Is Medicaid Sustainable?

Spending Projections For The Program's Second Forty Years

By Richard Kronick and David Rousseau
Health Affairs
February 23, 2007

Medicaid is a special program in many ways–serving parts of the population that are ill served by the voluntary employer-based financing system. But despite fears about declines in employer-
sponsored insurance, increases in the number of disabled people, and the LTC needs of the baby boomers, it appears that there is little that is special about Medicaid spending: It is likely to increase with health spending more generally, neither much more quickly nor much more slowly.

Short of pushing beneficiaries into the ranks of the uninsured or greatly reducing Medicaid benefits, there is likely little that can be done to greatly reduce Medicaid spending growth in the medium term except to do something about reducing overall health spending growth. Medicaid is one purchaser in a larger health care market, and with payment rates already much lower than those of other payers and with an overall population far more costly than that covered by private insurance, the most effective way to control Medicaid spending growth is to pursue strategies to control overall health care cost growth. This is a problem much larger than Medicaid, and beyond the scope of our work here.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.26.2.w271v1

Comment:

By Don McCanne, MD

This study indicates that growth in government revenues will be adequate to sustain the Medicaid program for the coming decades. The immediate policy implication is that current political attacks on Medicaid as an “unsustainable” program are not warranted. Until we are ready to adopt a more efficient and effective health care financing system, it is important to protect Medicaid from efforts to further underfund the program.

The much more important policy implication is that Medicaid cannot serve as a vehicle for reform. Neither can any other segment of our fragmented system of health care funding. Instead, we must “pursue strategies to control overall health care cost growth.”

The reform options that build on our fragmented financing system fail to provide adequate mechanisms that would improve spending value. A single payer national health insurance program would. Once enacted, we could get rid of the chronically underfunded, high cost Medicaid risk pool, and have higher quality, affordable care for all of us.

Health Care Coverage Should be Amendment XXVIII

By Robert G. Levitt, M.D.
Missouri Medicine
September/October 2005 | Vol. 102 No. 5

Such wonderful advances have been made in medicine since the founding of our country that a twenty-first century America needs a twenty-eighth amendment.

Click here to read

Commentary on New Health Proposals

Commentary on New Health Proposals by PNHP Senior Health Policy Fellow Dr. Don McCanne, author “Health Policy Quote of the Day” – archived at www.pnhp.org

* Bush’s Health Plan
* The Healthy Americans Act – Sen. Ron Wyden
* Health Care Coverage for the Uninsured
* America’s Health Insurance Plans
* Massachusetts and California Plans
* Gov. Schwarzenegger’s Health Plan
* Federal Bill to Encourage State Reform

Bush’s Health Plan

Original Quote of the Day – January 22, 2007

By giving every family with health insurance a $15,000 deduction from their taxable income, the president provides incentives to buy less expensive plans, since the tax benefit is the same for the cheapest plan and every other plan up to a value of $15,000.

Why would the president want to provide tax incentives to encourage individuals to buy cheaper health plans? He claims that insurance causes patients to over-utilize health care, and that health care costs will not be controlled until we end this waste. The fact is that the savings achieved by having the healthy decline services of marginal value is only a minuscule portion of our total health care budget. Most health care is provided to sick or injured individuals who need the care. The cheaper plans that the president is encouraging will increase out-of-pocket costs, often making actual health care unaffordable for precisely those who really do need it.

A further potential impact is that employers who would like to terminate their health benefit programs would have less incentive to continue to provide coverage since the employee now would become eligible for the $15,000 deduction. This further advances the president’s goal of shifting responsibility to the individual through an expansion of the ownership society – wherein you own the right to pay for your medical care.

His proposal also is a regressive method of funding health care. Since every insured individual receives the same deduction, higher-income individuals receive a greater government subsidy because of our graduated tax schedule. Worse, for individuals with modest incomes, the tax subsidy is not enough to make insurance affordable, and they will continue to do without.

At a time when everyone agrees that major reform is essential, the president comes up with this proposal. Doesn’t he care about us?

Sen. Ron Wyden of Oregon – The Healthy Americans Act

Original Quote of the Day – December 14, 2006

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.

Health Care Coverage for the Uninsured (HCCU)

Original Quote of the Day – January 18, 2007

Signatory organizations:
AARP, America’s Health Insurance Plans, American Academy of Family Physicians, American Hospital Association, American Medical Association, American Public Health Association , BlueCross BlueShield Association, Catholic Health Association, Families USA, Federation of American Hospitals, Healthcare Leadership Council, Johnson & Johnson, Kaiser Permanente, Pfizer, UnitedHealth Group, U.S. Chamber of Commerce

A diverse group of 16 major national organizations with an abiding interest in accessibility to quality health care have reached a consensus on policy approaches to expand health coverage to as many people as possible as soon as possible.

Phase I: The “Kids First” Initiative and State Experimentation

Public Program Enrollment

…improve enrollment of children who are uninsured but currently eligible for SCHIP (State Children’s Health Insurance Program) and Medicaid.

Family Tax Credit

…creates a new family tax credit for the purchase of children’s health coverage…

State Demonstration Program

…establishes a state demonstration program giving states flexibility to experiment with new approaches that expand health coverage. Competitive grants would be provided to the states…

Phase II: Longer-Term Policy Recommendations

Public-Sector Proposals

…allow states to eliminate family status as an eligibility requirement and determine eligibility for Medicaid coverage based exclusively on financial need.

