PNHP

Mercer survey of employer-sponsored health plans

Mercer survey of employer-sponsored health plans

Health benefit cost slows for a third year, rising just 6.1% in 2005
Mercer Human Resource Consulting
November 21, 2005

When annual health benefit cost increases peaked three years ago at nearly 15%, employers responded with an unprecedented flurry of plan redesign. Increases have slowed each year since then, with cost rising just 6.1% in 2005 to an average of $7,089 per employee, with a similar increase – 6.7% – predicted for next year.

According to the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer Health & Benefits LLC, employers predicted in
2004 that their health benefit cost would rise by an average of 10% in 2005 if they made no changes. But they expected to lower that increase to about 7% through a variety of initiatives, including cost-shifting and changing vendors. Mercer’s 2005 survey, released today, shows they succeeded.

A key tactic employers used to lower their 2005 cost increase was again cost-shifting. While the average employee contribution as a percent of premium was essentially unchanged, employers increased employee cost-sharing at the point of service. An individual deductible for in-network care is now required in 80% of PPO plans, up from 73% last year.

The use of coinsurance as a means of sharing the cost of office visits increased, from 5% to 9% of all PPO sponsors and from 18% to 22% of all large sponsors. Among jumbo employers (20,000 or more employees), the use of coinsurance jumped from 26% to 37%. This is a significant departure from the recent past, in which PPOs moved to copays to compete more effectively with HMOs for enrollment. Coinsurance reflects the actual cost of the service provided and thus is seen as a consumerist strategy. It also tends to shift more cost to employees than copays do.

Blaine Bos, a consultant with Mercer Health & Benefits and one of the study’s authors, notes that large employers shifted cost to employees by raising their out-of-pocket costs for care rather than by raising their premium contributions. “This signals their preference for keeping the cost of the plan down for all employees by shifting cost to those who use it most,” Mr.
Bos says.

Over a third of all employers (34%) said consumerism will be significant or very significant to their cost-management efforts over the next five years, while 32% said care management will be significant or very significant.

“Many employers see these strategies as two sides of the same coin. Care management programs require the active involvement of employees in improving their health, while consumerist strategies engage the employees in managing health care cost,” says Mr. Bos.

Many of the nation’s largest employers took the step of implementing a consumer-directed health plan (CDHP). Among jumbo employers (20,000 or more employees), CDHP offerings rose sharply, from 12% to 22%. Otherwise, CDHPs saw only modest growth. Only 2% of all employers with 10 or more employees offered CDHPs in 2005, and only 5% of large employers – those with at least 500 employees – offered them.

Enrollment in CDHPs also remained low. Nationally, just 1% of all covered employees are enrolled in CDHPs. When a CDHP was offered alongside other medical plans in 2005, on average 14% of employees chose to enroll. Among the jumbo employers offering CDHPs, enrollment averaged 8%.

Small employers’ lack of interest in CDHPs was a surprise. When Health Savings Accounts (HSAs) were created by the Medicare Modernization Act of 2003, proponents said HSAs would expand access to coverage by providing a less-expensive option for small employers who might not otherwise offer coverage. This theory hasn’t panned out: use of CDHPs by this group reached only 2% in 2005, while the percentage offering any form of health plan dropped from 66% to 63%.

“It seems the cost difference – about 13% lower than the average cost of HMO coverage, and 18% lower than the average PPO cost – just wasn’t enough to prevent some small employers from dropping coverage,” says Mr. Bos. “The more complex plan design may also be a deterrent given that most small employers don’t have a robust HR staff.”

He adds that many small employers instead lowered plan cost by raising deductibles (34% of small PPO sponsors require an individual deductible of $1,000 or more). “In 2005, a PPO with a $1,000-plus deductible was less costly than the average CDHP,” Mr. Bos says.

Mercer’s comprehensive report on the National Survey of Employer-Sponsored Health Plans 2005 will be available in early March for $500.

http://www.mercerhr.com/pressrelease/details.jhtml/dynamic/
idContent/1202305

Comment: This Mercer report seems to celebrate the slowing of the increase in the costs of employer-sponsored health plans to only 6.1%, even if that still is significantly above the rate of inflation. This trend might be good news for corporate human resource managers, but it is terrible news for patient advocates. The anticipated 10% increase in plan costs, reflecting true increases in actual health care costs, was reduced to 6.1%, primarily by shifting plan costs to employees “who use it most.” Erecting financial barriers to health care is bad health policy because it impairs health care access and outcomes.

It is interesting to note that the enthusiasm for health savings accounts (HSAs) is not nearly as great as the shift to high-deductible PPOs. Employers seem to recognize that the real benefit to them of consumer-directed health care (CDHC)has been in shifting costs to employees through the higher deductibles and greater coinsurance of PPOs. The HSA component of CDHC has been an irrational, administratively-complex hybrid of heath benefit and retirement programs. Only very large employers have had the human resources capacity to indulge their employees with these plans that appeal to the invincible who look upon these plans as an additional resource for their robust retirements.

When health plan cost increases continue in excess of inflation, and when patient access charges are increasing even more, it is clear that efforts to address the affordability of health care have been a dismal failure. Tinkering with plan structure is not getting us there. In contrast, the single payer model is designed specifically to ensure the affordability of comprehensive services for everyone. But then Mercer would lose its market for its annual $500 report.

