Freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself…. Economic freedom is also an indispensable means toward the achievement of political freedom.
Milton Friedman
Capitalism and Freedom (1962)

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.
John Maynard Keynes
The General Theory of Employment, Interest and Money (1936)

The test of our progress is not whether we add more to the abundance of those who have so much; it is whether we provide enough for those who have too little.
Franklin Delano Roosevelt
Second Inaugural Address (1937)

Perhaps it is this specter that most haunts working men and women: the planned obsolescence of people that is of a piece with the planned obsolescence of they things they make. Or sell.
Studs (Louis) Terkel
Working (1972)

Comment:

By Don McCanne, MD

Wise lessons for 2007… and beyond.

Single-Payer Is Feasible

Letter to the Editor
The Washington Post
December 28, 2006

The Dec. 13 editorial “Inequality and Health Care” was right on the mark in its diagnosis of America’s health-care problem.

Your continued dismissal of a single-payer solution as “politically infeasible” is less persuasive. Media misrepresentation may give the impression of infeasibility. Yet Medicare is a single-payer system, and it’s enormously popular and economical.

A Dec. 1 Washington in Brief item reported that a study has found that “private health-care plans for the elderly cost the U.S. government $5.2 billion more last year than traditional Medicare coverage.”

Besides, Medicare covers the expensive populations — the elderly and disabled — leaving the young and healthy to the insurance companies, which still decline to make coverage affordable to middle-income families.

It would seem, therefore, that Medicare for All would be a more economical way to provide affordable health care to everyone than would subsidizing private insurance coverage.

Mary Von Euler
Bethesda

http://www.washingtonpost.com/wp-dyn/content/article/2006/12/27/AR2006122701496.html

The Dec. 13 Washington Post editorial, “Inequality and Health Care:”
http://www.washingtonpost.com/wp-dyn/content/article/2006/12/12/AR2006121201436.html

Comment:

By Don McCanne, MD

The significance of the publication of this letter and the editorial on which it is based cannot be understated. Although very subtle, the national dialogue on reform has changed.

In their editorial, The Washington Post stated, “switching to an entirely tax-financed system (euphemistically known as ‘single-payer’) may be politically infeasible at this point.” Please note that “…may be politically infeasible…” is a far different position from “…is not politically feasible…” It is a clear acknowledgment that the lack of political feasibility is no longer an absolute given.

The fact that they published a letter in response that expands on this point is further confirmation that The Washington Post believes that single payer has a legitimate position in our national dialogue on reform.

That’s a giant step forward. An honest debate of all policy options should be the primary determinant of political feasibility.

Bupa health pulls out of Ireland

Health insurer Bupa has said it will close operations in Ireland to avoid making payments to a main rival.
BBC News
December 14, 2006

The Irish High Court ordered Bupa to make “risk equalisation” payments to state health insurer VHI, which has older policyholders.

The payments are meant to limit VHI’s costs and cut premiums, thus supporting the government policy of charging clients the same for health insurance.

Under the process of risk equalisation, insurers with a higher number of elderly customers – which tend to make more claims – are compensated by insurers with younger clients.

“Irish consumers are the real losers as the market will be restored to a virtual monopoly,” said Martin O’Rourke, managing director of Bupa’s Irish operations.

http://news.bbc.co.uk/1/hi/business/6180279.stm

Comment:

By Don McCanne, MD

What is the primary function of health insurance? Pooling risk. All participants make an equitable contribution into the pool of funds that pay for health care for everyone. Disease and injury can never be equitably distributed, but the financial consequences can be.

Our policymakers continue to reject the most effective model of pooling risk – single payer – with the convenient but dubious claim that it is not politically feasible. The policy recommendations currently in vogue – employer mandate, individual mandate, high-deductible plans, association health plans, etc. – all use private insurers. The policymakers give the private plans credibility by citing their use in many other nations with universal systems of health care.

It is very important to understand how these more egalitarian systems pool risk. One of the most difficult tasks is to be certain that no insurer risks insolvency due to adverse selection – having to pay out more in benefits because of a less healthy, higher cost clientele. Likewise, it is important that other insurers do not unfairly benefit from favorable selection – increasing profit by successful selective marketing to a lower cost, healthier segment of the population. Adverse selection and favorable selection defeat the crucial function of equitably pooling risk.

So how do they do it? These egalitarian systems use sickness funds or transfer funds to adjust for the inevitable selection problems, whether inadvertent or deliberate. They either draw from a common pool, or they transfer funds between their respective pools based on the actual claims experiences. Thus when we talk about private insurance in other nations, we have to acknowledge that their version has almost no resemblance to our concept of private plans in the marketplace.

