The New York Times
July 14, 2003
Health Costs Soaring, Automakers Are to Begin Labor Talks
By Danny Hakim

Health costs have been soaring for many employers. In other industries, businesses have generally passed along more and more of the costs to workers and retirees, if they maintain benefits at all. Not so in the auto industry, where union leaders have negotiated some of the most substantial medical benefits in the country for their members.

The Big Three and their major suppliers spend some $9,000 and up per active worker annually, according to Mercer Human Resource Consulting…

G.M.’s medical cost is equivalent to about $1,200 a car in this country.

The absence of a national health system in the United States means that the Big Three take on social responsibilities that the governments in Japan and Germany bear. Gary Lapidus, a Goldman, Sachs analyst, referred in his recent report to the Big Three as “H.M.O.’s with wheels” that only happen to make cars.

Uwe Reinhardt, a Princeton University health care economist, calls the Big Three “a social insurance system that sells cars to finance itself.”

“It’s insane to think that a company embedded in a fierce global competition can function as a social insurance system,” he said. “It is a crazy, anachronistic idea. It’s an idea that worked in the 60’s, but lost its validity beginning in the 70’s when the car market became global.”

Comment: Only the government has the capability of establishing an affordable, equitable, and universal system of social insurance.

For an explanation of why we must replace private health plans with a system of social insurance: https://pnhp.org/publications/private_health_plans_versus_social_insurance.php

The New York Times
July 14, 2003
Health Costs Soaring, Automakers Are to Begin Labor Talks
By Danny Hakim

Health costs have been soaring for many employers. In other industries, businesses have generally passed along more and more of the costs to workers and retirees, if they maintain benefits at all. Not so in the auto industry, where union leaders have negotiated some of the most substantial medical benefits in the country for their members.

The Big Three and their major suppliers spend some $9,000 and up per active worker annually, according to Mercer Human Resource Consulting…

G.M.’s medical cost is equivalent to about $1,200 a car in this country.

The absence of a national health system in the United States means that the Big Three take on social responsibilities that the governments in Japan and Germany bear. Gary Lapidus, a Goldman, Sachs analyst, referred in his recent report to the Big Three as “H.M.O.’s with wheels” that only happen to make cars.

Uwe Reinhardt, a Princeton University health care economist, calls the Big Three “a social insurance system that sells cars to finance itself.”

“It’s insane to think that a company embedded in a fierce global competition can function as a social insurance system,” he said. “It is a crazy, anachronistic idea. It’s an idea that worked in the 60’s, but lost its validity beginning in the 70’s when the car market became global.”

Comment: Only the government has the capability of establishing an affordable, equitable, and universal system of social insurance.

For an explanation of why we must replace private health plans with a system of social insurance: https://www.pnhp.org/publications/private_health_plans_versus_social_insurance.php

Health Affairs
July/August 2003
Increased Spending On Health Care: How Much Can The United States Afford
By Michael E. Chernew , Richard A. Hirth , & David M. Cutler

Abstract

Perceptions of whether health care cost growth is affordable contribute greatly to pressures for health system reform. In this paper we develop a framework for thinking about affordability, concluding that a one-percentage-point gap between real per capita growth in health care costs and growth in GDP would be affordable through 2075. A two-percentage-point gap would only be affordable through 2039. In either case, the share of income growth devoted to health care would exceed historical norms. The value of care, which determines willingness to pay, and distributional issues are more important than our ability as a society to pay for care.

From the Results:

Despite rapidly growing real (inflation adjusted) health care expenditures, both in absolute terms and as a percentage of GDP, income growth has been sufficient to allow substantial growth in non-health care spending as well.

This is a message that can easily be lost when examining time trends in the percentage of GDP devoted to health care. Such a measure masks the overall increase in GDP over time. In fact, in each decade a relatively small share of the increase in inflation-adjusted income was devoted to health care. For example, in the 1980s (the decade that saw the highest share of income growth spent on health care), real health care spending per capita rose by nearly 70 percent, but this growth consumed only about one-quarter of the increase in real income per capita. That is, the substantial growth in health spending during the 1980s did not prevent three-quarters of real income growth from being spent on goods other than health care.

