/89

Rand Corporation: The First National Report Card on Quality of Health Care in America:
http://www.rand.org/publications/RB/RB9053/

Health Affairs: Medicare Spending, The Physician Workforce, And Beneficiaries’ Quality Of Care (An alarming report that finds that “states with higher Medicare spending have lower-quality care.”):z
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.184v1

Comment: Read them and weep. Then get to work on fixing our system! Now!

Flaws in the Medicare drug bill

Background: President Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173) on December 8, 2003. The Act’s prescription drug benefit begins January 1, 2006. Until then, beneficiaries will be offered drug discount cards, which are scheduled to become available on June 1, 2004.

Basics: Drug discount cards will be offered by Medicare-endorsed private companies for an annual fee of up to $30. Estimated savings range between 10-15% of the retail price. Those with incomes up to $12,569 for an individual or $16,862 for a couple in 2004 will get the cards for free and receive a $600 credit embedded in the card, but they will still have co-pays of 5-10 percent per prescription. In Illinois, Senior Care recipients are not eligible for the low-income subsidies, including the $600 credit, since they already have prescription drug coverage.

Click here to view the article Medicare Approved” Rx Drug Discount Cards

Click here to view the article The Medicare Drug Deal

Health Care Policy Roundtable proposes wrong solution

Health Care Policy Roundtable
Press Release
May 10, 2004
Four Million Uninsured Workers to be Given Access to Affordable Health Care
by Coalition of Fortune 500 Companies

More than 50 Fortune 500 companies have joined forces to give an estimated
four million uninsured working Americans access to affordable health insurance coverage.

Specifically, members of the Affordable Health Care Solutions Coalition have
agreed to pool their affiliated uninsured workers and dependents to create a
single group currently estimated at four million people nationwide. They include:

* part-time employees;
* contract and temporary workers;
* independent agents, consultants, and vendors;
* pre-65 retirees who do not have group options;
* employees currently in a waiting period;
* COBRA participants who have exhausted their 18-month coverage; and
* students who are no longer eligible under their parents’ health care
plan.

The coalition will then seek bids from health plans, ultimately selecting one that will offer health insurance coverage at a lower cost than what is currently available in the individual insurance market and with fewer barriers to entry.

“We are aiming to work with one health plan to create a series of coverage
choices at different prices that can be tailored to fit a wide range of budgets, from low-income part-time workers to highly compensated full-time
independent contractors not covered by a company plan,” explained Greg A.
Lee, senior vice president, human resources, for Sears, Roebuck & Company
and chairman of the Affordable Health Care Solutions Coalition.

http://www.hcpr.org/press/2004/pr_051004.asp

Executive Summary of the Leadership Action Plan on the Uninsured:
http://www.hcpr.org/docs/2004/Executive_Summary.pdf

Comment: The Health Care Policy Roundtable, representing many of the nation’s largest corporations, has acknowledged that the nation is facing a crisis in health care costs and coverage. The members recognize that this unstable situation will result in change, and they have decided to take a leadership role in crafting change that presumably would have the least negative impact on their corporations. Without intervention, surely the government would take over.

The current proposal purports to be a solution to obtaining coverage for sectors of our population who face affordability and underwriting barriers to coverage. They propose creating a single group to provide access to the better coverage and lower costs of group plans.

There are a couple of major problems with their proposal. The insurance coverage will have to be paid by the individuals themselves or perhaps by former employers or small business owners. Adverse selection will likely reduce or eliminate any negotiating advantage in premium pricing, and the insurance products will still be unaffordable for the overwhelming majority of these individuals, even without adverse selection.

Recognizing this affordability issue, they propose creating “a series of coverage choices at different prices that can be tailored to fit a wide range of budgets.” An affordable premium is not of much value if the insurance product purchased is so devoid of benefits that it does not provide financial security for those who have or may develop significant health care needs.

A proposal for unaffordable premiums and inadequate benefits is yet another
non-starter. We will not have health care reform until we accept the fundamental principle that risk must be distributed equitably through a common pool, and that pool must be funded in an equitable manner.

If the Health Care Policy Roundtable wants to serve as a moral voice in leading the nation to health care reform, then they’d better go back to their table and draw up plans for a universal, comprehensive, equitably funded system. In fact, they don’t even have to do the work. We’ll hand them the proposal.