Donald Berwick speaks up

‘A Deficiency Of Will And Ambition’: A Conversation With Donald Berwick
By Robert Galvin
Health Affairs
January 12, 2005

Donald Berwick is president and chief executive officer of the Institute for Healthcare Improvement (IHI) in Boston, Massachusetts. Bob Galvin is director, Global Health Care, at the General Electric Company in Fairfield, Connecticut.

Excerpts

Galvin: I’m interested in your thoughts on the impact of the Leapfrog Group, an effort organized by the purchasers of health care, both private-sector employers and public purchasers. The Leapfrog agenda has focused on… benefit incentives that engage consumers and patients in the quality and cost of care…

Berwick: The one part of the (Leapfrog) plan that I am absolutely against at the moment is the shifting of burden to individual patients. I do not believe that making the individual American patient more “cost-sensitive” has any rationale in science, ethics, or evidence. It will fail, and it will fail miserably. It will result in a shifting of care away from the people who need it the most. It is a displacement of responsibility for changing the system. You know, if CalPERS or Xerox or GE can’t change care through using its purchasing power, then I absolutely promise you that Mrs. Jones can’t. The idea that she will now be more sensitive because she pays an extra ten bucks out of pocket is, to me, nearly stupid. So I really disagree with that element of the agenda.

Internationally, when one looks at high-performing systems around the world-and ours is nowhere near the highest-performing one-it is almost a routine characteristic of the best systems that they have first-dollar coverage, and there is no attempt to make patients pay more when they’re sick, which is a stupid thing to do.

****

Galvin: The conceptual basis of this is-as unsettling as it may be to “dangle money” to increase motivation-grounded in personality and motivation theory. In private industry, we would simply call it understanding what makes people tick. People respond to incentives. So part of the pay-for-performance movement is based on this idea that clinicians are really no different than other people and that they’ll respond to incentives.

Berwick: At the individual level, I don’t trust incentives at all. I do not think it’s true that the way to get better doctoring and better nursing is to put money on the table in front of doctors and nurses. I think that’s a fundamental misunderstanding of human motivation. I think people respond to joy and work and love and achievement and learning and appreciation and gratitude-and a sense of a job well done. I think that it feels good to be a good doctor and better to be a better doctor. When we begin to attach dollar amounts to throughputs and to individual pay, we are playing with fire. The first and most important effect of that may be to begin to dissociate people from their work. That’s really where we’ve come to, and we’ve done it by pay-for-performance in terms of throughput measurements and manipulating payment schemes.

****

Galvin: Let me move to another issue, and that is the explosion that’s about to play out in biomedical innovation. If you talk to patients… they are also interested in innovations that can cure them or their loved ones. They speak about it with pride and passion…

Berwick: I do think this: We have a learning disability in this country with respect to the difference between technologies that really do help and technologies that are only adding money to the margins of the companies that make them, without essentially paying their way in value. One of the drivers of low value in health care today is the continuous entrance of new technologies, devices, and drugs that add no value to care. If we had strong national policy, it would allow us to know the difference, and I would more fully support what I think you’re correctly proposing, which is an innovations value. We need to help the public know the difference. There’s a big agenda here, possibly for government, to help create a public awareness that more is not necessarily better. Frequently it’s worse. So we can be smart about what we buy and what we choose not to buy.

****

Galvin: Many of us on the purchaser side see radically improving the efficiency of the system as a way to free up capital to cover the uninsured and to fund innovation. How do you think efficiency fits into the quality agenda?

Berwick: Let’s define efficiency as making sure that every dollar you spend gets a dollar of value back, so that efficiency is the opposite of waste. Right from the start, it has been one of the great illusions in the reign of quality that quality and cost go in opposite directions. There remains very little evidence of that. There may be some innovations that raise cost while raising quality, but many, many improvements reduce costs.

What puzzles me is how to access efficiency as a social agenda in health care. There are couple of problems. The first is that a lot of people make a lot of money on inefficiency-on production of things that have no value. So the minute you try to become truly efficient, you’re going to run into stakeholders who are going to tell you that you’re harming care, and the knee-jerk reactions of doctors and others will be to reinforce that idea. And they include you. I mean, GE pays out of one pocket and then makes money on products and services that do not add real value.

****

Galvin: There’s a threshold issue with most purchasers when you talk about getting a patient financially engaged. That is that no one ends up paying more because they’re sick. The only option would be to pay less. Let me give you an example: Many employer-sponsored benefit plans across the country have hospital copays as part of their cost sharing. This means that there is a fee of a hundred or several hundred dollars when one is admitted to a hospital. In these benefit designs, while most people have pretty free choice of what hospital they go to, going to the one that objective data demonstrate is of superior quality and efficiency would result in a waiver of the copay.

Berwick: Well, I can be an empiricist about it. Go ahead and try it. I shudder to think about what may happen, because in the end, that sick patient arriving at that hospital is in the absolutely weakest position at that particular point to decide, “Aha, I’m going to save a hundred dollars and go elsewhere.” That person is more likely to be poor, more likely to be black, more likely to be a low-wage earner. I think it’s regressive social policy, and I predict that it won’t work. It’s a displacement of responsibility from the stewards who actually have the job of crafting systems to meet the needs of the people who come to them for help. I think it’s a bad, bad policy, and I don’t see it playing out productively in other countries, either.

http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.1/DC1

Comment: It’s really refreshing to see Donald Berwick clear the muddy waters of bad health policy.

Can we afford long-term care?