From the Discussion:

Health care spending appears once again to be on an upward trajectory. The resulting concern has generated considerable debate. Our analysis suggests that the economy could sustain a differential of one percentage point between growth of real per capita health care costs and growth of GDP well into the future. However, we believe that it is important to distinguish between spending that we cannot afford to pay for and spending that we are unwilling to pay for – a difference between unsustainable and unwilling to sustain. The former approach emphasizes a need to curb spending, whereas the latter phrasing emphasizes the extent to which the extra spending can be justified by extra value received relative to the value of non-health care services that could otherwise be consumed.

… although the rise in health care costs may be affordable at the national level, it is important to recognize the distributional consequences of rising health care costs. What is affordable on average may not be affordable to all segments of society. Rising health care costs may contribute to falling rates of health insurance coverage and reductions in access to care. The appropriate response requires discussion about the ramifications of the lack of coverage and the merits of subsidizing insurance or care for various segments of the population. Discussion of society’s willingness to pay must recognize that, in part, this will reflect the willingness of some people to pay for care used by others.

http://www.healthaffairs.org/1130_abstract_c.php?ID=http://www.healthaffairs.org/Library/v22n4/s9.pdf

Comment: Do we have the capability of increasing funding for health care? This study demonstrates that significant increases in health care funding are sustainable while still allowing substantial growth in non-health care spending as well. Yes, we can afford to increase health care spending dramatically.

The real questions are whether we value health care enough to be willing to pay for it, and whether we value health care not only for ourselves and our families but also for our fellow citizens. If we do, then distributional issues become paramount since we would have to establish an equitable system of funding care.

As a society, we can afford comprehensive health care for everyone. That is no longer in dispute. But are we ready to end the distributional barriers to care by establishing an equitable system of social insurance?

The New York Times
July 8, 2003
Plans Improve Federal Workers’ Drug Benefits
By Robert Pear

The House is expected this week to pass legislation ensuring that federal employees, including members of Congress, will have prescription drug benefits better than those available through Medicare when they retire.

The new House bill says drug benefits for civilian federal retirees, who already have drug coverage, cannot be reduced to the level proposed for Medicare. An identical bill has been introduced in the Senate.

The Washington Post July 6, 2003 Medicare Bills Don’t Mimic Model Coverage Not as Comprehensive as Federal Employees’ By Ceci Connolly

In the recent debate over Medicare drug coverage, Sen. Mark Dayton (D-Minn.) challenged senators to match their words with deeds. He offered an amendment requiring lawmakers to lower their drug coverage to the level provided in the final Medicare legislation.

“I would rather bring everyone else up,” he said, “but what is fair for them is fair for us.”

The Senate approved his amendment 93 to 3. But within a day, several senators told the newspaper Roll Call it was a symbolic vote that would be overturned in negotiations with the House.

Explained Sen. Rick Santorum (R-Pa.): “Most members saw this as demagoguery. And we weren’t going to condone it publicly by taking it seriously. So we all voted for it.”

http://www.washingtonpost.com/wp-dyn/articles/A13558-2003Jul5.html

Comment: Sometimes it is embarrassing to see how obscene democracy-in-action can be. Shouldn’t we seriously consider replacing many of our current politicians with true advocates of democracy?

The Washington Post
July 6, 2003
Four Steps to Better Health Care
By Henry J. Aaron and Stuart M. Butler

For at least 20 years, commentators have bewailed the lack of adequate health insurance among growing numbers of Americans. For an even longer time, analysts and experts have warned that health care costs were rising unsustainably. Yet no consensus has formed on what to do about these twin adversities. Conservatives propose encouraging individuals to buy private health insurance and placing more reliance on market forces. Liberals continue a struggle initiated during the New Deal to provide publicly financed health coverage. Neither has persuaded the other.