Private-Sector Proposals

Make… tax credits available for individuals and families with incomes between 100 and 300 percent of the federal poverty level for the purchase of health coverage. …graduated on a sliding scale based on income.

Provide federal grants to states in order to provide health coverage for high-risk populations.

Comment:

By Don McCanne, MD

What a tragedy. Health care coverage, affordability and access are rapidly deteriorating at an accelerated pace, and this is the best that this coalition of influential organizations can come up with.

They propose moving reform forward a couple of inches when we are sliding thousands of miles backwards.

You can cross this group off your list.

America’s Health Insurance Plans

Original Quote of the Day – November 17, 2006

AHIP, representing the nation’s private insurers, is currently being lauded for taking a leadership role in promoting policies encouraging universal access to affordable health care coverage. Are the accolades warranted?

The proposals do seem to meet what many consider to be the political common ground for reform. The expansion of coverage is incremental, beginning with children. The goal is universal coverage that is affordable for everyone.

The process builds on the current system rather than replacing it with a single, government-run program. Though politically expedient, is this the common ground where we really want to be?

AHIP’s primary mission is to protect the interests of the private insurers. They want to continue to market affordable plans to healthy populations that have a source to pay for the insurers’ products. Most employed individuals and their families are healthy and have, through their employment, the resources to purchase insurance. The insurance industry wants to retain that market. Many of the uninsured are also employed and healthy, but lack the resources to pay for coverage. The insurance industry also would like to have this market, and so they have proposed government subsidies to help pay for that coverage. They also propose subsidies for the higher-income uninsured in order to entice them as well to buy their products.

Individuals living in poverty have poor employment records and have a high incidence of chronic problems, especially socio-economic difficulties. The insurance industry does not want to cover this market since there is very little profit incentive in including these less fortunate individuals. Thus AHIP recommends turning these individuals over to a government welfare program, Medicaid, thereby sparing the industry of this burden.

What a great program for the insurers. They cover the healthy with well funded plans, and turn the problem sectors over to the government and the taxpayers.

Besides being extremely self-serving, there are serious deficiencies in their proposals. They are supporting affordable coverage, but not affordable health care. Reading the specifics of their proposals, it is clear that they have no mechanism for slowing health care inflation. Instead, they support proposals that shift more costs to individuals, making access less affordable. Rather than reducing the profound administrative waste in our system, they increase administrative inefficiencies, further adding to health care costs. They have no proposal to pay for the increased government spending, knowing that a massive tax increase, without an offset in reduced private spending, would blow a crater in a common ground on reform. Also, their program cannot possibly achieve 100 percent coverage since much of it requires voluntary participation.

The greatest flaw of all is that their plans are made affordable by increasing financially burdensome cost sharing, by reduction in benefits covered, and by excluding those with health care needs. If these patterns were reversed, then coverage would not be affordable. The private insurance model is an anachronism.

The political common ground for reform should be on policies that ensure that everyone has affordable access to comprehensive health care, rather than on policies that increase wasteful spending through a government program designed for the welfare of private plans. It’s time for taxpayer/patients, providers, and politicians to join together on a common ground to fix our system. But we do need to acknowledge that AHIP and the private insurers have disqualified themselves from being legitimate participants in that process.

Massachusetts and California Plans

By Don McCanne
January 16, 2007
USA Today

Americans need more than affordable insurance; they need affordable health care. California Gov. Arnold Schwarzenegger plans to copy the Massachusetts reform in shrinking the numbers of uninsured people by forcing them to buy stripped down, bare-bones policies.

With premiums for family coverage now averaging $10,000 a year, the only way that states can make premiums affordable is to strip down the plans, which then forces policyholders to pay out of pocket when they get sick. High deductibles, co-payments and benefit reductions are destroying the financial protection that insurance should provide.

Half of U.S. bankruptcies are a result, in part, of medical illness or medical bills. Three-quarters of Americans who are forced into medical bankruptcy had health insurance at the onset of the illness that bankrupted them. Worse, suffering and death can occur when patients cannot afford the care that their private insurance does not cover.

The big winners in the Schwarzenegger and Massachusetts health plans are private health insurance firms. The new insurance mandates will hand them billions in wasteful administrative fees that do not occur in government insurance programs such as Medicare. Private insurers will continue their cream-skimming, enrolling primarily the low cost, healthy workforce and their families, while leaving the costs of the unprofitable sick and elderly to the taxpayers.

State health programs are interdependent on federal programs such as Medicare, Medicaid and the Veterans Affairs’ system, and are regulated by federal laws. The states alone cannot enact the structural changes that would be required to cover everyone and control costs. They are limited to building on the existing system by tweaking it to nominally expand coverage to the uninsured.

Money is not the problem. We already are spending enough on health care to provide high-quality, comprehensive services for everyone. But our inefficient, private-sector insurance bureaucracies have failed and need to be replaced with single-payer national health insurance. Every other developed nation has covered its citizens through some form of non-profit national health insurance.

Don McCanne, M.D., is a senior health policy fellow of Physicians for a National Health Program.

Gov. Schwarzenegger’s Health Plan

Original Quote of the Day – January 9, 2007

Gov. Schwarzenegger’s ten page proposal cannot be fully addressed here, but a brief discussion of the general concepts can give us a perspective as to whether this would achieve his stated goals of affordable health care for everyone. I’ll discuss the first and third building blocks first, and then his plan for coverage.