Our private insurance companies are absolutely dependent on favorable selection to produce the returns that we have come to expect of them (admired by Wall Street and reviled by reform activists). The insurers have skimmed off the nation’s employees and their healthy families, plus the healthy sector of the individual insurance market. By leaving out the less healthy, higher cost sectors of our society, they have totally defeated the purpose of pooling risk.

Suppose we did mandate universal coverage, using the private insurers. Obviously, the insurers’ risks would dramatically increase once they included high cost patients, and that risk would not be evenly distributed between insurers. Suppose claims experience resulted in record profits for Wellpoint, and Cigna was insolvent at the end of the year. The egalitarian systems would require Wellpoint to transfer funds to Cigna.

Could you imagine, with our market mentality, expecting Wellpoint to transfer perhaps tens of billions of dollars to competitors? Or could you imagine a private Medicare Advantage plan transferring funds to the traditional Medicare program only because the private plan performed well through its favorable selection marketing? The private Medicare + Choice plans once walked away for much less.

And that is what just happened in Ireland. Bupa practiced favorable selection by insuring the young and healthy, and the Irish High Court required that they transfer “risk equalisation” payments to the state health insurer. Bupa walked away.

This demonstrates why our policymakers are wrong when they insist that we must use the private insurance industry to expand coverage to everyone. We must begin with the principle that funds must be pooled, and the pool needs to be funded equitably. Private insurers cover two-thirds of us but only pay one-third of our total health care costs. With an effective, egalitarian method of pooling, they would have to pay two-thirds of the costs (adjusted for the expansion to universal coverage). That would double the premiums that we are paying. Yet employers and individuals are already bailing out because they can’t afford our current premiums.

If we are serious about providing everyone with insurance that really works and is affordable, we are going to have to abandon the idea of separate private insurer risk pools. By design, a single payer system would establish a single risk pool covering everyone, and it would be funded in the only equitable manner that’s reasonable – through progressive tax policies that shift funds from the healthy to the sick and from the wealthy to those not so wealthy who need health care.

An egalitarian America? Did I just hear, “Bah, Humbug!”

Filet Mignon, Pinot Noir and an MRI

By John R. Graham
The Washington Post
December 21, 2006

Your other patrons are a mixed blessing… purchasing the most expensive bottles of wine, ordering filet mignon instead of flank steak and always sticking around for dessert and coffee — they pick up only around one-eighth of their tab. The rest of the check is covered by one of several food insurance companies. But to get paid by the insurers, you must spend endless hours filling out paperwork.

You also waste a lot of time deciphering the confusing reimbursement policies of the insurance companies. Merlot and cabernet sauvignon, for example, are covered without question, but if a patron orders pinot noir without first trying the shiraz, many insurance companies won’t pay the bill unless you can justify the patron’s selection.

You’re angry about the uninsured, because many of them could have afforded to pay for their own meals, particularly if they’d purchased groceries at the supermarket instead of dining out. So, together with other restaurant owners and food insurers, you’re working to convince your lawmakers to pass a bill requiring mandatory food insurance.

Crazy? Of course. But not if you substitute “health care” for “food.”

…the nation would be better served if America’s lawmakers stopping piling more regulations onto a system that’s already absurdly overregulated. Far better to deregulate health insurance and hospitals than to force us into a system that doesn’t serve our needs. Then we could shop for the precise care we need, which would improve quality while lowering costs.

After all, mandatory food insurance might provide everyone with sustenance for a while. But eventually, we’d all be worse off. No one would learn to grocery shop or cook. And the entire nation would eat out for every single meal — breakfast, lunch, dinner — until we all went broke.

Health insurance is no different. The system needs more choice, not more coercion.

Reader comments:

By don / Dec 21, 2006

A bottle of shiraz has absolutely nothing in common with an expensive antibiotic that could successfully treat a child’s meningitis. This silly food analogy displays crass insensitivity over a crisis in health care coverage that is resulting in suffering and death for tens of thousands of Americans. But perhaps the greatest insensitivity is demonstrated by our policymakers who insist on continuing to support a superfluous private insurance industry that covers two-thirds of us, but evades paying for two-thirds of our healthcare costs. If we all had Medicare, none of us would expect it to cover shiraz as we recovered from a heart attack, but we would expect it to prevent financial hardship from becoming an additional burden to our unwelcome rendezvous with disease or injury. Rather than giving private insurers the freedom to expand their abusive practices, we need to dismiss them and establish our own public program that would remove financial barriers to beneficial health care services.

http://www.washingtonpost.com/wp-dyn/content/article/2006/12/20/AR2006122001327.html

Comment:

By Don McCanne, MD

How many times have you heard this ridiculous food insurance argument? Though it makes most of us angry, the opponents of reform keep bringing it up. Let’s review the lessons from yesterday’s message on framing.