The result: a political standoff that has blocked an honest evaluation of any major approach and has left everyone frustrated. Meanwhile, the ranks of the uninsured swell, health costs soar, and states and businesses cut benefits.

It seems clear to us that the political logjam in Washington will continue unless we take a different approach. We believe that approach involves exploiting the unique strength of American federalism. Specifically, we urge Congress to authorize individual states to carry out any of a broad range of strategies to reduce the number of uninsured people within their borders. And Congress ought to reward states with grants sized according to their progress toward agreed targets.

… we are certain that health policy cannot improve unless it moves off dead center, where it has been stuck for a generation as more Americans have lost coverage and costs have exploded.

Henry J. Aaron is senior fellow in economic studies at the Brookings Institution. Stuart M. Butler is vice president for domestic policy studies at the Heritage Foundation.

http://www.washingtonpost.com/wp-dyn/articles/A10659-2003Jul4.html

Comment: Using American federalism as a model of reform is certainly not a new concept. In recent years it has been supported by members of the academic community, including Theodore Marmor and Jonathan Oberlander, and by politicians, including Paul Wellstone and John Tierney.

Like every other political solution, details matter. Can this serve as an avenue for reform which would truly bring together individuals with views as diverse as Brookings’ Henry Aaron and Heritage’s Stuart Butler? Is their concept of a state-federal approach a model of consensus on which most of us can agree, or is it just another “strange bedfellows” attempt to twist rhetoric into creating the appearance of an acceptable compromise? Well, let’s look at the four steps that they propose.

(1) Congress would specify goals, which would include reducing the number of uninsured people over several years. … Congress would have to define a minimum level of coverage to classify a person as “insured.” … such standards should sustain the Medicaid entitlement… Defining what constitutes insurance for others — those not entitled to Medicaid and lacking private or public health coverage — would be controversial and difficult, because reasonable people disagree passionately on whether good insurance must provide comprehensive coverage or simply less-expensive catastrophic protection, with individuals being subject to price incentives for other costs. … One way of avoiding a political impasse on this issue might be to allow some variation in basic benefits among states, provided the plans are of equivalent value.

(2) … Congress would pass a “federal policy toolbox” of options that would be available to states. This menu would include tax credits to individuals for the purchase of group insurance or to businesses for mandatory employment-based coverage; Medicaid or other public program expansions; individual mandates; plans that focus on children or the near-elderly; so-called association plans; or an expansion of the Federal Employees Health Benefits Program to nonfederal workers.

(3) … states willing to participate could choose one or more items from this menu or propose their own strategies that they found suitable to the needs and preferences of state voters, within the minimum federal standards. Single-payer plans could be tested on a limited scale, avoiding a clash over the law governing large corporate plans.

(4) Congress would commit in advance to provide grants to each participating state in addition to current federal funding, based on the state’s progress toward the agreed goals.

So is this a consensus or a compromise? Unfortunately, it is neither. It is a capitulation to the conservative policymakers who are currently in charge of the nation’s policy agenda.

First, allowing “variation in basic benefits” would result in both financial insecurity and impaired access for those with the greatest needs, defeating the very purpose of insurance.

Second, the “federal policy toolbox” contains primarily a list of options strongly supported by conservative organizations such as the Heritage Foundation. They are mechanisms that perpetuate inequities in health care and fail to control the administrative excesses and other waste in our system.

Third, the token acknowledgement that a single payer plan could be tested is an empty promise since the restrictions (limited scale testing, and exempting ERISA-protected plans) do not meet, in any way, the definition of a single payer plan. Testing the model proposed would certainly result in a failed experiment. But then applying the false label of “single payer,” and then dismissing the single payer concept forever, would certainly help to advance the agenda of the conservatives.

Even the fourth element of their proposal, federal funding, risks underfunding of health care if the concept of “grants” were to be interpreted as “block grants,” allowing the federal government to reduce its participation to a defined contribution model.