HSAs encourage tax evasion

The Journal Gazette
Sep. 5, 2004
New health accounts allow more individual control
By Sherry Slater

Another advantage of HSAs is the ease of paying those expenses. But that ease could tempt participants to skirt the rules. HSA participants can get checks or a debit card tied to the account and use them for co-pays to doctors’ offices or drugstores. The payment methods aren’t labeled as tied to HSAs, however, and clerks aren’t expected to make decisions about which items can legally be purchased with HSA money. The participant should collect all receipts in case of an audit, said (actuary David) Peppler.

“If they never audit you, you can get away with it,” he said. “I’m sure it must be a troubling thing for the Treasury Department because people can cheat on these and (the government will) get less tax revenue.”

http://www.fortwayne.com/mld/journalgazette/business/9589353.htm

Comment: Regardless of whether HSAs (health savings accounts) function as
personal accounts to pay medical bills, or function as retirement accounts for those who have minimal health care needs, these accounts will be highly visible to and under the control of the individual account owner. Is that a problem?

HSAs are very similar to IRAs (individual retirement accounts) with the added advantage that HSAs can be used for health care costs. IRAs are established by individuals who wish to provide a more secure retirement for themselves and who have enough disposable income to fund them. When funds are removed from either type of account for other than their intended purposes, taxes plus penalties are assessed. But a major difference between the two is that withdrawals from IRAs are automatically reported to the IRS, whereas withdrawals from HSAs are not.

Many individuals with IRAs do find reasons to withdraw their funds and pay the taxes and penalties. Such reasons may include business or investment opportunities for which funds may not otherwise be available. Or they may be
withdrawn because of financial difficulties such as an unexpected interval of unemployment or significant financial losses in other personal ventures. Regardless, merely because the funds are there, they will frequently be withdrawn in spite of the tax and penalty consequences.

Now consider the HSAs. Owners of these accounts have in their position a checkbook or debit card that will allow access to their funds with no individual reports generated as to their use. Since it is unlikely that the IRS will demand full accounting of every single HSA expenditure, there is a significant probability that these tax-favored funds can be spent without any oversight as to where they are directed.

In this age in which credit card addiction has caused financial ruin for tens of millions of families, what will be the attitude towards these HSAs? The money is just sitting there not being used. And it’s not really borrowing because it doesn’t have to be paid back. And in the unlikely event that you are caught, the penalty will be that you will be asked merely to pay the taxes you owed anyway with perhaps an additional penalty for late payment. Under these circumstances, many individuals believe that it would be foolish to report distributions that are not used for health care services.

Policies which provide an open and unambiguous invitation for you to violate
the law are bad policies. As HSAs are invaded by their owners, there will be
rampant tax evasion. Failure to pay taxes is a crime against your fellow Americans who are then footing your share of the national tax bill. To provide temptation without risk of significant punishment encourages this crime against your fellow citizens. This, in turn, diminishes your respect for yourself and for our national institutions.

Undoubtedly some would consider this to be nit-picking. But providing temptation with a low risk of being caught is a real issue. Form 1099-INT was established because too many Americans did not report their interest income. Would we need to set up a Form 1099-HSA to report every distribution from HSA accounts? Wouldn’t it be a far better policy to never expose individuals to temptation in the first place?

There are innumerable reasons to eliminate HSAs; this is only one more. Legislation abolishing HSAs can authorize the conversion of existing HSAs
into IRAs. Then we can get on with more noble task of establishing policies that would ensure that everyone has affordable access to comprehensive health care. Then we would have a real basis for respecting ourselves and our national institutions.

PNHP on drug prices

Chicago Tribune
May 8, 2004
Voice of the People
Medicine prices
By Ida Hellander, MD, Executive director; Quentin Young, MD, National
coordinator; Physicians for a National Health Program

Chicago — This is regarding “The high price of drugs” (Editorial, May 2). It’s true that reimportation of drugs from Canada is “no long-term solution,” but it’s equally shortsighted to keep Medicare from negotiating drug prices with the pharmaceutical giants.