Developing a Better Long-Term Care Policy: A Vision and Strategy for America’s Future
Sheila P. Burke, Judith Feder, and Paul N. Van de Water (eds.)
National Academy of Social Insurance
November 2005

Two Promising Approaches

Transforming long-term care ultimately requires fundamental reform of its financing and a substantial commitment of federal resources. Because the need for long-term care is a risk, not a certainty, it should be handled like other unpredictable and potentially catastrophic events-that is, through insurance. Private long-term care insurance, while growing, is affordable for only 10 percent to 20 percent of the elderly. To assure access to long-term care without making families face impoverishment, federal involvement is therefore essential. Expanded federal financing could take one of two forms:

* Universal Approach. One option, modeled on Social Security, would provide everyone access to a basic, limited long-term care benefit, supplemented by private insurance for the better-off and enhanced public protection for the low-income population.

* Means-Tested Approach. Another option would establish a national floor of income and asset protection that would reform or replace Medicaid’s coverage of long-term care. People could purchase private long-term care insurance to protect a larger amount of assets.

Other countries have demonstrated that either approach – or a hybrid of the two – can target benefits to those in greatest need, retain personal responsibility through cost-sharing, and control costs.

Our analysis gives us reason to believe that the public does indeed perceive government action as not only appropriate but necessary to address long-term care financing concerns.

Our analysis of international experience shows that other nations, with far larger proportions of elderly citizens than we have in the U.S. today, have adopted a variety of policies that more fairly balance personal or family responsibility and public support. Adopting similar policies is a challenge not to our abilities but to our political will.

However, as advocates for improving the financing of long-term care, we cannot simply sit back and wait.

* As researchers, we must continue to demonstrate the extent of unmet needs for long-term care, the financial costs of care, and the burdens of caring on caregivers.

* As advocates, we must frame the problem of long-term care financing in terms that resonate with the public, building on the increasing sensitivity to retirement security and equal treatment for people with disabilities.

* As analysts, we must refine and disseminate specific policy proposals, assess their costs and benefits, encourage debate among stakeholders, and build confidence that policy action is not only desirable but feasible.

* As activists, we must muster the evidence on problem, policy, and politics to convince political leaders that long-term care is the cause they ought to champion and to identify the political arenas where their cause can take hold.

The study panel recognizes that obtaining political and fiscal support for a humane, equitable, and effective long-term care system will be daunting. But inaction means deterioration in already inadequate financing and care. The nations’ governors have declared that states cannot continue to be the nation’s primary funder for long-term care. The aging of the baby boom generation will only intensify the already substantial pressure states face.

As policymakers grapple with the budgetary concerns, the long-term care needs of the nation’s elderly and disabled citizens must be recognized, and our society must not shrink from providing the resources that will be required.

http://www.nasi.org/usr_doc/Developing_a_Better_Long-Term_Care_Policy.pdf

Comment: It’s simple. Long-term care needs to be included in the single-payer package.

John Wennberg is howling in the wind

Important notice: It is likely that you will read the abstract of this report, yawn, and then delete the message. Don’t delete it! This study addresses one of the most important issues in health care today. It is crucial that we understand the work of John Wennberg and his colleagues if we ever hope to achieve our goal of affordable, high quality health care for everyone.

Evaluating The Efficiency Of California Providers In Caring For Patients With Chronic Illnesses
By John E. Wennberg, Elliott S. Fisher, Laurence Baker, Sandra M. Sharp, Kristen K. Bronner
Health Affairs
November 16, 2005

Abstract

In this paper we compare the relative efficiency of health care providers in managing patients with severe chronic illnesses over fixed periods of time. To minimize the contribution of differences in severity of illness to differences in care management, we evaluate performance over fixed intervals prior to death for patients who died during a five-year period, 1999-2003. Medicare spending, hospital bed and full-time equivalent (FTE) physician inputs, and utilization varied extensively between regions, among hospitals located within a given region, and among hospitals belonging to a given hospital system. The data point to important opportunities to improve efficiency.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w5.526v1

This release from the California HealthCare Foundation places in perspective the significance of this report:

Amid debates over the long-term solvency of Medicare, questions about hospital bed capacity, and the rising cost of health care, a new study finds that care for patients with similar illnesses costs Medicare significantly more at some California hospitals but results in no better quality of care or patient satisfaction.

The study by researchers at Dartmouth Medical School looks at the performance of individual California hospitals in managing chronically ill patients over a five-year period that ended in 2003. The findings, along with a comparison of data from hospitals in five regions in California-Sacramento, San Francisco, Los Angeles, Orange County, and San Diego-are published in the online edition of the journal Health Affairs.

The study finds significant variation in Medicare spending for chronically ill patients in California. For example, hospitals in Los Angeles received an average of 60 percent more for inpatient reimbursement for Medicare patients during the last two years of life than Sacramento-area hospitals. In fact, Medicare paid some hospitals in the state as much as four times more than other hospitals to care for patients with similar conditions.

Yet the additional care provided did not improve medical outcomes or patient satisfaction. Rather, as the volume of care increased, the quality of care and patient satisfaction actually declined.