For prevention, health promotion and wellness, he recommends preventing diabetes and obesity, as if we really knew how to do that, and continuing our successful program to reduce the use of tobacco. He also recommends incentives/rewards to promote prevention, wellness, and healthy lifestyles. Although certainly we all agree that healthy lifestyles are important, as a public policy initiative, this building block will not add much to the foundation of a more effective and efficient health care system.

Affordability and cost containment are crucial to reform. But what does the governor offer? He would require that insurers and hospitals limit their administrative costs and profits to 15% of premiums paid. The current administrative waste is due to our fragmented system of financing health care, and he would do nothing to bring about the structural reform required. It will be very difficult to reduce the 31% spent on administration without an efficient system such as single payer. He recommends health savings accounts, which, if they do reduce spending, would do so by making beneficial health services unaffordable for many individuals with unfunded or depleted accounts. He states that health information technology will improve affordability, when there is already evidence that it will more likely increase costs. He suggests that pay-for-performance and reporting health plan performance will improve efficiency, though there is no real evidence for that. He maintains silence on important cost drivers such as lack of an adequate primary care infrastructure, an excess of non-beneficial high-tech services, and the highest prices of all nations. Without structural reform, this building block will not add much to our health care foundation.

The most important building block is his proposal to provide coverage for all Californians. He does this by expanding eligibility for Medi-Cal (Medicaid) and Healthy Families (SCHIP) for low-income individuals with means-tested premiums, providing subsidies for lower-income working uninsured to purchase coverage through a state pool, and enforcing an individual mandate for all others to purchase coverage. Specific proposals to cover the undocumented are also included.

Unfortunately, this block crumbles when you look at the mandated coverage. “The minimum health insurance benefit that must be maintained will be a $5,000 deductible plan with maximum out-of-pocket limits of $7,500 per person and $10,000 per family. For the majority of uninsured individuals, such coverage can be purchased today for $100 or less per month for an individual and $200 or less for two persons.” Considering that this proposal requires guaranteed issue and community rating, the premiums likely will be at least five or six times that much. And maximum-out-of-pocket limits are a fiction since they ignore non-covered and out-of-network services – often unavoidable. The total costs to individuals or families with significant health care needs can be in the tens of thousands of dollars. An insurance product that does not protect average-income Americans cannot serve as the foundation of an affordable, efficient health care system for all. This alone destroys the credibility of Gov. Schwarzenegger’s model.

There are a couple of other issues that should be mentioned. The 4% payroll tax for employers will likely result in crowd out – employers dropping their current plans because this payroll tax is much lower than the premiums paid for employer-sponsored plans. That tax will not be able to support adequate plans in the state-administered pool. Thus his budget-neutral funding breaks down.

Also the plan promises to significantly increase payment to Medi-Cal providers, at a cost to the state of $2.2 billion. The expanded eligibility under Medi-Cal will cost the state another $1.3 billion. With the mandate of budget neutrality, how do they intend to fund this $3.5 billion expansion? They are going to tax the gross revenues of hospitals at 4% and physicians at 2%, for a total of $3.5 billion. What is the net affect of this? Not only is the Medi-Cal rate increase confiscated by the state, but also the entire compensation for the new enrollees is confiscated. The fact that Schwarzenegger’s administration used a budget gimmick to require physicians and hospitals to provide free care to the expanded Medi-Cal population demonstrates the dishonesty that permeates this entire proposal.

Federal Bill to Encourage State Reform

Original Quote of the Day – November 27, 2006

Is covering everyone an idea that is only half right? Is funding health care equitably so that it is affordable for each individual an idea that is only half right? Is improving efficiency by reducing administrative waste an idea that is only half right? If the right solution means that we fix the financing of health care so that it works for everyone, then we really do understand how to do that.

Apparently the Next Big Thing in health care reform is for Congress to grant the states the opportunity to achieve universal coverage. It is not as if the states haven’t been actively involved in this process. In fact, the federal government already has been giving states budget-neutral permission slips to experiment with various reforms.

Of the fifty states, after a half century of efforts, how many of them have achieved universal, affordable health care coverage? None, of course. They are busy struggling with funding issues, high-risk pools, Medicaid, regulatory oversight of private insurers, and many other policy issues that inevitably fall short on reform goals. When we already know how to fix the system, why would we insist on continuing with fifty different state laboratories to experiment further with well understood health policy science?

This is simply a process designed to further fragment our public and private insurance systems, and prevent us from ever having a universal program of social insurance such as Medicare for All. It is not a process designed to establish trust so we can work together. Rather it is a process designed to deceive. It is a decoy set up by the conservative/libertarian faction that has lured the centrists and the progressive/liberal factions.

As long as those in the center and on the left, with a false sense of compromise, sing the praises of those on the right who would constrain and limit government at the cost of a modicum of egalitarianism, we will be unable to prove wrong Uwe Reinhardt’s prophecy.

Business Roundtable is ready?

Business will deal on health care

By David Lazarus
San Francisco Chronicle
February 18, 2007

(John Castellani, president of Business Roundtable, an association of chief executive officers of some of the biggest U.S. companies) was noncommittal when I asked what sort of remedy his group favors when it comes to addressing America’s health care woes.

“What we’re putting on the table is that this is something that needs to be addressed immediately,” he said. “We’re also putting on the table that there are no bad ideas here.”

So, I asked, would Business Roundtable, which includes among its members the heads of some of the country’s biggest insurers, get behind a government-run system similar to universal-coverage programs in place in every other industrialized democracy?