Do not let the opponents frame the debate: health insurance is as silly as food insurance!?

Destroy their frame by exposing their lack of credibility: it is clearly a falsehood that gourmet dining can serve as a surrogate for health care.

Establish framing that accurately communicates the principles: the problem to be addressed is financial hardship, suffering and death for those without adequate insurance.

Maintain credibility: use irrefutable facts about the inadequacies of our private insurance programs and the financial and health consequences of our failure to enact an effective, universal insurance program.

The Way I see It: The author makes a case for a shift to a consumer-driven system.

By Jordan L. Geller, MD
Medical Economics
December 15, 2006

There’s another problem with calling healthcare a right. It imposes an obligation on the government to fulfill that right–something our government is neither economically nor functionally equipped to do. In contrast, the Bush administration reform plan would shift at least part of the healthcare burden from employers and government back to the consumer. By coupling a high-deductible policy with a tax-free health savings account, policy makers believe that Americans will become more efficient and discerning consumers of healthcare.

The devil is in the details, of course. Still, if the current plan accomplishes anything, it will almost certainly raise anew the question of health and individual responsibility. This is crucial for progress in the area of healthcare reform, since, to date, the bad effects on health of certain lifestyle choices–poor diet, overeating, smoking–have done little to alter peoples’ behavior. If, on the other hand, consumers were forced to shoulder more of the financial burden of their lifestyle choices, finally, perhaps, they’d be motivated to pursue healthier choices.

Comments from our readers:

dmccanne / San Juan Capistrano, CA
Posted Dec 15 2006

The wealthiest nation of all is not financially equipped to do what all other industrialized nations have – insuring everyone? And the fear of spending money from a health savings account is a greater incentive to quit smoking than the fear of cancer, heart disease or emphysema? Get real! We each have a personal responsibility to take care of ourselves, but we also have an egalitarian responsibility to our fellow Americans to see that financial hardship does not compound the misfortune of illness or injury.

http://www.memag.com/memag/article/articleDetail.jsp?id=390156

---

And…

Building on the Progressive Victory

By George Lakoff
Rockridge Institute
December 15, 2006

What is a progressive worldview? It’s simple: You have empathy for others, and you act responsibly on that empathy, being both responsible for yourself and socially responsible as well. Progressives say, “We’re all in this together” while conservatives say,” You’re on your own.” It was running on those progressive values that won the election for the Democrats.

Progressive values-based reframing has begun to work, because it has been paired with authenticity (saying what you believe) and with framing that highlights the very real traumas affecting the nation.

The role of the progressive activists, grassroots, and netroots is to promote progressive values to biconceptuals both within and outside the Democratic party — to activate the progressive beliefs they already have and to extend them further by speaking a progressive language and using progressive values, ideas, and arguments. The goal is not just to move the Democrats in a more progressive direction, but to move Republicans and independents in that direction as well. The idea is to benefit the nation, not just the party.

And conservative values and practices, when they lead to people getting hurt and our democracy undermined, have to be attacked overtly.

This election marked a progressive victory and a victory for progressive efforts at factually accurate, values-based framing.

http://www.rockridgeinstitute.org/research/lakoff/building-on-the-progressive-victory

Comment:

By Don McCanne, MD

Berkeley linguistics professor George Lakoff has taught us much about framing. In the example from Medical Economics, I have applied some of his concepts:

1) Do not let the opponents frame the debate.

2) Establish your own framing that accurately communicates the principles you wish to express.

3) Be meticulous in maintaining the credibility of your framing.

4) When the opponents’ framing is not credible, do not hesitate to briefly expose their lack of credibility for the purpose of destroying their frame.

In the example, Dr. Geller has linked together, in a single frame, dismissing the role of government in health financing and relying on individual responsibility. Without entering his framing of rights and responsibilities, we have destroyed his credibility by exposing his fallacies – that the United States is not “economically equipped” for the task, and that personally assuming the financial burden of health care incredibly improves health, when all of the data is to the contrary.

Our framing much more credibly establishes two separate frames – one for personal responsibility, and the other for egalitarian responsibility.