The comparisons suggest that savings could be achieved by improving efficiency with no impact on quality. For example, Medicare could have saved $1.7 billion in the Los Angeles area alone if medical practice patterns there, the most expensive region, resembled those of Sacramento, the least expensive.

http://www.chcf.org/topics/hospitals/index.cfm?itemID=115921

And…

Variations In California Hospital Regions: Another Wake-Up Call For Sleeping Policymakers How long must John Wennberg and colleagues howl in the wind before the policy community pays attention to their critical findings?
By Uwe E. Reinhardt
Health Affairs

The paper by John Wennberg and colleagues poses a renewed challenge to federal and state policymakers to handle the taxpayers’ hard-earned money responsibly-a task both have shunned for many decades. With the federal government’s deficit growing apace and California state’s budget, properly accounted for, in deep deficit as well, health policymakers can sustain the inefficiencies now apparent in our health care system only by pricing more and more low-income Americans out of health care. One could question the ethics of that approach.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w5.549v1

Comment: John Wennberg and his colleagues have significantly improved their model for identifying wasteful excesses in health care delivery. Their data describes specifically the care received by Medicare beneficiaries, and for a very good reason. Our Medicare social insurance program has robust data resources that enable analyses of variations in spending, inputs, utilization, and quality. These data simply are not available through the fragmented commercial insurance payers. So one more important advantage of a single payer system is that it makes it much easier to correlate variations with cost and quality outcomes.

Once we have valid information on system performance, then we can modify funding to reduce waste and promote more favorable outcomes. This sounds easy, but what would have to be done? This study demonstrates once again that excess services correlate with excess capacity. But could Medicare alone influence capacity when there are so many other payers in our fragmented system? Physicians who practice in a high-capacity environment sincerely believe that they are giving the best care possible. What would their response be when Medicare tells them to cut back on the services that they are providing? We had a taste of that at the peak of the managed care revolution.

What if we had a single social insurance program? Although there certainly would be turf issues, funding could be tuned to adjust capacities to more appropriate levels. An improved data base could identify better practice outcomes, and physicians are certainly amenable to changing practice patterns if solid data demonstrates that it would improve the health care of their patients.

Many believe that the public and private payers can work together to resolve these important issues. They’ve already had thirty years, but we don’t see any improvements yet. If we had a single, public system of funding care for everyone, we would be demanding change immediately.

There is hope. A few more words from Uwe Reinhardt:

“Wall Street’s financiers, ostensibly the vigilant and savvy guardians over efficient resource allocation in our economy, also have happily financed so far whatever added capacity health care leaders have wanted to put in place, needed or not, as long as those who pay for health care could be counted on to underwrite whatever inefficiency was put in place. An economist, of course, has little trouble understanding these financiers’ behavior.”

“In health care, efficiency also supports equity. The alternative, after all, is continued funding of relatively inefficient care in some parts of the health system, all the while cutting the fiscal lifeblood out of public programs intended to provide relief for the nation’s large, low-income population, which increasingly finds itself priced out of health care.

“Should financially pressed public policymakers ever respond constructively to Wennberg and colleagues’ research, Wall Street’s financiers might be in for a rude surprise. Given the federal government’s mounting deficits and California’s severe fiscal straits, such a surprise is now a distinct possibility.”

Krugman on free markets for health insurance

Health Economics 101
By Paul Krugman
The New York Times
November 14, 2005

Several readers have asked me a good question: we rely on free markets to deliver most goods and services, so why shouldn’t we do the same thing for health care? Some correspondents were belligerent, others honestly curious.
Either way, they deserve an answer.

It comes down to three things: risk, selection and social justice.

…about risk: in any given year, a small fraction of the population accounts for the bulk of medical expenses.

…private markets for health insurance suffer from a severe case of the economic problem known as “adverse selection,” in which bad risks drive out good.

Citizens of advanced countries – the United States included – don’t believe that their fellow citizens should be denied essential health care because they can’t afford it. And this belief in social justice gets translated into action, however imperfectly. …we have a huge private health care bureaucracy whose main purpose is, in effect, to pass the buck to taxpayers.

I’m not an opponent of markets. On the contrary, I’ve spent a lot of my career defending their virtues. But the fact is that the free market doesn’t work for health insurance, and never did. All we ever had was a patchwork, semiprivate system supported by large government subsidies.

That system is now failing. And a rigid belief that markets are always superior to government programs – a belief that ignores basic economics as well as experience – stands in the way of rational thinking about what should replace it.

http://select.nytimes.com/2005/11/14/opinion/14krugman.html?hp

Comment: When 60% of health care in the United States is already funded through the tax system, how can we even pretend that we have a free market in health care? Much of the free market rhetoric is directed toward our employer-sponsored plans, but these plans fund only one-fifth of health care in America, and employer selected plans don’t manifest the characteristics of free markets anyway.

Now the advocates of consumer-directed health care are foisting off on us the “free market choices” rhetoric. But there is no choice with the 80% of health care that is consumed by 20% of our population. People who need a lot of care don’t have the option of shopping for plans with low premiums since those plans won’t begin to provide them with financial security.

By pretending that we have a free market in health care, we tolerate the perpetuation of the tragic inequities that characterize our system. As one small example of these inequities, only in the United States would Wal-Mart employees without health insurance be forced to help purchase coverage for retired millionaires (through Medicare payroll taxes).

Bon fide risk pooling, elimination of adverse selection, and health care justice will never be products of the free market. We need our own public national health insurance program; but that won’t happen until we decide that the people who we choose to run our government are people who actually believe in government.

Health Economics 101

By Paul Krugman
The New York Times
November 14, 2005

Several readers have asked me a good question: we rely on free markets to deliver most goods and services, so why shouldn’t we do the same thing for health care? Some correspondents were belligerent, others honestly curious. Either way, they deserve an answer.

It comes down to three things: risk, selection and social justice.

First, about risk: in any given year, a small fraction of the population accounts for the bulk of medical expenses. In 2002 a mere 5 percent of Americans incurred almost half of U.S. medical costs. If you find yourself one of the unlucky 5 percent, your medical expenses will be crushing, unless you’re very wealthy – or you have good insurance.