“Nothing is out of the question at this point,” Castellani replied. “Everything is under discussion.”

Really?

“All of our members face the same problem,” Castellani said. “Costs are going up dramatically and the quality of care is no better than in countries that pay a lot less. We recognize that we need a solution that works for everyone and we’re committed to finding it.”

While none of the private-sector forces advocating change is prepared yet to back a specific plan, much less acknowledge that a government-run (or single-payer) system presents considerable advantages from a cost-saving perspective, it’s important that they’re not ruling anything out.

Castellani said he’s held talks in recent days with House Speaker Nancy Pelosi and senior White House officials. So far, he said, everyone’s keeping an open mind.

“Within the next three or four months, you’re going to see some specifics about what can be done,” Castellani pledged. “These conversations are going on right now.”

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/18/BUGQ8O5NDE1.DTL

Comment:

By Don McCanne, MD

In spite of a flurry of new reform proposals, there are really only three basic options: (1) single payer national health insurance, (2) expansion of our public programs and private health plans, and (3) continued gridlock while tweaking the welfare programs.

The first option, single payer, is the solution that would “work for everyone” that the Business Roundtable is “committed to finding.” The second option, expanding the current system, cannot work since it dramatically increases the costs that everyone wants to control, while falling far short on the other goals of reform. The third option, gridlock, is unacceptable since the problems continue to compound.

Castellani says that the insider conversations are already in progress, and we will see specific legislative proposals within the next few months.

What will be proposed? SCHIP is due for reauthorization, and, at the moment, this seems to be the only avenue on which an agreement can be reached. So we’ll have two more years of the third model: gridlock, with minor tweaking.

But the conversations for comprehensive reform are already taking place. They should be studying the differences between the first two options: single payer and multi-payer. Instead, they are looking at several variations of the public and private multi-payer models.

They understand the clear superiority of the single payer model, but they continue to be driven by the belief that it is possible to design a multi-payer model that would please everyone, except the single payer supporters. Whereas the private insurers would never support single payer.

But aren’t the private insurers a major part of the problem? Why should they be a part of the solution?

Private Health Insurance Is Not the Answer

By Phil Mattera
Corporate Research Project
Posted on February 23, 2007, Printed on February 23, 2007
http://www.alternet.org/story/48371/

Healthcare reform is in the air.

Ideas for dealing with the 46 million Americans without medical insurance seem to be popping up faster than new cases of the winter flu. President Bush proposes to use tax deductions to help people buy individual plans. California Governor Arnold Schwarzenegger wants to make it mandatory for everyone in his state to obtain insurance and would force employers who don’t provide coverage to pay into a fund.

Democratic Presidential candidate John Edwards would raise taxes on the affluent to pay for subsidies to help those with low incomes obtain policies. Some members of Congress are promoting insurance purchasing pools for small businesses. An odd bedfellows coalition including the Business Roundtable, AARP, the Service Employees International Union and Wal-Mart is pushing for some kind of expansion of coverage but is not saying what form it should take.

What these varied plans have in common is the assumption that, at least for the foreseeable future, most of the working population (and their dependents) will continue to receive coverage through private insurance carriers. Public officials across the political spectrum are, in effect, seeking to expand the customer base for a highly profitable industry.

Surely, it is a good thing to provide coverage to the uninsured, but it is remarkable that almost everyone assumes that coverage has to come from for-profit (or, in some cases, private non-profit) providers. Despite the overwhelming evidence from other industrial countries — and even domestic programs such as Medicare — that government-run health plans are much more efficient, the U.S. political class seems to be on a mission to save private insurance.

A Paternalistic Reform?

To understand the current debate, it is helpful to recall some of the tortured history of health insurance in the United States. In the late 19th Century European countries began adopting government-funded social insurance plans, but the U.S. failed to follow suit. When progressives made a push in the 1910s there was opposition not only from corporate interests but also from organized labor. AFL President Samuel Gompers denounced national health insurance as a paternalistic reform, fearing that its adoption would weaken the role of unions in improving the living conditions of workers.

Consequently, Americans both rich and poor continued to pay the vast majority of medical costs out of pocket. That began to change in the 1930s. While the Roosevelt Administration focused on retirement benefits and unemployment insurance at the expense of health coverage, physicians and hospitals struggling to survive the Depression set up private group insurance plans to bolster demand for their services. The most successful of these were the non-profit multi-hospital plans that grew under the rubric of Blue Cross. These were later followed by Blue Shield plans, which covered outpatient physician services. Once the Blues paved the way, commercial insurers also entered the field, though their coverage tended to be more restricted.

After the end of World War II, there was great momentum toward expanding the portion of the population with some form of sickness insurance. In 1945 President Harry Truman proposed a national program establishing a right to medical care and protection from the “economic fears” of illness. But once again, opposition to government involvement in healthcare emerged, this time reinforced by a Cold War hysteria about “socialized medicine” stoked by groups such as the American Medical Association.

As Truman’s plan went down to defeat, what grew in its place was a system of employer-provided coverage, stimulated by aggressive bargaining on the part of unions that had come to regard improving employee benefits as a mission as important as increasing wages. This put pressure on non-union employers to follow suit, and by the mid-1950s, about two-thirds of the country was getting coverage through either their own jobs or those of spouses or parents. The Blues, which held the largest share of this booming market in the early postwar period, began to fall behind the commercial carriers by the late 1950s.