In fact, that’s the only long-term solution to ensuring that all Americans receive both lifesaving medications and value for their tax dollars. We don’t need to import drugs from Canada; we need to import Canadian drug prices. There is no reason to expose us to the costs and risks of physically exporting and then reimporting drugs when our sole intent is to bring our drug prices closer to those of Canada.

We need to negotiate with pharmaceutical firms, demanding that they provide much greater value for their products. Much of their research is wasted on products that are designed to restart the patent clock.

And then they waste funds on intensive marketing to convince physicians and the public that these more expensive products should be purchased when they are often no better than existing, but less profitable, generic products.

Medicare currently negotiates rates for physicians, hospitals, laboratories and other health-care providers. The process may not be perfect and needs continual fine-tuning, but the results are that we receive greater value for our Medicare investment. There is absolutely no reason that the pharmaceutical industry should be exempted from this process.

The claim that negotiated prices would bring an end to innovation and research is totally without merit. There is absolutely no way that the global pharmaceutical industry is going to walk away from its share of the $1.8 trillion that we are currently spending on health care. The growth in medical technology continues unabated even though profits on their products are limited by rate setting of both government and private insurance programs.

Pharmacy benefit managers are no substitute for Medicare using its purchasing power on behalf of seniors. PBMs don’t drive the best bargains for consumers; they switch patients’ medications to boost profits–their own. Some PBMs are under investigation for taking tens of millions of dollars in “rebates” from pharmaceutical companies in exchange for increasing sales of “preferred” brands (regardless of their cost). Do they pass on the savings? Do pigs fly?

Americans are already spending more than enough to provide comprehensive health care for everyone, including full access to beneficial drugs. But we need to eliminate the waste in our system. If we had a single, universal insurance system, such as Medicare for All, we would be in a position to sit down with the pharmaceutical firms and demand that they provide us with real value for our health-care investment.

http://www.chicagotribune.com/news/opinion/letters/chi-0405080062may08,1,1798244.story?coll=chi-newsopinionvoice-hed

Fraser Institue report on Canada is without credibility

The Fraser Institute
May 2004
How Good is Canadian Health Care? 2004 Report
By Nadeem Esmail and Michael Walker with Sabrina Yeudall

Conclusion

This study has attempted to provide answers to a series of questions that are important to resolve if Canada is to make the correct choices as it amends its health care policies. The study is strictly comparative and examines a wide number of factors for the member countries of the OECD in arriving at the answers to the questions posed.

Taking this empirical approach to health care provides clear direction for health care reform in Canada.

* Canada and Iceland have the most expensive health care systems amongst the
industrialized nations that have comprehensive, universal access to health
care.

* Canada ranks first in only one of seven health care outcome categories and does not rank first in any of access to care, supply of technologies, or supply of physicians.

* No country in the industrialized world other than Canada outlaws a parallel private health care system for their citizens.

* All four countries that out-perform Canada on the cumulative rank for mortality amenable to health care, potential years of life lost, mortality from breast cancer, and mortality from colorectal cancer have private health care alternatives to the public system and some form of user fees at the point of access; none spends more than Canada after age adjustment.

The comparative evidence is that the Canadian health care model is inferior to others in place in the OECD. It produces inferior access to physicians and technology, produces longer waiting times, is less successful in preventing death from preventable causes, and costs more than any of the other systems that have comparable objectives. The models that produce superior results and cost less than Canada’s monopolistic, single-insurer, single-provider system have user fees; alternative, comprehensive, private insurance; and private hospitals. Canada should follow the example of these superior health care models.

http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=658

Comment: This new report from The Fraser Institute is important because it will be distributed widely and used intensively by the opponents of both national health insurance in the United states and of the Canadian medicare system. It is important to understand the report and to be able to respond to it.

At the outset, the report attempts to set an erudite tone by providing a series of calculations, complete with Greek letter symbols, indicating that an adjustment of Canada’s health expenditures based on the age of their population results in the conclusion that Canada (tied with Iceland) has the most expensive health care system amongst the industrialized (OECD) nations that have universal access to health care. For purposes of this conclusion, the United States was conveniently excluded on the basis that it does not have a universal system.