But good insurance is hard to come by, because private markets for health insurance suffer from a severe case of the economic problem known as “adverse selection,” in which bad risks drive out good.

To understand adverse selection, imagine what would happen if there were only one health insurance company, and everyone was required to buy the same insurance policy. In that case, the insurance company could charge a price reflecting the medical costs of the average American, plus a small extra charge for administrative expenses.

But in the real insurance market, a company that offered such a policy to anyone who wanted it would lose money hand over fist. Healthy people, who don’t expect to face high medical bills, would go elsewhere, or go without insurance. Meanwhile, those who bought the policy would be a self-selected group of people likely to have high medical costs. And if the company responded to this selection bias by charging a higher price for insurance, it would drive away even more healthy people.

That’s why insurance companies don’t offer a standard health insurance policy, available to anyone willing to buy it. Instead, they devote a lot of effort and money to screening applicants, selling insurance only to those considered unlikely to have high costs, while rejecting those with pre-existing conditions or other indicators of high future expenses.

This screening process is the main reason private health insurers spend a much higher share of their revenue on administrative costs than do government insurance programs like Medicare, which doesn’t try to screen anyone out. That is, private insurance companies spend large sums not on providing medical care, but on denying insurance to those who need it most.

What happens to those denied coverage? Citizens of advanced countries – the United States included – don’t believe that their fellow citizens should be denied essential health care because they can’t afford it. And this belief in social justice gets translated into action, however imperfectly. Some of those unable to get private health insurance are covered by Medicaid. Others receive “uncompensated” treatment, which ends up being paid for either by the government or by higher medical bills for the insured. So we have a huge private health care bureaucracy whose main purpose is, in effect, to pass the buck to taxpayers.

At this point some readers may object that I’m painting too dark a picture. After all, most Americans too young to receive Medicare do have private health insurance. So does the free market work better than I’ve suggested? No: to the extent that we do have a working system of private health insurance, it’s the result of huge though hidden subsidies.

Private health insurance in America comes almost entirely in the form of employment-based coverage: insurance provided by corporations as part of their pay packages. The key to this coverage is the fact that compensation in the form of health benefits, as opposed to wages, isn’t taxed. One recent study suggests that this tax subsidy may be as large as $190 billion per year. And even with this subsidy, employment-based coverage is in rapid decline.

I’m not an opponent of markets. On the contrary, I’ve spent a lot of my career defending their virtues. But the fact is that the free market doesn’t work for health insurance, and never did. All we ever had was a patchwork, semiprivate system supported by large government subsidies.

That system is now failing. And a rigid belief that markets are always superior to government programs – a belief that ignores basic economics as well as experience – stands in the way of rational thinking about what should replace it.

Q and A with Paul Krugman, from The New York Times.com

On “Pride, Prejudice, Insurance”: Health Care Crisis in the U.S.
Nov. 8, 2005

Nell Farr, Elk Grove, Calif.: Your fine column contained this line: “. . . Americans too young to receive Medicare and insufficiently destitute to receive Medicaid . . .” This implies that those under 65 receive Medicaid if only they are poor enough. Many people believe this is true. It is not. Only if a person under 65 is on some Federal aid program such as AFDC or a disability program is he/she eligible for Medicaid. Others have an option of a free clinic, if available, or an E.R. for an emergency condition. However, E.R.’s only stabilize a person if further care or diagnostic work is indicated, such as a mammogram or even chemo for cancer, usually such a person is totally out of luck. They die.

Your columns are usually 100 percent factually correct, and I was disappointed to see this line that reinforces the mistaken belief of most Americans.

Paul Krugman: It’s a bit more complicated than that. As I understand it Medicaid covers many children even if the parents aren’t on AFDC, and in some cases covers parents too. But you’re right that an American can easily be ineligible for Medicaid no matter how desperate his or her financial straits. In fact, that’s a big part of the awfulness of how the government is responding to the aftermath of Katrina. But I didn’t have space to go into all of that. Remember, 700 words.

Michael Pistorio, Des Plaines, Ill.: While I completely agree that it is a travesty for Americans to be devoid of a national health care solution, I question the rationale of comparing the costs of an American system to that of a foreign system. My reasoning lies behind the simple fact that the U.S. has a population considerably larger than the most populated country that you mentioned, and with this said, I would think that the reason other countries have lower costs is due to the smaller number of prospective participants. Please help me understand.

Paul Krugman: All of these comparisons are per capita: spending per person. So population is taken into account. Or, if you prefer, add up total spending by Western European countries, which have about the same combined population as the United States; you’ll find that they spend only about 60 percent as much on health care, but that everyone is insured, life expectancy is higher, and infant mortality is lower.

Philip Lohman, Lakewood, Calif.: You missed making your best argument: the huge difference between levels of overhead in health systems. Somewhere around 30 percent of all expenditures on health care in the U.S. are for administration. This money buys hundreds of millions of pieces of paper and phone calls, plus the salaries of the legions of employees of insurance companies, H.M.O.’s, P.B.M.’s and all the others who are required to make the whole creaky, maddeningly complex mess function. What it doesn’t buy is a single office visit or prescription.

Similar administrative costs in other countries are around a third of this. Compared to private insurance, Medicare, perpetually described as a boondoggle by conservatives, is a model of efficiency. I was managememt consultant in healthcare for twenty years. Some days I couldn’t bring myself to believe the lunacy of the whole system.

Paul Krugman: I agree, but I’m puzzled that you think I missed your point. The column clearly identifies administrative costs as a key problem with the U.S. system.