Around that same time, there was growing concern about the large number of retired workers who were left out of this workplace-oriented system. This eventually led to the 1965 creation of the federal Medicare program for seniors, along with the federal-state Medicaid program for the poor, but most of those with insurance continued to get it from the private sector.

In the wake of these significant expansions of coverage, liberals renewed calls for comprehensive national health insurance. These efforts, however, were drowned out by a rising chorus of concern about escalating health costs — a problem that was greatly exacerbated by the growth of for-profit hospital chains. During the 1980s, Congress created a cost-control system for Medicare, while growing numbers of employers transferred their workers from traditional plans into health maintenance organizations (HMOs) — both non-profit and for-profit. The Clinton Administration tried to reach the goal of universal coverage through a complex system that preserved the role of HMOs and other private insurers, but it was crushed by business interests and the medical establishment.

Awash In cash

The failure once again to create a system of universal care left the American people at the mercy of the market. The ranks of the uninsured swelled as many employers solved their health finance problems by eliminating coverage or by shifting premium and co-payment costs to workers to such an extent that they opted out. Many of those who tried to obtain individual coverage found themselves priced out of the market or rejected because of a pre-existing condition. Those workers who retained workplace coverage increasingly had to confront HMOs and other purveyors of “managed care,” whose business plan depended on restricting the use of medical services. A 1994 Wall Street Journal article stated: “Health maintenance organizations are all about penny pinching, yet they are so awash in cash that they don’t know what to do with it all.”

At the forefront of these service (non)providers was U.S. Healthcare, which grew out of the first for-profit HMOs in the 1970s. By the early 1990s, it was the largest publicly traded HMO, with annual revenues of more than $1 billion. The company — a notorious proponent of gag clauses in physician contracts that prevented doctors from giving patients a thorough description of their treatment options — took on the mission of revolutionizing the insurance industry. In a 1992 interview with Business Week , U.S. Healthcare founder and chairman Leonard Abramson expressed scorn for traditional carriers, calling them “dinosaurs” and saying they operated in “a dying world.”

Four years later, U.S. Healthcare agreed to be acquired by one of those dinosaurs, Aetna Inc., for $9 billion. It was clear from the start that Aetna was going to be adopting the style of U.S. Healthcare and not vice versa. “Strong forms of managed care, gated managed care, is really coming into its own,” said Aetna chief executive Ronald Compton, who also announced that Abramson would join the board of the parent company.

Aetna’s marriage with U.S. Healthcare was part of a larger consolidation of the industry and a shrinkage of the non-profit portion. Aetna itself went on to acquire healthcare operations from New York Life and Prudential Insurance, while rivals such as United Healthcare (later UnitedHealth Group) also bought various competitors to rise rapidly in the field. For-profit hospital chains such as Columbia-HCA gobbled up insurers. Even the Blues were abandoning all pretenses that their main mission was to serve the community. Some set up their own HMO subsidiaries, and by the late 1990s a bunch were preparing to take the next step: abandoning their non-profit status and becoming for-profit enterprises. A few such as Anthem Inc., formerly Blue Cross and Blue Shield of Indiana, went yet further, becoming publicly traded companies.

Meanwhile, there was a growing effort to tame HMOs through the courts. In 1999 several of the country’s leading trial lawyers announced plans to bring a wave of racketeering lawsuits to pressure companies to provide better coverage. Some physician groups also sued managed-care firms over restrictions on their members. The legal assault was counting on the fact that HMOs had become the most reviled industry in the United States, but the judiciary was a harder sell.

In 2002 a federal judge in Miami hearing the consolidated cases granted class-action status to claims that managed-care plans systematically denied and delayed payments to more than 600,000 doctors, but he rejected that status on behalf of some 145 million members of the plans. Five companies ended up paying nearly $650 million in settlements with the doctors and their lawyers, while two others (including UnitedHealth) went to court and had the charges against them dismissed.

What ails private insurance

These lawsuits may have shaken the industry somewhat, but they did not put an end to the abuses that characterize managed care. Here are some of the key remaining issues that surround the business:

Consolidation has continued unabated. There are now two superproviders that increasingly dominate the for-profit healthcare field. One is UnitedHealth, which capped a long series of acquisitions with the 2005 purchase of Pacificare for some $8 billion. In 2006 United’s health services revenues reached an astounding $64 billion, and its medical enrollment rose to about 28 million individuals.

The other giant is Wellpoint Inc., created through the blockbuster 2004 merger of Anthem Inc. and Wellpoint Health Network, formerly Blue Cross of California. Wellpoint later spent $6.5 billion to acquire WellChoice, the publicly traded parent of New York’s Empire Blue Cross Blue Shield. By 2006 Wellpoint controlled the Blues in 14 states, had some 34 million members and took in annual revenues of about $52 billion.

The second tier consists of Aetna (2006 revenues and members, respectively: $25 billion and 15 million), Humana ($21 billion and 11 million), Cigna ($16 billion and 9 million) and Health Net ($13 billion and 7 million). The non-profit wing of the industry also has big players, led by Kaiser Permanente with 8.6 million members.

There is no evidence that the consolidation has enhanced efficiency or improved the quality of coverage. Instead, the big carriers simply accumulate more power over healthcare providers and patients, using it to their own advantage.