A careful examination of the seemingly complex but very simple calculations
demonstrates that Canada’s costs were adjusted upwards because they would
have spent more if more Canadians were over age 65. This ignores the fact
that this increased spending is fictional and does not warrant their conclusion that Canada is the “highest spender.”

Another flaw is that they made the assumption that everyone over 65 suddenly requires a more intensive level of services. It is really only at the end of life when there is an abrupt increase in costs for a significant number of patients. And Canadians, being egalitarian, have accepted that each person is entitled to one but only one end to his or her life. It doesn’t matter at what age that occurs. There is no reason to falsify the level of spending based on such specious logic.

That should be adequate to completely destroy the credibility of this report. But then the report does include some well established economic theory that seems to lend some credibility to the report, even though the extrapolations by the authors are not warranted. But there are other major problems with this report.

The authors draw the conclusion that the “Canadian health care model is inferior to others in place in the OECD.” To reach this conclusion, citing numerous previously published reports, they compared Canada’s performance to other OECD nations with comprehensive, universal health systems. They used Canada’s ranking in these studies. Since these are all industrialized nations with comprehensive systems, an average rank should be evidence of success of the system. In most of the lists, Canada was in the upper half.

In fact, the cumulative rank was fifth, relatively high on the list of OECD nations. The conclusion that the Canadian model is inferior is refuted by the evidence included in their report.

The most outrageous conclusion of their report is that Canada should introduce user fees, private hospitals, and alternative, comprehensive, private insurance since these are features of superior systems. Not only is their data inadequate to establish the fact that other nations have superior systems, but they also failed to provide any cause and effect relationship between quality systems and privatization and cost sharing. The failure to provide any credible support to their conclusion unfortunately reduces their paper to the equivalent of gobbledygook.

Medco CEO unrepetant for ethical lapses

The Washington Post
May 6, 2004
Letter to the Editor
Rebates, Not Kickbacks

Steven Pearlstein’s April 28 Business column, “Kickbacks Hit Where It Hurts,” mischaracterized the settlement reached by Medco Health Solutions and a multistate task force of state attorneys general and the Justice Department.

The suggestion that Medco “agreed to settle charges that it got more than $400 million in kickbacks from Merck in 2001” is incorrect. Although we receive rebates — that fact is disclosed to our clients — it was never an issue and it was not a “charge.” In fact, in their news conference the attorneys general said they did not want to interfere with the process of obtaining rebates, as rebates lower costs. The agreement is specific to disclosures around rebates.

The rebates received from Merck — or any of the other 70 or so pharmaceutical manufacturers with whom we negotiate for rebates and discounts — are not “kickbacks.” Government clients often directly negotiate with pharmaceutical manufacturers to receive rebates.

This practice is not unique to pharmacy benefits managers: Rebates are even an integral part of the prescription drug benefits program for Medicare that Congress recently enacted. Rebates are recognized by our clients, our competitors, and even attorneys general and the Department of Justice, as critical tools in reducing drug costs for the hundreds of clients and millions of members we serve nationwide.

DAVID B. SNOW Jr.
Chairman, President and Chief Executive
Medco Health Solutions
Franklin Lakes, N.J.

http://www.washingtonpost.com/wp-dyn/articles/A5845-2004May5.html

And…

Wharton School of the University of Pennsylvania Strategic Management

Medco Health Solutions, the largest pharmacy benefits management company in the United States, last week settled lawsuits brought by state and federal authorities by agreeing to stop switching patients over to more expensive drugs not prescribed by their doctors (these drugs were favored by Medco because of private “rebate” agreements with drug manufacturers). Medco also pledged to begin disclosing its rebate practices to employers, doctors and patients.

http://knowledge.wharton.upenn.edu/index.cfm?fa=viewArticle&id=978

And…

The American Heritage Dictionary

rebate: A deduction from an amount to be paid or a return of part of an amount given in payment.

kickback: A return of a percentage of a sum of money already received, typically as a result of pressure, coercion, or a secret agreement.

http://www.bartleby.com/61/

Comment: A strong case can be made that private rebates not fully disclosed are, in fact, kickbacks. Some may consider this to be a nitpicking, semantic argument. But what should alarm us all is that Medco’s Snow trivializes their abusive practices, for which they are being punished, by suggesting that the patients and employers who were cheated actually benefited because the kickbacks were really only rebates (with disclosure issues regarding the nefarious substitution of higher cost drugs for lower cost drugs).