Although Professor Lakoff’s message has been a call for progressives to catch up with the conservatives on framing, it is also a nonpartisan message. Let’s establish a highly credible frame for the health care reform debate within which we can all communicate. And let’s overtly attack those who would undermine the process.

For more on George Lakoff and the Rockridge Institute:
http://www.rockridgeinstitute.org/people/lakoff

Health Reform Interrupted: The Unraveling Of The Oregon Health Plan

by Jonathan Oberlander
Health Affairs
December 19, 2006

Abstract:

The Oregon Health Plan (OHP) has received national and international attention for rationing medical care based on explicit priorities. However, in recent years OHP has lost substantial enrollment and struggled to live up to its core principles. This paper explores what went wrong in OHP and the implications of Oregon’s experience for state-led health reform.

Lessons for state health reform (excerpt):

The strongest challenge to sustainability, though, may come from rising medical costs. As medical inflation increases, and with it the number of uninsured people who lose employer-sponsored coverage and qualify for public insurance, the price tag for maintaining–let alone broadening–coverage expansions also increases, and retrenchment may supplant activism on the agenda. And as Medicaid spending consumes a higher percentage of state budgets, outpacing revenue growth and threatening to crowd out spending for education and other politically popular priorities, ambitious plans to cover the uninsured become more difficult to fulfill. Economic downturns exacerbate these pressures, especially since states must live with balanced budget requirements. Cost control, which triggers intense opposition from medical-industry interests that profit from the status quo, requires much more political will to impose than insurance expansions do. Avoiding cost control and gaining the support of system stakeholders is perhaps the key to short-term political success. However, its absence may be, in the long run, the Achilles’ heel of state-led health reforms that seek to move toward universal coverage without serious mechanisms to control spending in their own programs and without limits on medical care inflation in the broader health system.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.26.1.w96

Comment:

By Don McCanne, MD

There are many factors involved in the unraveling of the Oregon Health Plan that will not be discussed here, but most are of importance to other states. Nonsubscribers can download this article free of charge for the next two weeks and should do so to learn these other important lessons from Oregon. Only one factor will be discussed here.

The most difficult problem that Oregon and all other states have faced is the continuing escalation of medical costs. Now that there seems to be a growing political consensus that comprehensive reform must occur at the state level, we need to ask whether the states would be capable of stabilizing the system by controlling costs.

We can’t discuss controlling costs without understanding some of the more important reasons for our high costs. Amongst them are deterioration of our primary care infrastructure, high prices, profound administrative inefficiencies, and an excess of non-beneficial high-tech services.

Innumerable studies have demonstrated that a strong primary care infrastructure ensures the delivery of higher quality care at a lower cost. Could any state build that infrastructure independently? It would require a transformation of both our medical education and health care delivery systems to achieve that mission. It is unlikely that any one state would be capable of that intrinsically, not to mention the fact some states might expropriate the products of the efforts made by other states. We will not have an effective primary care infrastructure until we have made it a national policy that all concerned individuals and institutions cooperate in efforts to build the primary care system we need.

Our health care pricing is the highest of all nations. Could any one state independently control prices, whether through markets or by government control? Both government and private insurance programs already set rates, yet health care costs continue to escalate. Prices need to be set based on legitimate costs and fair profits. The most efficient and equitable method would be through negotiation. If one or two states acted independently without other states involved in a similar process, cost shifting and unfair pricing would be inevitable with the possible consequence of instability in the health care delivery infrastructure. We need national policies to establish a system of pricing that is fair for all.

Much of the administrative waste that characterizes the health care system in the United States is due to the fragmented financing system of public programs and a multitude of private plans. Could a state independently establish an efficient, coordinated system of health care financing, such as a single payer system? It would be impossible without federal involvement. The state would require funds that are currently financing Medicare, Medicaid, SCHIP, and innumerable other programs that have designated revenues flowing to the states. Even though administration would be more efficient on a state or regional basis, only the federal tax system has the size and stability to ensure that state programs remain adequately funded. We need federal policies to be sure that adequate public funds would always be available for an administratively efficient financing system.

Can states control the high-tech excesses? Once again, that would require a coordinated effort between our medical education and health care delivery systems. Only a national resource such as the National Institutes of Health would be capable of providing the parameters to guide this process. We need federal policies to support national programs that would identify value in all health care services, not just high-tech, so that we receive greater relative benefit from our health care expenditures.