While millions remain uninsured or underinsured, the industry’s profits swell. Last year, the top six health insurance companies had combined profits of more than $10 billion. What’s amazing is that they netted so much after spending prodigious amounts on marketing and administration. In 2006 Wellpoint alone burned up nearly $9 billion in such costs — nearly one quarter of what it paid out in actual benefits. By contrast, in Canada’s government-run single-payer system, administration accounts for only about 3 percent of total costs.

Legal controversies continue to plague the industry. Lawsuits over the denial of care are still being filed against the big insurers. For example, two hospitals in Queens, NY recently sued UnitedHealth, alleging a “pattern of racketeering activity.” At the same time, UnitedHealth has been the subject of a federal investigation following reports last year that the company was routinely backdating stock options awarded to executives, especially long-time chief executive William McGuire, who — on top of annual salary and bonuses totaling $10 million — had accumulated some 29 million shares through option awards. Thanks to the backdating scheme, McGuire had racked up paper gains of more than $1 billion on those shares. In October McGuire was forced to resign and to give up an undisclosed portion of those gains.

McGuire’s excesses are emblematic of the fundamental conflict in the industry — the clash between maximizing gains for executives and shareholders, and the need of its customers for services that are often a matter of life and death. Public officials should abandon the mission of saving commercial insurance and devote themselves instead to creating a healthcare system that substitutes the public interest for private profit.

Philip Mattera heads the Corporate Research Project, an affiliate of Good Jobs First.
(c) 2007 Independent Media Institute. All rights reserved.
View this story online at: http://www.alternet.org/story/48371/

Critic of big-drug industry speaks

Angell cites control wielded by companies

By Daniel Connolly
Memphis Commercial Appeal
February 23, 2007

Dr. Marcia Angell of Harvard Medical School was in Memphis on Thursday to continue her public criticism of big drug companies.

Angell, a former editor of the New England Journal of Medicine and author of the 2004 book, “The Truth About the Drug Companies: How They Deceive Us and What to Do About It,” has accused drug firms of abuses including price-gouging and running biased clinical trials.

She was in Memphis Thursday to speak at the Holiday Inn at the University of Memphis at an event organized by The Economic Club of Memphis.

“(Companies are) involved intimately in every detail of the research,” she said. “And they design the research so that their drugs look better than they really are.”

She has also called for the government to negotiate directly with drug companies for the Medicare Part D drug benefit and has said the current program was designed to help companies, not patients.

PHRMA, a national pharmaceutical industry group, has fired back. The group’s senior vice president, Ken Johnson, said Thursday that her position on Medicare is wrong.

“Marcia Angell’s misguided solution is to let government bureaucrats choose medicines for patients, instead of allowing patients and their doctors to determine the best course of treatment,” he wrote.

He also objected to a recent opinion article Angell wrote in the Boston Globe about PHRMA’s president and CEO Billy Tauzin, a former member of Congress.

Angell wrote that Tauzin sponsored the Medicare Pard D bill and left Congress almost immediately after the legislation passed.

“He was rewarded with a high-paying job as chief executive of the pharmaceutical industry’s trade association,” she wrote.

Johnson said Tauzin left Congress only after he was diagnosed with a deadly form of cancer and that he accepted the PHRMA job after a drug produced by one of the firms in the industry group helped him beat the cancer.

“This experience made him an advocate for researching and developing new medicines to fight diseases,” Johnson wrote.

Reform plan of investor-owned hospitals

FAH Unveils "Health Coverage Passport" to Insure All Americans

Federation of American Hospitals
February 22, 2007

The Federation of American Hospitals today released a proposal to ensure health coverage for all Americans by building on what works in our system.

The plan, entitled “Health Coverage Passport” (HCP) would assist uninsured Americans who lack financial wherewithal to obtain coverage and assure all Americans access to the health coverage they need. At the same time, those with health insurance will be able to keep the coverage they have, and all Americans are expected to have coverage. With the adoption of the Federation’s Health Coverage Passport plan it is projected that 98 percent of Americans will be covered.

How It Works

* For the neediest, eligible individuals and families are enrolled automatically in Medicaid and state Children’s Health Insurance Programs (SCHIPs), in coordination with other public programs.

* For lower-income individuals and families, HCPs cover the full cost of employer-based premiums. For those unable to get employer-based coverage, HCPs cover the full cost of premiums for comprehensive insurance purchased in a reformed individual insurance market.

* For moderate-income individuals and families, HCPs cover a portion of the cost of employer-based premiums (assistance is based on income). Those who are unable to get employer coverage must purchase insurance in the individual market and can choose either to (1) use an HCP to help pay premiums or (2) claim a tax deduction for premiums.

* For other Americans not offered employer coverage, insurance purchased in the individual market becomes tax deductible, creating equity with employer-sponsored plans.

http://www.fahs.com/passport/index.html

Comment:

By Don McCanne, MD

The Federation of American Hospitals represents investor-owned hospitals. Their plan would provide relief from the need to continue to provide uncompensated care, especially for lower-income individuals. No surprise here. The interests of the investors must be protected.

Their plan builds on the current fragmented system of financing health care. It would expand public welfare programs (Medicaid and SCHIP) and add an individual mandate to purchase private plans, if not offered coverage by employers. Health Coverage Passports would provide financial assistance for purchasing private plans, on a sliding scale based on income. Individual plans would become deductible for those not eligible for public plans or HCPs.