David Snow should be issuing a public apology for the egregious abuses of his company. Instead he releases a statement implying that the only blame lies with others who use the pejorative term, “kickback,” when Medco was actually following sound business practices through the rebate program.

This seemingly trivial dispute has major policy implications. The Medicare bill prohibits the government from being the direct purchaser of drugs, but instead requires that middlemen, such as pharmacy benefit managers like Medco, maintain control of the pharmaceutical benefit. Not only do they add middlemen administrative costs, but they also expose us to the compromised ethics of unrepentant executives who believe that kickbacks awarded for making lucrative drug substitutions are actually good business practices since, really, they’re only “rebates.”

VA buys drugs cheaply, many veterans benefit

Baltimore Sun, Business
VA buys drugs cheaply, many veterans benefit
Medicare? Since the VA gets the best prices on medicines, the Bush administration is being urged to adopt a VA-style program for Medicare.
By Cyril T. Zaneski, Sun Staff
Originally published May 5, 2004

America’s best discount drugstore is run by the federal government.

The Department of Veterans Affairs throws the weight of federal buying power and a law mandating discounts on medicine into price negotiations with drug manufacturers.

“We’re the big gorilla,” said George T. Patterson, executive director and chief operating officer of the VA Office of Acquisition and Materiel Management. “We get the drop-dead best prices in the world.”

The VA drug benefit is a life preserver for vets like Vernon Chapin, 76, a retired plumber and Army veteran from Lutherville. Chapin pays a total $56 a month for eight prescriptions to keep his blood pressure, diabetes and other health woes in check. Other veterans who have service-related illnesses or injuries get free medicine for those ailments.

“I shudder to think what would happen to me without the VA,” Chapin said. “I’d be making a choice between eating and taking my drugs.”

The VA’s muscular approach to drug purchasing is the envy of private employers and insurers struggling with rocketing prescription prices that are the highest in the world. The VA, by contrast, pays roughly half of U.S. retail pharmacy prices.

VA volume buying power – the agency negotiates for itself, the Department of Defense, the Public Health Service and the Coast Guard – is the model for Maryland and other states forming multistate pools to leverage better drug prices for Medicaid recipients and state employees. It is also the model favored by congressional Democrats and consumer advocates for the massive new Medicare drug program.

A group of Senate Democrats, including Barbara Mikulski of Maryland, called on the Department of Health and Human Services last week to adopt a VA-style program for Medicare. The Medicare benefit crafted by Republicans and signed into law by President Bush last year bars the department from using Medicare’s 41 million beneficiaries to leverage lower prices from drug companies. The law instead turns to private companies to cut deals with manufacturers. The benefit, which starts in 2006, carries a $530 billion price tag for its first decade.

“Rather than using the purchasing power of Medicare’s 41 million beneficiaries, the new law fragments the population, diluting the ability to negotiate lower prices,” the senators wrote HHS Secretary Tommy Thompson. “This is not only a waste of limited taxpayer resources, it is also a cruel betrayal of Medicare beneficiaries who are struggling with astronomical drug bills.”

The administration opposed efforts to give Medicare negotiating power akin to the VA’s for fear that its huge volume would become a national price control and deprive pharmaceutical companies of cash needed for drug research and development.

The VA represents a much smaller buying pool. While there are 24.5 million veterans, only 6.1 million of them were treated at VA medical centers last year, with 4.5 million getting prescriptions. The VA filled about 200 prescriptions last year, spending about $3 billion a year on drugs, up from $750 million in 1991.

Some worry that the VA’s successful drug program is in danger of being swamped by growing numbers of veterans seeking refuge from rising prices of medication elsewhere.

Tens of thousands of veterans who face spiraling copayments and premiums in their private health plans are lining up for the VA drug benefit. If enough are allowed to tap the benefit – as they were promised when they joined the military – some fear they could sink VA’s shaky overall health care budget.