Carol Bouville, Gaithersburg, Md.: Why is the obvious so hard for us Americans to accept? We used to not want any government-sponsored child care either because it was too socialistic. I suspect that has a lot to do with not getting government involved in universal health coverage. After all, our leaders are my age and came of age when anything that mimicked socialism was verboten. I lived in France for 18 years. Yes, it was cumbersome sometimes to get around in the health care system, but at least it was very cheap and available – and good, too. We never had to worry about losing our coverage or about not being able to pay for necessary treatment or meds. I argue that because of that peace of mind, we had a better quality of life than most Americans. Why don’t people demand access to health coverage and refuse to vote for anyone who doesn’t pledge to make the single-payer system a reality? What do we have to do to make that happen?

Neeta Moonka, MD, Demarest, N.J.: Thank you for this column. I am a physician who has been convinced of the need for a single-payer plan in this country since before I went to medical school in 1981. Please know the patchwork of employer based insurance, Medicare, Medicaid, not to mention the uninsured, takes its toll on doctors as well.

Bill Hess, Wasilla, Alaska: Your comments on nationalized insurance resonate with me. I am sitting here, feeling a notable amount of pain, thinking it would be good to go see a doctor and ask about it, but I dare not – I can’t afford to. Not because I don’t have insurance, but largely because I do. I am 55 years old and when I first got my insurance over a decade ago, it was a good deal. In the time since, my insurers have continually forced me to pay more for less, to drop my dental care altogether, to increase my deductible while still cutting back on my medical benefits. Yet the rate I pay has more than doubled to over $600 a month – that’s just for me. Fortunately, my wife and grown children receive care under the U.S. Indian Health Service.

I have a prostate problem for which I take three medications, all of which I must purchase myself along with any other medications I might find myself needing at any time. Last spring, my urologist ordered up a cat scan to double check a few things, which turned out okay. Two weeks later, I was struck by some intense abdominal pain. The physician who saw me felt it necessary to order up still another cat scan, which revealed nothing that wasn’t on the original, but did add several thousand to the medical bills I was already facing, bills denied by my insurance company.

So I have been trying to pay off this big debt and now I dare not go see a doctor again, as long as I am able to function and move around. I simply cannot afford to. An older brother recently had part of his colon removed due to cancer and another brother suffers a variety of often severe colon ailments. My father has had part of his colon removed as well. This puts me in the group of at-risk people who are advised to get a colonoscopy, but I checked into it and, even with my insurance, I would be facing a few more thousand in additional medical debt that would be uncovered by my insurance.

I know what happens when my insurance company receives one of my medical bills – they do not say, “Let’s see what we can do to help this guy and keep him healthy for as long as we can.” They say, “Let’s see if we can deny all of this, or as much as possible, and lets keep raising his rate dramatically every few months so that, hopefully, by the time he really needs care and we would have to put out some bucks we will already have forced him to drop our coverage.”

They may not actually vocalize it in those terms, but I sincerely believe both scenarios to be an accurate reflection of their policy.

Mark Sengel , Banglamung, Thailand: Thanks for your focus on health care. I am 50 and teach in Thailand. The hospitals here are excellent and tens if not hundreds of thousands of foreigners are coming here from all over the world to have root canals, colonoscopies, and back surgery. Meanwhile, everyone I know in America feels their choices are limited. They choose to stay in jobs they don’t like, they don’t start businesses, and they live in places they don’t really want to in order to get health care. Most have no idea how they are going to retire, estimating they need hundreds of thousand dollars just for health care if they are going to retire in their early 60’s. And these are people that are way ahead of the average American. What is the endgame?

Lynne Koester, Yuba City, Calif.: Would it be feasible to convert Medicare into a national health insurance system? I realize that its present per-patient cost is high because of the age of those who qualify for Medicare, but if the pool were enlarged by including most all Americans, wouldn’t the per-patient cost decrease? By eliminating the profits built into private health insurance companies, we could save even more money. Plus, when ill, many uninsured people presently use a hospital emergency room because they do not have medical insurance, but if they were covered by a national health insurance, they could be treated in a doctor’s office, which is less costly than a hospital.

Paul Krugman: Yes, indeed. One way to implement national health care would simply be to expand Medicare to everyone.

Of course, doing that would require additional funds, probably in the form of an increase in the payroll tax. And that would elicit howls from the right. But the apparent rise in tax rates would be an illusion: it would simply substitute an explicit tax for the implicit tax that companies and workers pay in the form of insurance premiums. Given international experience, I have no doubt that overall spending on health care would actually fall, and that job creation would actually rise, after the supposed tax increase.

It’s a simple solution, building on a program that we already know works. It would make the vast majority of Americans better off. And it’s considered a complete non-starter politically. Now why is that?

Notes on International Comparisons of Health Care
Nov. 7, 2005

Some readers may want to follow up on my Nov. 7 column on international comparisons of health care. Here are a few useful links.

Trends in employer-based insurance: The underlying data come from the Census. Here is a shorter, useful summary of the data.

International comparisons of health spending: The Factbook of the Organization for Economic Cooperation and Development, an international research organization supported by member governments, is available at www.sourceoecd.org. It provides comparative data on many economic, environmental, and social trends. Data on health care spending per capita are measured using “purchasing power parities” – that is, they are adjusted for international differences in the cost of living.

Two things stand out. First, the United States is off the scale in terms of the amount we spend per person. Second, the U.S. system is unique in its reliance on private spending.