The Democrats have indicated that they intend to merely tweak our system. Many are advancing programs to shift responsibility to the states to allow them to adopt “politically feasible” programs that have been designed by the conservatives. (One important factor in Oregon’s unraveling was the introduction of “personal responsibility” through decreased benefits and greater cost sharing.)

Oregon, and every other state for that matter, have provided us with an important lesson. The states cannot act alone. It must be national policy that everyone has access to comprehensive, high quality, affordable health care.

All state programs have fallen short. Why do we continue these experiments with state laboratories when a simpler, single national health insurance program will do it?

The Press-Enterprise
December 17, 2006

The perspective of Don McCanne, senior health policy fellow, and Nicholas Skala, research associate, Physicians for a National Health Program

Compared to other advanced nations, the United States spends far more on health care but achieves only mediocre results. Though the World Health Organization has ranked us first in spending, we are ranked 37th in performance–well behind Canada and all Western European nations. What do these countries know that we don’t?

Universal coverage is public policy in the rest of the industrialized world, but it is not in the United States. We leave nearly 47 million without any insurance at all. Even the insured are finding that increasingly inadequate private insurance policies are leaving them exposed to insurmountable costs.

Although unheard-of in other nations, illness and medical bills contribute to half of personal bankruptcies here, and 75 percent of those with medical debt had coverage when they got sick.

How do other nations insure everyone, protect their personal assets from medical debt and do it at a much lower cost than that of the United States? Although no two nations have identical programs, none has adopted the disorganized, wasteful, fragmented insurance payment system that we have in America.

In nations such as the United Kingdom, the government owns the health care delivery system, and it is the direct provider of care. Other nations use a social insurance model in which care is paid for either
directly through the government or via tightly organized and regulated nonprofit companies, while doctors and hospitals remain independent.

These social insurance programs cover everyone, protect against financial losses, more effectively pool risks and fund the entire system much more equitably than we do in the United States.

This egalitarian social insurance model of other nations contrasts sharply with the market model of private plans that we have here. Private insurance companies erect massive bureaucracies for the purpose of fighting claims, issuing denials and screening out the sick from coverage.

Their principal product is an excess of administrative services with its resulting headaches. Doctors, hospitals and businesses must react by employing armies of administrators to deal with this massive private bureaucracy.

Health-care administration consumes a mind-boggling 31 percent of our health spending. Some $350 billion of this waste could be recovered and is enough to extend good coverage to all Americans. Americans are already paying for national health insurance — we just aren’t getting it. Two-thirds of our health-care system already is funded through the tax system.

Although it works well for our armed forces and veterans, Americans may have difficulty accepting a government-operated medicine system similar to the U.K.’s. But we are already comfortable with the concept of social insurance: Our Medicare and Social Security programs are familiar examples.

The public’s response to recent threats of privatization has shown just how protective we are of these programs, even though they are government programs. A national health-insurance system for the United States — in essence “Medicare for All” — would likewise be successful and popular.

Medicare is not perfect. It requires continual oversight and maintenance. But with appropriate revisions, it can serve as an American model of comprehensive coverage for everyone.

While making funding more equitable, the system can assure care will remain affordable. Even though the Europeans provided us with the health-policy science, we can take pride in the fact that Medicare is our own, made-in-America idea.

http://www.pe.com/localnews/opinion/localviews/stories/PE_OpEd_Opinion_D_op_1217_mccanne_loc.c79484.html#

The opposing view, “Beware massive costs, rationing, loss of freedom,” was written by Grace-Marie Turner of the Galen Institute and Robert E. Moffit of The Heritage Foundation. Their op-ed was not posted on The Press-Enterprise website, but an unedited version is available from Galen:
http://www.galen.org/healthabroad.asp?docID=950

The opposing view that was posted on The Press-Enterprise website, “Government-run systems restrict care,” was written by Merrill Matthews of the Council for Affordable Health Insurance:
http://www.pe.com/localnews/opinion/localviews/stories/PE_OpEd_Opinion_D_op_1217_matthews_loc.c79387.html

Comment:

By Don McCanne, MD

Would Europe’s health-care-for-all model work here? Since no two European nations have the same model, the question really is whether an insurance program that covers everyone would work in the United States. Since we already spend far more per capita on health care than the European nations, there is absolutely no doubt that a properly designed universal insurance program would work as a “health-care-for-all” model (or Medicare for All).

Grace-Marie Turner, Robert Moffit, and, separately, Merrill Matthews didn’t answer that question, but, in their usual reframing of the debate, they changed the topic to rationing. So their question is whether the level of rationing that would take place in the United States would be so severe that we should not attempt to cover everyone with effective insurance. In their response they ignored two crucial points.