About 20 percent of the veterans who use the VA each year do so solely because of its drug benefits, according to an agency survey. But nearly 90 percent of the approximately 164,000 veterans who sought enrollment to the VA system last year wanted the drug benefit above all, according to the VA inspector general. Those veterans are barred from the system by an agency decision in January 2003 to save money by closing its doors to “high-income” applicants who make more than $25,000 a year and do not have service-related health problems.

Edward L. Clark, an Army veteran from Greencastle, Pa., is among those blocked from the system. Clark, 57, sought VA benefits when his income from selling telecommunications equipment went into a tailspin and he could no longer afford $500 a month for private insurance. “Now I’m going to take my chances without insurance or medication,” he said. “If I get sick, I’ll go to an emergency room.”

With both Democrats and Republicans vying for the votes of veterans in this election year, Congress is considering legislation that would help veterans such as Clark by opening the VA drugstore to more veterans.

The effort to expand access to the benefit has raised two questions. The first is whether to lift a VA rule requiring veterans who want the prescription benefit to be examined by a VA physician, even though the patient may have valid script from his own doctor. The cost of the re-examinations totaled $1.3 billion in 2001, the inspector general reported.

“This policy, in effect, denies veterans their pharmaceutical benefit,” Dr. Conelio R. Hong of Norwich, Conn., told the House Veterans Affairs’ health subcommittee in March. Veterans make “medically unnecessary” appointments and then wait months to see a VA doctor, Hong said. The wait is long enough that many drop off the list, he said.

Then there is a question of how the federal government will pay for providing drugs to more veterans. Taxpayers and VA patients roughly split the VA average prescription cost – $13 for a month’s supply of pills at the VA pharmacy. Veterans pay a $7 co-pay; taxpayers pay the rest. Some worry that widening access to the benefit will lure millions more veterans and stress the agency’s ability to provide health care.

“An expansion of pharmaceutical benefits would increase demand on the system. An increase in demand would necessitate shifting scarce resources away from treating veterans,” Carl William Blake, associate legislative director of the Paralyzed Veterans of America, told the House panel.

“Now is not the time, when the VA is not being given the resources it needs to meet the needs of veterans and service members who are returning from Iraq and Afghanistan, to force the VA to treat fewer veterans or charge them more for services.”

But Richard “Rick” Jones, national legislative director for another veterans’ advocacy group, AMVETS, maintains that all vets have a right to the benefit. AMVETS and other groups are backing a proposal that would allow veterans to fill prescriptions written by their own doctors if they cover the VA cost of the medication, which is usually half the price of drugs at retail pharmacies and less than discounts offered by Canadian Internet drug stores.

“It would fulfill a promise made to all who have performed service honorably to the nation,” Jones said. “And it would grant access to the benefit without hurting other vets.”

The VA draws its purchasing power from Public Law 102-585 – passed by Congress and signed by President George H.W. Bush in 1992, an election year. The law assures discounts for the VA.

“At the end of each year, we find out about sales from across the commercial sector, average the price of each drug and deduct 20 percent from that,” said Patterson, a registered pharmacist who heads the operation that administers over 1,500 contracts for over $10 billion worth of medical and surgical products. Patterson’s office buys more than $6 billion worth of pharmaceuticals a year for the “big four” – the VA, DOD, the Coast Guard and Public Health Service.

“And we often negotiate prices even lower than the 20 percent discount,” he said. “The law is a big hammer.”

Congress passed the law in response to a VA budget crunch caused by rising drug prices, Patterson said. “Our good friends in the pharmaceutical industry started raising our prices off the planet, and Congress acted,” Patterson said.

The law was just the start of VA efforts to save money on drug purchasing. To further boost its purchasing power, the agency moved in the late 1990s to a single national preferred drug list, or formulary. Previously, each of 172 VA hospitals had its own drug list.

The VA also focuses heavily on prescribing generic drugs. Sixty-five percent of the drugs prescribed by VA physicians are generic. They account for only 8 percent of the agency’s total drug bill. Brand name drugs – 35 percent of the agency’s prescriptions – account for 92 percent of the tab.

Despite the discounts, the VA never has difficulty getting drugmakers to sell their products to the agency, Patterson said. One reason that VA is so attractive to drug companies is that VA medical centers offer the drug manufacturers a pool of young doctors – a coveted group that promises a long-term use of the products.