Quality of Health Care: “Taking the Pulse of Health Care Systems: Experiences of Patients With Health Problems in Six Countries,” is a new study published in Health Affairs. Check out Exhibits 6 and 7, in particular.

Taiwan: A very interesting study, also [in Health Affairs], is “Does Universal Health Insurance Make Health Care Unaffordable? Lessons from Taiwan.” Since it’s predictable that some of the usual suspects will attack my column by citing newspaper articles about runaway costs in Taiwan, it’s particularly interesting to read the paper’s discussion of how “political theater” – overstating the quite mild financial difficulties of the Taiwanese system – was used to sell a modest increase in premiums.

Comparing Total Annual Drug Costs Among Medicare Advantage Plans

Comparing Total Annual Drug Costs Among Several Managed Care Plans
Washington Post
November 15, 2005

Premiums for Medicare Advantage drug plans, shown in parentheses below, range from zero to $85 a month. Premiums aside, total out-of-pocket costs can vary widely, based in part on whether a person is basically healthy, needs only episodic drug treatment or has chronic medication needs.

Please click here for the full chartpack (MS Excel)

Medicare Part D will bring us national health insurance

Medicare complexity may scare off seniors
By Brooke Adams
The Salt Lake Tribune
11/08/2005

As a tax attorney, Bill Vogel was not easily stumped by complex calculations. Wife Donna, a retired nurse recruiter, navigated the health care world with ease. But the two Salt Lake City residents admit that selecting a Medicare prescription drug plan has left them confused – and angry. “There is one good aspect to this. We will have national health insurance sooner than later,” Bill Vogel predicts. “Seniors will be sick of this, the complications, the paperwork.”

http://www.sltrib.com/ci_3193444

Comment: The one saving grace of the Medicare Part D drug program is that it represents an implicit admission that drugs must be a part of any comprehensive program of health care coverage.

As enrollment begins, the complexities of the program have proven to be a nightmare for Medicare beneficiaries. Part D is an unstable, highly flawed program which will require major changes. As examples, there are two specific features which in themselves will mandate a return to the drawing boards.

Beneficiaries can choose a private Medicare Advantage plan to access drug coverage. To advance the conservative agenda of privatizing Medicare, these plans are paid far more than would be spent in the traditional program (risk adjusted) so that they can offer drugs as an incentive to join the plans. These excessive payments will not be tolerated for long. When an equitable method of funding the plans is established, they will not be able to compete with the traditional program because of their higher administrative expenses, and they will withdraw from the market.

For those who remain in the traditional program, numerous stand-alone Part D drug programs will be available. A Kaiser Family Foundation survey suggests that Part D participation will be quite low. Who will enroll? Those who have high drug costs – a classical case of adverse selection. It is likely that the privatizers in Congress would then attempt to pass more of the costs on to the beneficiaries. Even if they didn’t, there would be a major effort to reduce Part D funding simply because the program is “too expensive.”

Tax attorney Bill Vogel is right. We will have national health insurance, and it will include a comprehensive drug benefit.

Part D? It wasn't supposed to help YOU

Saul Friedman
Newsday

October 29, 2005

Long Beach widow Eula P., 81, writes that she’s neither “stupid nor senile,” but she still can’t figure out the new prescription drug benefit for Medicare beneficiaries. “What were the people in Washington thinking?”

Well, if you remember why Texas Congressman Tom DeLay and his fellow Republicans hammered the drug bill through the House under cover of night, you’ll also understand why, even at this late date and despite the government’s hype, the program remains a puzzle – especially for the sick and elderly population it’s supposed to serve.

First, the new law was more a gift to the insurance and drug industries than it was a benefit for Medicare enrollees, because most of the estimated $720 billion spent under the new law will go to those industries.

Furthermore, the law undermines Medicare as a government health program
by requiring enrollees to buy private insurance in which Medicare plays no role. And for the first time, the Medicare principle of universality was lost when a means test was instituted for low-income beneficiaries.

Thus, while the benefit is called Part D, it is not really a Medicare benefit. As the nonprofit Center for Medicare Advocacy notes, “Medicare drug coverage will be provided by private health insurance companies. Not by the Medicare program. This is different from how Parts A and B of Medicare work.” Indeed, each of the dozens of insurance plans can set and change its benefits.

Next year, beneficiaries will be locked into their choice. But the insurers can change the drugs they offer or require that you use doctors, hospitals and labs in their network. And, like HMOs of the past few years, they can raise premiums, cut benefits or get out of the business if they decide they’re not making enough profit, leaving beneficiaries scratching for coverage. Medicare will be powerless to take action against an offending company.

There are 46 different plans offered in New York alone. The Medicare Website, which is supposed to calculate your savings under each plan, bases its figures on monthly premiums as low as $4.10 in New York.

But most premiums are considerably higher. The yearly deductible is $250, and there is a huge gap in coverage (the “doughnut hole”), during which most people will be stuck with 100 percent of their drug bills. And while original Medicare is valid nationwide, Part D plans may not be. No wonder there is confusion over a profusion of choices and a fragmented system.

The most frequently asked question comes from some of the more than 350,000 seniors who are members of New York’s Elderly Pharmaceutical Insurance Coverage, or EPIC plan. They ask, “If I am satisfied with EPIC, do I need to sign up for Part D?” The answer at this writing is no, because both the EPIC fee and deductible plans are “creditable” coverage under the law, which means they are considered at least as good as Part D. So you will not be penalized if you don’t sign up during the initial enrollment period, then change your mind later.