Just because Aaron is willing to use the federalist model to let the conservatives take control of the reform process, does this mean that Marmor, Oberlander, Wellstone, and Tierney are wrong? Absolutely not! Single payer reform may very well be initiated on the state level, just as Canada established the first single payer program in a single province (Saskatchewan). Any state that decides to adopt a single payer system would require, at a minimum, that federal tax funds already dedicated to health care would need to be folded into the state health care budget. That would require enabling federal legislation, a federalist approach.

Two pathways to single payer reform are possible. Much preferred would be a single, national program that would provide everyone with affordable, comprehensive care. Even though we have been at a political impasse for decades, we must not let up on our efforts for real reform. In fact, we must intensify them. But in the meantime, we can also continue our efforts to establish single payer systems within individual states. We will need a federal-state partnership, and even the conservatives support the concept that states should have control over their own matters, including health care.

Legislation supporting a federal-state partnership should require that federal funds be used appropriately to ensure universal coverage with an adequate benefit package, but it should not prohibit the state from allocating those funds in a manner that reduces administrative waste and improves equity. A bona fide single payer program must be allowed as an option for the individual states, if not a mandate.

The Commonwealth Fund
Policy Brief
Lessons from Medicare+Choice for Medicare Reform
By Geraldine Dallek, Brian Biles, and Lauren Hersch Nicholas

Lesson 7: Private plans are not less costly than traditional Medicare

The major goal of Medicare reform based on private plans is to use competition to control the growth in overall Medicare costs. The experience from M+C suggests that private plans do not save Medicare money and that, to the contrary, they can increase program costs.

The reasons why M+C (Medicare+Choice) private plans have not succeeded in reducing total Medicare costs include:

* Enrollees in M+C managed care plans have historically been healthier than those who remain in fee-for-service Medicare, and risk-adjusted Medicare payment does not fully compensate for this pattern.

* To attract M+C plans in more rural and non-metropolitan areas, Medicare has increased payments for M+C plans above the level it pays in these areas for traditional Medicare. While this has not led to increased participation by Medicare HMOs, increased rural payments translate into higher Medicare costs for PFFS (private fee-for-service) plan contracts.

* The newer private plans – PFFS plans and demonstration PPOs (preferred provider organizations) – contract in areas where M+C payment rates are higher than traditional Medicare rates.

* Medicare administrative costs average approximately 2 percent, while administrative costs in private plans in employer groups generally exceed 10 percent. In particular, private plans have costs associated with marketing and, in the case of for-profit plans, a return for investors.

New, less-structured PFFS and PPO plans, with broader provider networks and fewer cost containment features, may be even less able than are current M+C HMO plans to limit total costs through reductions in price, rates of hospitalization, and use of specialized services.

The lesson from M+C suggests that it is difficult for private plans to reduce total costs of care from the level of the traditional Medicare program. It is even more difficult for private plans to offer additional benefits, cover marketing and administrative costs, and make a profit while pricing their products below the costs of the Medicare fee-for-service program.

Conclusion

In 1997, it was predicted that 34 percent of Medicare beneficiaries would be enrolled in M+C private plans by 2005. Instead, 11 percent of the Medicare population is enrolled in M+C plans in 2003, down from 16 percent in 1998. Policy experts also projected that M+C plans would expand to all parts of the country, educated beneficiaries would begin to make informed choices based on costs and quality, and competition among plans would reduce overall costs to the Medicare program and to beneficiaries alike.

None of these predictions has occurred. Instead, the M+C program has fostered broad dissatisfaction by private plans, providers, and elderly and disabled beneficiaries. Rather than steady growth, the program has undergone a period of persistent instability and a decline in enrollment.

The history of M+C is a cautionary tale. It offers important lessons for consideration in any new program to expand the use of private plans in Medicare.

http://www.cmwf.org/programs/medfutur/dallek_mclessonsforreform_pb_658.pdf

Comment: How many times have we heard this? Private Medicare plans, whether Medicare + Choice, PPOs, or private fee-for-service plans, all increase costs over the traditional Medicare program. Politicians who make claims to the contrary are simply lying. Call them on it, and demand that they explain the real reasons for supporting private plans. Failing that, fire them in the next election.