No attempt will be made to describe once again the policy deficiencies of individual mandates, welfare programs, means testing, vouchers, and regressive tax policies. Suffice it to say that their proposal would increase global costs, increase wasteful administrative complexities, perpetuate demeaning and underfunded welfare programs, fail to introduce cost containment efficiencies, while falling short of universal coverage. Particularly troublesome is the mandate for non-qualifying, moderate-income individuals to purchase coverage that would be inadequate if the premiums were to be affordable.

Some may find the “Side-by-Side Comparison” available at the link above to be of use in identifying differences in several of the current proposals, including those of John Edwards and Ron Wyden. Notably absent is the Conyers-Kucinich single payer “Medicare for All” proposal. If you add that column, you’ll see that single payer trumps them all.

Why Obama, Edwards, Hillary, Romney, Schwarzenegger Don't Support Single Payer?

CORPORATE CRIME REPORTER
February 21, 2007

The majority of the American people want a single-payer health care system — Medicare for all.

The majority of doctors want it.

A good chunk of hospital CEOs want it.

But what they want doesn’t appear to matter.

Why?

Because a single-payer health care plan would mean the death of the private health insurance industry and reduced profits for the pharmaceutical industry.

Presidential candidates John Edwards, Barack Obama, Hillary Clinton, and Mitt Romney and California Governor Arnold Schwarzenegger talk a lot about universal health care.

But not one of them advocates for single-payer — because single-payer too directly confronts the big corporate interests profiting off the miserable health care system we are currently saddled with.

“Currently, we are spending almost a third of every health care dollar on administration and paperwork generated by the private health insurance industry,” said Dr. Stephanie Woolhandler, an Associate Professor of Medicine at Harvard Medical School and co-founder of Physicians for a National Health Program. “Countries like Canada spend about half that much on the billing and paperwork side of medicine. If we go to a single-payer system and are able to cut the billing and paperwork costs of health care, that frees up about $300 billion per year. That’s the money we need to cover the uninsured and then improve the coverage for those who have private insurance but are under-insured.”

“The idea behind single-payer is you don’t have to increase total health care spending,” Woolhandler said in an interview with Corporate Crime Reporter. “You take the money we are now spending but cut the administrative fat and use that money to cover people.”

None of the declared Presidential candidates — with the exception of Congressman Dennis Kucinich (D-Ohio) — is supporting single-payer.

Last year, Kucinich and Congressman John Conyers (D-Michigan), introduced a single-payer bill, HR 676, which garnered support of more than 75 members of the House.

Woolhandler expects that number to grow substantially this year.

And Woolhandler says grassroots activists have been mobilizing at the state level.

“State single-payer organizations have been very active,” she said. “Early in the process, you can get a lot of politicians interested — they want to show up at your rallies to show support for national health insurance. But as you get closer and closer to actual passage of a law, it is harder to keep the politicians on board.”

“The legislature in California passed a single-payer bill last year, but everybody knew that Governor Arnold Schwarzenegger was going to veto it. So, it was very easy for the politicians to say — yes, I’m going to support it. The insurance industry did not come in and throw their millions against it. But every time there is a real possibility of a bill coming through, the insurance industry has weighed in very heavily against.”

Woolhandler called the universal health care law passed in Massachusetts by Governor Mitt Romney “a hoax.”

“The core idea is the individual mandate — forcing uninsured people to go out and buy insurance,” Woolhandler said. “And if they don’t buy insurance, we are going to fine them. The first year it is an $80 fine. The second year, it’s half the value of the lowest priced policy — we’re talking about a $2,000 fine. So, they are saying anyone who earns more than three times poverty has to bear the entire price of a private insurance policy.”

“Romney’s bill was written by Blue Cross,” Woolhandler said. “Romney was saying he was going to offer health insurance starting at $200 a month. And of course, that was a hoax. No insurance policy in Massachusetts comes in at $200 a month. When Blue Cross was asked to produce the policy, it turned out the policy was going to cost $380 a month for a policy that had a $2000 deductible. So, you are going to tell this poor bloke who is earning $29,400 a year that he has to go out and spend $4,000 a year on an insurance policy. And if he gets sick, he doesn’t even have any coverage until he has spent $2,000. And that’s not family coverage. That’s individual coverage.”

Schwarzenegger would do the same — fine individuals for not having insurance.

Former Senator John Edwards would have a Medicare-like system compete with private insurance.

“Edwards plan is not going to work,” Woolhandler says flatly. “We know there is not going to be fair competition between Medicare and the private plans. You have to take on the private health insurance industry and tell them — you are out of here. This is an entitlement program like traditional Medicare or Social Security. We are going to get the administrative efficiencies you get from running it as a single program and use that to expand coverage. That’s what you have to do.”

Senator Hillary Clinton (D-New York) doesn’t want to get specific.

“She is nowhere on this issue,” Woolhandler says.

Ditto Senator Barack Obama (D-Illinois).

But Woolhandler sees an opening.

“We are at the cusp of a new single-payer movement,” she said. “Things have been quiet over the last eight years of so. Nobody was talking about health care. But now, everyone is talking about health care. And it’s obvious that politicians are realizing that health care can be a ticket to higher office. So, we are about to see a real blossoming of the health care debate and it will present an opening for us to get the single-payer idea out there.”

[For a complete transcript of the question/answer format “Interview with Stephanie Woolhandler,” see 21 Corporate Crime Reporter 9(12), February 26, 2007, print edition only.]

Study: More money will go to health care

MarketWatch
Wednesday, February 21, 2007

Listen to this story

National health-care spending will double in the next 10 years, a study says. One out of every five dollars we spend will be for health care, and Uncle Sam will be footing more of the bill. Amy Scott reports.