Those European nations that have been attentive to capacity and have practiced queue management do not have significant problems with excessive queues. At our level of spending, there would be no need to ration reasonable, beneficial health services, though we should reduce funding for non-beneficial or detrimental services. But that is not rationing; that is value purchasing – a feature of well functioning health systems.

The other point is that they remain silent on the nation with the worst rationing of all – the United States. We ration care for tens of millions of Americans based strictly on their ability to pay. A national health insurance program would eliminate that inhumane basis for rationing.

In our debate over health care reform we don’t need more anecdotes about C-T scans for dogs, or ideological discussions about freedom to pay for your own health care. We need serious discussions about policies that will work. Unless the opponents come up with something better than national health insurance, they should get out of our way and let us heal our very, very sick system.

Commercial Health Insurance: Smart Or Simply Lucky?

By Marsha Gold
Health Affairs
November/December 2006

Rapid growth in health costs threatens to reduce coverage and financial protection by making health insurance increasingly expensive. Policy-makers who perceive that they can rein in the rapid growth in spending within public insurance programs such as Medicare and Medicaid by transferring responsibilities to commercial health insurers will be disappointed. Analysts comparing historical growth in per capita spending for Medicare and private insurance between 1970 and 2000–when the former was mainly a government-run program and the latter was provided by commercial health insurers–found that, on average, the private sector grew no more slowly than Medicare and in fact grew faster on some measures. It is a serious mistake to assume that the cost problems plaguing our health system can be solved by changing the players rather than the rules of the game.

http://content.healthaffairs.org/cgi/content/full/25/6/1490

Comment:

By Don McCanne, MD

In commenting on the move of commercial insurers into our public programs – Medicare and Medicaid – Marsha Gold has made it clear that cost problems will not be solved by merely changing the players when the rules of the game need to be changed.

Since cost issues are not limited to our public programs but involve our entire health care system, it is clear that none of the players are globally effective, and that the rules absolutely must be changed. But when you think about the new rules that we need, the commercial insurers, as we know them, will be utterly incapable of playing by those rules.

We not only need to change the rules, but we need to change the players by substituting the one single player we need – single payer.

Cost and Coverage Estimates for the “Healthy Americans Act”

Prepared By: John Sheils, Randall Haught, Evelyn Murphy
The Lewin Group
December 12, 2006

(The Healthy Americans Act is a bill being introduced by Sen. Ron Wyden of Oregon.)

Executive Summary (excerpts):

The “Healthy Americans Act” (HAA) establishes a centrally financed system of private health insurance for all Americans except those covered through Medicare or the military. Participants would chose from a selection of private plans offered through newly created regional purchasing organizations called “Health Help Agencies” (HHA’s). All Americans would have coverage at least as comprehensive as the health coverage now provided to members of Congress and federal workers, although an actuarially equivalent substitution of HMO and Health Savings Account (HSA) plans is permitted.

Employers would be required to “cash-out” their health plans by terminating their existing health coverage and paying the amount saved to their workers in the form of increased wages. The current tax exemption for employer provided health benefits is eliminated to strengthen incentives for families to seek lower cost coverage. However, a new “health premium” tax deduction is created so that these wage increases do not increase federal personal income tax payments. To maintain incentives to control costs, the deduction is fixed and can not be increased by purchasing more costly coverage.

All HAA participants would pay premiums through their annual income tax filings. The program would fully subsidize the premium for those below 100 percent of the federal poverty level (FPL), with the premium phasing-in for people living between 100 percent and 400 percent of the FPL. People who do not have enough income to pay taxes are assumed to be eligible for the program with full subsidies, thus eliminating the need to apply separately for assistance as under the current Medicaid program. Employers also would be required to pay an assessment ranging from 2 to 25 percent of the national average premium for the minimum benefits package, depending upon firm size and revenues per worker.

E. Private Employer Impacts (excerpts):

Private employer health spending under the HAA is reduced under the HAA by $309.8 billion, from $428.8 billion under current law to $119.0 billion under the program.

We assume that the savings to employers would be passed-back to workers in the form of increases in wages. This reflects the HAA requirement that employers “cash-out” their benefits plans. It also reflects economic theory and research indicating that changes in employer benefits for health care are, in the long run, passed back to workers in the form of wages or some other form of compensation such as pensions or disability insurance.