Public Citizen
Press Release
June 23, 2003
Drug Industry Employs 675 Washington Lobbyists, Many with Revolving-Door Connections, New Report Finds

Profits registered by the 10 drug companies on the list (Fortune 500) were equal to more than half the $69.6 billion in profits netted by the entire roster of Fortune 500 companies – when all losses are subtracted from all gains.

“The drug industry contends that it needs high prices to finance the discovery of new, innovative drugs,” Clemente said (Frank Clemente, director of Public Citizen’s Congress Watch). “But a closer look shows that drug-makers make far more money in profits than they spend on research and development.”

http://www.citizen.org/pressroom/release.cfm?ID=1469

Comment: Most of the Republicans in the House and Senate are making every effort to be certain that the traditional Medicare program will not be allowed to provide coverage for prescription drugs (except for a fallback provision in the Senate for rural regions without willing plans, though the House leadership has stated that even this is unacceptable). Coverage would be provided exclusively by private insurance plans, whether as an isolated drug plan or as part of an HMO or PPO.

The Republicans contend that including prescription coverage in the traditional Medicare program would lead to price controls of drugs. But other Medicare providers, including physicians, hospitals, laboratories, and home health agencies already have their fees and prices controlled by Medicare. Why should prescription drugs be the exception?

The explosion in physician fees and hospital charges after the introduction of Medicare led to the switch from usual, customary and reasonable fees to the enactment of mechanisms to control Medicare costs. In recent years we have seen an explosion in drug costs, with truly outrageous profits.

The Republicans are correct. Including drugs in the traditional Medicare program would result in negotiated prices – but fair prices. Isn’t it now time to modernize Medicare by including prescription drugs and making them affordable?

Kip Sullivan responds to the following quote of Humphrey Taylor of Harris Interactive from “The Health Care Debate We Are Not Having”:

Humphrey Taylor:

“Increasing productivity, reducing errors, lowering costs, improving lifestyles and prevention, and cutting waste, fraud and abuse are all admirable goals which would make the money go further – but never far enough to avoid the need to ration care.”

Kip Sullivan:

I’m amazed at how often health care experts and insurance industry officials make statements like this with utter confidence. The claim that rationing is inevitable is pure ideology.

Part of the problem is the failure of those who use the term “rationing” in a health policy context to define it, which in turn permits loose usage. “Rationing” in the health policy context, as opposed to most other contexts, currently has two meanings. In the hands of right-wing critics of the health systems of other countries, “rationing” always means denial of NECESSARY medical services. (It’s no fun accusing Canada of denying UNnecessary services to its citizens.) But in the hands of people like Taylor criticizing opinion makers in this county, “rationing” means ANY denial of medical care, necessary or unnecessary.

In every other context that I can think of offhand, one needn’t define “rationing.” That’s because in other contexts we assume that — or at minimum we do not debate the proposition that — if people want the item in question their wants should be respected. Thus, if a history book says sugar was rationed in World War II, or if a newspaper says Cuba is rationing electricity on hot days, we assume that all of the sugar and electricity demanded was needed, or, at minimum, it doesn’t occur to us to question whether all those slobs on the home front really needed all that sugar, or whether the demand for electricity in Cuba was 80 percent legitimate and 20 percent frivolous. Because rationing means in most other contexts denial of necessary or, at minimum, legitimately demanded goods or services, we ought to insist that it be used that way in the health policy context.

Ergo, we should conduct guerilla warfare against “rationing” when it is used to refer to ANY denial of medical services, needed or not needed. It is utterly unenlightening to say that I have been “rationed” if I asked my doctor for a medical service I didn’t need and my doctor refused to order it. We have perfectly good words to describe what has been done to me that don’t imply that I was denied medicine I needed.

Similarly, it is of no interest to me to learn from Taylor that “rationing” occurs all over the industrialized world. Unless speakers like Taylor present some evidence that the health systems of the French, the Canadians, etc. are routinely denying NECESSARY medical services, I consider it meaningless to say that “rationing” is universal.

Kip