KAI RYSSDAL: Check your economic calendars and you’ll see today’s the day we get one of those A-list indicators. The consumer price index came out this morning. Inflation by another name.

It’s not so bad. The core rate was up three-tenths of 1 percent last month. Mostly in a drop in energy prices. But get a load of some of the other details. Airline ticket prices were up. Hotels and rents were up. Tobacco was up. And medical care prices had their biggest jump in more than 15 years.

Knowing that, this next number shouldn’t come as too much of a shock. A study out today in the journal Health Affairs predicts national health care spending will double in the next 10 years. To more than $4 trillion. One out of every $5 we’ll spend will be for health care. And Marketplace’s Amy Scott reports Uncle Sam will be footing more of that bill.

AMY SCOTT: It’s no surprise that health care costs are rising. But the Health Affairs report suggests there’s another reason Americans are spending more.

John Poisal is the study’s co-author, and a deputy director with the Centers for Medicare and Medicaid Services. He says lately, people are earning more money.

JOHN POISAL: As incomes increase by 1 percentage point, typically expenditures for health care increase by 1.4 percentage points.

By 2016, Poisal says the federal and state governments will cover nearly half of all national medical expenses. That’s partly because Medicare began offering a prescription drug benefit last year, so the program’s costs have jumped. And the first wave of Baby Boomers will soon be eligible for Medicare.

Paul Ginsburg heads the nonprofit Center for Studying Health System Change.

PAUL GINSBURG: The government’s obligations for health care are growing faster than the revenue base. So ultimately, it’s going to mean higher taxes.

As the government covers more of the country’s medical bill, the kind of single-payer system some Democrats have been pushing doesn’t seem far off.

Don McCanne with Physicians for a National Health Program says when you include public employee health plans and tax subsidies, the government is already paying two-thirds of the nation’s health costs.

DON MCCANNE: And that’s about what most nations pay for their government-sponsored health care programs. So we’re paying for national health insurance, we’re just not receiving it.

If we were, McCanne says the government would save on the order of $350 billion a year in administrative costs. And a single payer could use its clout to negotiate lower prices.

In New York, I’m Amy Scott for Marketplace.

Commentary: Government can cure U.S. health crisis by halting pursuit of profit

The Northwestern
February 22, 2007

I was having lunch a few years ago with a long-time friend. He had worked many years for a small company in Oshkosh. That day he had some momentous news. He had been laid off. We talked about what employment options he had at the age of 54, but the most immediate concern was his health. My friend suffers from diabetes. He would get COBRA coverage for a while, but after that he absolutely had to have a job with health insurance. No way could he afford to buy the medications he needed on his own, and with his pre-condition he was uninsurable. He needed to find a job with a group plan, and at 54 that wasn’t going to be easy. I looked across the table and asked what he was planning to do if he couldn’t find a job with health benefits. His eyes caught mine as he said dryly, “Die, I guess.”

Today some companies no longer offer health benefits. A neighbor came down with the Norwalk virus and was forced to take vacation days. Others companies play hardball. A brother of a friend came down with a debilitating, incurable illness and was informed by his Oshkosh employer that he had to return to work within six months or lose his job and his health insurance.

There’s been a lot of talk lately about restructuring health care in America. Several states, most 2008 presidential candidates, even Bush have offered new plans. They are all flawed because they all include for-profit, private insurance companies as part of the solution. For-profit companies maximize profits by recruiting low-risk people and eliminating high-risk people from their coverage. They eliminate more effective, but more expensive medications from their formulary. They eliminate better, but more expensive doctors and hospitals from their preferred providers list. But mostly they support a bloated corporate bureaucracy where CEOs get $40-50 million annual salaries. That’s $40-50 million that you and your employer pay into the health care system that buys not one pill, not one doctor’s visit, not one vaccination, just CEOs who say you can’t have the care you need because they and their major stockholders need bigger houses, fancier cars, better pools. For-profit, private health insurance companies can’t be part of any solution to our health care crisis, because they are the problem.

One possible solution to the problem is government sponsored, universal health care. No government official I know of makes $40 million a year. But whenever government health care is suggested, highly paid, right-wing propagandists bring up Canada. They offer us a fool’s choice, either the mess we have, or Canada. Most counties with national health insurance, even Canada, have longer life expectancies and lower infant mortality rates, and spend thousands of dollars less per person than the USA. Where does the dollar difference go? Into those obscene CEO salaries and profits for wealthy stockholders.

One way to make health care available to all Americans would be to make it a benefit of the Social Security Insurance program. The infrastructure is already in place. It could be funded by removing the $90,000 cap on taxable income, and by increasing the SSI “payroll tax.” Further savings would come from eliminating Medicare and Medicaid, and by wringing the profit out of our current health care system. We should be able to match the cost of other nations, but even if ours costs $1000 more, we would still be paying less than we are now. And everyone would be insured, even our hard working friends who have been laid off, or work without benefits.

Northwestern Community Columnist John Lemberger is a fifth generation Oshkosh resident. His great-great grandparents, John and Francesca Lemberger, arrived in Oshkosh from a part of Austria that was once Bohemia, in 1888. He has a Ph.D. in science education and has been an associate professor in the College of Education and Human Services with UWO since 1995.

Why Obama, Edwards, Hillary, Romney, Schwarzenegger Don’t Support Single Payer?