The other is that the federal government is a well-heeled customer. “The business is coveted,” Patterson said. “It’s good clean business. We pay our bills.”

—————————————————–

Examples of how VA saves money on drugs

Drug name, VA price, Costco.com, Canadameds.com

Wellbutrin SR (150 mg), $61.77 (60 pills), $97.99 (50 pills), $69.77 (60 pills)

Zocor (40 mg), $20.22 (30 pills), $125.27 (30 pills), $82.32 (30 pills)

Pravachol (40 mg), $150.47 (90 pills), $278.59 (100 pills), $80.32 (30 pills)

Viagra (100 mg), $144.15 (30 pills), $163.27 (18 pills), N/A

Click here to view the article at BaltimoreSun.com.

Quentin Young on the solution to outrageous drug prices

USA TODAY, Editorial/Opinion
5/4/2004
Follow Canada’s example
By Quentin Young

Forget about importing Canadian drugs. We need to import Canadian drug prices.

How does Canada and most other developed nations get 40% to 80% discounts on brand-name drug prices? The same way the Department of Veterans Affairs does: It uses its purchasing power to negotiate lower prices. This is a healthy use of market forces to secure the best deal.

Each of these nations has universal health coverage. In contrast, Americans are saddled with a screwy for-profit insurance system and suffer the world’s highest out-of-pocket health costs, and drug purchases top the list.

High drug prices have serious consequences for the sick. Prescriptions go unfilled. Patients cut pills in half to make them “last longer.” The undertreatment of diabetes and hypertension leads to amputations, strokes, heart failure and other devastating complications. The hundreds of dollars a month needed to treat chronic conditions are big factors in personal bankruptcy.

In addition to harming many patients, high drug costs batter businesses, which bear much of the cost of workers’ medications. There is increasing disgust by business leaders with drug firms’ exorbitant profits, which are four-fold higher than those of every other sector of the economy. Overpriced drugs raise costs for U.S. industry, compromising our international competitiveness.

The drug industry is dominated by a handful of giant global corporations that spend more on marketing than research and, year after year, make at least as much in profits. The claim that they need high prices to cover high research costs is bogus. The government has guaranteed their profits by extending their 20-year patents and protecting them from real competition.

Medicare negotiates prices with physicians, hospitals, laboratories and other health care providers. The drug companies, however, are exempted from this process in the new Medicare drug bill, ensuring that drug prices will continue to skyrocket.

The U.S. health system is in disarray. The economic mess, epitomized by the drug-cost crisis, makes a convincing case for a single-payer national health insurance system. Such reform would make prescribed drugs an ensured benefit and drive down expenditures by allowing the government to bargain for the best prices and highest quality.

Quentin Young, M.D., is national coordinator of Physicians for a National Health Program (www.pnhp.org).

http://www.usatoday.com/news/opinion/editorials/2004-05-04-oppose_x.htm

Editorial opinion of USA TODAY (concluding remarks):

Two in three Americans favor lifting the ban on reimporting drugs, an Associated Press poll in February found. Still, taking advantage of foreign price controls amounts to putting a Band-Aid on a deep wound.

Letting the free market work is a better remedy for making prescription drugs more affordable for all Americans.

http://www.usatoday.com/news/opinion/editorials/2004-05-04-our-view_x.htm

For an article on the federal buying power of the VA (“America’s best discount drugstore is run by the federal government.”):

http://www.baltimoresun.com/business/bal-bz.vadrugs05may05,0,902614.story?coll=bal-business-headlines

Comment: The United States has much more of a “free market” in pharmaceuticals than any other nation, and everyone agrees that the market has been very ineffective in providing affordable access to drugs for tens of millions of patients with significant health care needs. You almost feel embarrassment for the editorial staff of USA TODAY when you read that they propose the really dumb solution of allowing the continuation of the market model that utilizes measures designed to excessively benefit the pharmaceutical industry while avoiding its responsibilities to a major segment of the nation’s patients.

In negotiations with a single-payer national health insurance program, pharmaceutical firms would be assured of fair profits and adequate funds for research. We need their industry, but we don’t need their excesses. Let’s set up our own public insurance program and then negotiate with them. They’ll get a fair deal, and we will too.

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