This reflects that the employer’s true cost of employing workers includes all compensation costs including: wages less employer payroll taxes, health benefits, pensions, and other non-cash benefits. In competitive labor markets, eliminating the health benefits (or any other form of compensation) would bid-up other forms of compensation such as wages so that aggregate compensation levels are largely unchanged.

http://wyden.senate.gov/Healthy_Americans_Act/HAA_Cost_Coverage_Report.pdf

Sen. Wyden’s plan (with links to the Act and other documents):
http://wyden.senate.gov/media/2006/12132006_Healthy_Americans_Act.htm

Comment:

By Don McCanne, MD

Sen. Wyden’s proposal is an individual mandate to purchase private health plans. Much has been written about the flaws of such models, and no attempt will be made to address most of those issues here. Rather only one serious fundamental flaw in the application of economic theory will be discussed.

The theory is that in competitive labor markets, total compensation is determined by the market, but the distribution between payroll and other benefits such as health plans and pensions does not influence the total compensation. Thus termination of a health benefit program results in an increase in wages that has the same monetary value.

In Sen. Wyden’s proposal, not only does it assume this theory to be true, it also provides back-up enforcement by requiring that employers increase wages by the same amount of the health benefit that will be terminated under this Act, but only for the first two years. After that, the competition of labor markets resumes, but without the complication of a health benefit program. Employees are on their own for accessing and funding their health plans.

Whether through union efforts or in the open job market, compensation is negotiated, at least theoretically. That includes wages and often health benefits and pensions. It does not include food. It does not include housing. It does not include transportation. It does not include any other basic needs. Those needs fall under the category of personal responsibility – use your wages wisely to meet those needs.

Now health care is shifted away from being considered as part of the compensation package, over into this realm of personal responsibility.

Have wages kept up with the costs of basic needs? There certainly has been a redistribution from wage earners to the wealthy. The minimum wage has not been increased for many years. Consumer debt continues to expand. Personal savings are now a negative. Personal insolvency continues to grow. Yet employers are not providing wage increases that are indexed to food, nor to housing, nor to transportation. Now that they are no longer in charge of health coverage, they will feel no obligation to index wages to health costs either.

The Lewin report contends that price competition between health plans, and greater administrative efficiencies will lower costs significantly. If the consolidated efforts of employers have been unable to control costs and waste, how can individual purchasers ever expect to exert market pressures to achieve these efficiencies?

The last section of the Act list many other potential sources of cost savings. Reading the list, the savings potential for many is simple rhetoric, not supported by fact. Some of them would actually increase costs. The Act excludes more effective cost measures such as those of the single payer model.

The point is that costs will continue to increase and wage earners will have to face those costs alone. Employers will have divorced themselves from the problem and will not make an exception for health care anymore than they already do for food, housing and transportation.

Wyden’s plan falls apart since it depends on price competition of health plans, which in turn depends on shifting more unaffordable costs directly to those who need care.

Jessica S. Banthin, PhD; Didem M. Bernard, PhD
JAMA
December 13, 2006
JAMA. 2006;296:2712-2719.

Context: Policymakers as well as physicians need to understand how rapidly rising health care costs are affecting specific groups of patients.

Objective: To estimate the number and characteristics of individuals in the United States faced with very high financial burdens for health care.

Design, Setting, and Population: Data from a nationally representative sample of civilian, noninstitutionalized US individuals younger than 65 years from the Medical Expenditure Panel Surveys were used to calculate 2 measures of financial burden as a function of tax-adjusted family income. Total burden included all out- of-pocket expenditures for health care services, including premiums.
Health care services burden excluded premiums and, when applied to the insured population, was used to identify the underinsured. We defined the underinsured as insured persons with health care service burdens in excess of 10% of tax-adjusted family income.

Main Outcome Measures: Total and health care services burdens exceeding 10% and 20% of family income in 1996 and 2003.

Results: In 2003, there were 48.8 million individuals (19.2%) living in families spending more than 10% of family income on health care, an increase of 11.7 million persons since 1996. Of these individuals, about 18.7 million (7.3%) were spending more than 20% of family income. In 2003, individuals with higher-than-average risk of incurring high total burdens included poor and low-income persons and those with nongroup coverage, aged 55 to 64 years, living in a non– metropolitan statistical area, in fair or poor health, having any type of limitation, or having a chronic medical condition. Applying our definition of underinsured to the insured population, an estimated 17.1 million persons younger than 65 years were underinsured in 2003, including 9.3 million persons with private employment-related insurance, 1.3 million persons with private nongroup policies, and 6.6 million persons with public coverage.

Conclusions: Our analysis identifies patients at greatest risk of health-related financial burdens that may adversely affect their access and adherence to recommended treatments. Our study also highlights the high costs associated with nongroup health insurance policies.

Author Affiliations: Division of Modeling and Simulation, Center for Financing, Access and Cost Trends, Agency for Healthcare Research and Quality, US Department of Health and Human Services, Rockville, Md.

http://jama.ama-assn.org/cgi/content/abstract/296/22/2712?etoc

Comment:

By Don McCanne, MD

Not more numbers! Don’t we have enough to make the case for national health insurance?

These numbers are important. Let’s see if we can make some sense of them.

This study indicates that the financial burden on families of medical costs has continued to grow worse. We should look at the most recent year studied, 2003, to get a better idea of the extent of the problem as we experience it today.

This is not a study of the numbers of uninsured (we already know those numbers), nor is it a study of the numbers with inadequate insurance or underinsurance (we don’t know those numbers). Rather, it is a study of the numbers of individuals under 65 who experienced financial hardship in a single year because their health care costs were greater than our health care financing system was capable of protecting against. It is not a study of the potential risks, but rather it is a study of actual financial harm done.

Most can agree that spending more than 10% of family income on health care constitutes a financial hardship, except perhaps for the very wealthy. So how many individuals experienced this hardship in one year – 2003? 48.8 million individuals, or 19.2% of our population!

One-fifth of all Americans! If you were to average that out, that means that everyone of us would have a year of financial hardship due to medical bills within the next five years, and every five years. Of course, disease is not evenly distributed, so those who remain healthy will not have a problem, but those with medical disorders will have multiple years of hardship.

Spending 20% of family income would certainly be disastrous for almost all of us. How many individuals spent that in 2003? 18.7 million or 7.3% of our population! That’s a disaster!

Well let’s forget about the uninsured for a minute and look at those of us who have insurance. Let’s not even count the insurance premiums that we or our employers are paying, but let’s look exclusively at the out-of-pocket expenses that we are paying for health care. This will give us a better idea of just how well our insurance is working.
How many paid more than 10% of family income for health expenses not covered by their insurance? Of those younger than 65, 17.1 million individuals! Underinsurance is a national epidemic that engulfs many more everyday!

There are some very important numbers from the tables in the article that do not appear in the abstract above.

What percent of middle-income Americans spent more than 10% of family income on health care? The answer? 22.7%!! That is almost as much as the 23.7% of low-income families that spent over 10% on health care. Health care costs are not just a problem for the poor, they are very much a problem for middle-income America!

One very small number from the charts may say the most about our flawed system of financing health care. What percent of high-income Americans spent more than 20% of their incomes on health care? One- fifth of their high incomes is a lot of money. Well, it was only 0.6% But think about that. One out of every 167 high-income Americans had to spend over 20% of their incomes on health care. If our health care financing system cannot reliably protect the wealthy, then it is a flawed system indeed.

Maybe the wealthy don’t care. The chances are 166 out of 167 that they won’t experience major medical debt in any given year, and they will likely outlive those odds. But middle-income Americans should be very, very afraid!

A Solution to America’s Health Care Crisis: Curing Our Sick Health Care System

By Robert Gumbiner, M.D., with Alis Gumbiner

I am proposing the federal government as the single payer of health care in this country. Only the federal government has the ability to fund one large risk pool through a payroll deduction. As the single payer, the federal government could negotiate hospital and physician payments even more effectively than it does now with Medicare. In addition, the federal government could negotiate prices for prescription drugs.

A single pool of funds, collected and administered by the government, would expand Medicare and replace Medicaid, SCHIP, the Veteran’s Administration, and private health insurance, including the health care aspect of Worker’s Compensation Insurance. Also eliminated would be the tax credit – or subsidy – given to companies for providing private health insurance to their employees. In other words, the current, inefficient patchwork of payment systems would disappear, to be replaced by one nationwide program available to every citizen.

http://www.healthcarecure.org/

Comment:

By Don McCanne, MD

What is remarkable about this quote in support of single payer is its source: Robert Gumbiner was the founder of FHP, one of the nation’s largest managed care companies.

Dr. Gumbiner received fame (some might say infamy) for his innovations in developing systems that controlled health care costs. In his book, he describes his successes and failures, and his evolving thoughts about how to best address the problem of affordability, currently the nation’s leading concern about health care. His bottom line is that we must enact a national single payer program, and that conclusion is coming from a manager’s perspective.