An EPIC spokesman notes, however, that low-income beneficiaries who qualify for extra help will have their EPIC annual fees waived if they join one of the Part D plans. And their Part D deductible and premium will be negligible.

But there may be an added advantage to having both EPIC and Part D. According to EPIC, its plan will “wrap-around” Part D. Thus, if EPIC members sign up for a relatively inexpensive drugs-only Part D plan, EPIC will pay for costs not covered by Part D, including the co-payments (25 percent), the yearly deductible ($250) and even the “doughnut-hole” gap in coverage, less any EPIC co-pay or deductible.

To clarify another issue raised by readers, if they get their drugs from their current HMO, through their VA coverage, retiree insurance, or supplemental insurance, and if the coverage is “creditable” – at least as good as Part D – they will be so notified by their insurer, and they need not change. But if they have no drug coverage, they should sign up for at least one of the drugs-only Part D plans, or face a stiff penalty after May 15.

The most troubling potential consequence of the fragmentation and privatization of Part D was exemplified by a penned note from 65-year-old Patricia C., of Long Beach. She lives on $720 a month and has been getting her drugs from Medicaid for 20 years. Now, as of Jan. 1, she’ll be shifted to one of the Part D plans, although she doesn’t know which one to choose, and she can’t afford the premium or deductible. (The government will pick your insurance carrier unless you do.)

Fortunately, people who are eligible for both Medicaid (a program for the very poor) and Medicare are entitled to get their Part D coverage with no premium, no deductible and no doughnut hole gap in coverage. But what sort of system requires a very old, very sick person who has depended on Medicaid, to go shopping for new insurance? More than 6.4 million Americans on Medicaid are to be shifted to Part D coverage on Jan. 1, a tidy windfall for the insurance companies.

The Manhattan-based Medicare Rights Center reports that many of these beneficiaries, whose lives depend on uninterrupted medication, will face
potentially catastrophic consequences if even a small percentage slip though the cracks during the transition. “The poorest, sickest and oldest Americans face grave risk of losing their life-saving medications once the clock strikes 12 on New Year’s,” said Robert Hayes, president of the center. He urged the Bush administration to extend the time of transition beyond Jan. 1.

Write to Saul Friedman, Newsday, 235 Pinelawn Rd., Melville, NY, 11747-4250, or by e-mail at saulfriedman@comcast.net.

Pride, Prejudice, Insurance

By PAUL KRUGMAN
November 7, 2005
The New York Times

General Motors is reducing retirees’ medical benefits. Delphi has declared bankruptcy, and will probably reduce workers’ benefits as well as their wages. An internal Wal-Mart memo describes plans to cut health costs by hiring temporary workers, who aren’t entitled to health insurance, and screening out employees likely to have high medical bills.

These aren’t isolated anecdotes. Employment-based health insurance is the only serious source of coverage for Americans too young to receive Medicare and insufficiently destitute to receive Medicaid, but it’s an institution in decline. Between 2000 and 2004 the number of Americans under 65 rose by 10 million. Yet the number of nonelderly Americans covered by employment-based insurance fell by 4.9 million.

The funny thing is that the solution – national health insurance, available to everyone – is obvious. But to see the obvious we’ll have to overcome pride – the unwarranted belief that America has nothing to learn from other countries – and prejudice – the equally unwarranted belief, driven by ideology, that private insurance is more efficient than public insurance.

Let’s start with the fact that America’s health care system spends more, for worse results, than that of any other advanced country.

In 2002 the United States spent $5,267 per person on health care. Canada spent $2,931; Germany spent $2,817; Britain spent only $2,160. Yet the United States has lower life expectancy and higher infant mortality than any of these countries.

But don’t people in other countries sometimes find it hard to get medical treatment? Yes, sometimes – but so do Americans. No, Virginia, many Americans can’t count on ready access to high-quality medical care.

The journal Health Affairs recently published the results of a survey of the medical experience of “sicker adults” in six countries, including Canada, Britain, Germany and the United States. The responses don’t support claims about superior service from the U.S. system. It’s true that Americans generally have shorter waits for elective surgery than Canadians or Britons, although German waits are even shorter. But Americans do worse by some important measures: we find it harder than citizens of other advanced countries to see a doctor when we need one, and our system is more, not less, rife with medical errors.

Above all, Americans are far more likely than others to forgo treatment because they can’t afford it. Forty percent of the Americans surveyed failed to fill a prescription because of cost. A third were deterred by cost from seeing a doctor when sick or from getting recommended tests or follow-up.

Why does American medicine cost so much yet achieve so little? Unlike other advanced countries, we treat access to health care as a privilege rather than a right. And this attitude turns out to be inefficient as well as cruel.

The U.S. system is much more bureaucratic, with much higher administrative costs, than those of other countries, because private insurers and other players work hard at trying not to pay for medical care. And our fragmented system is unable to bargain with drug companies and other suppliers for lower prices.

Taiwan, which moved 10 years ago from a U.S.-style system to a Canadian-style single-payer system, offers an object lesson in the economic advantages of universal coverage. In 1995 less than 60 percent of Taiwan’s residents had health insurance; by 2001 the number was 97 percent. Yet according to a careful study published in Health Affairs two years ago, this huge expansion in coverage came virtually free: it led to little if any increase in overall health care spending beyond normal growth due to rising population and incomes.

Before you dismiss Taiwan as a faraway place of which we know nothing, remember Chile-mania: just a few months ago, during the Bush administration’s failed attempt to privatize Social Security, commentators across the country – independent thinkers all, I’m sure – joined in a chorus of ill-informed praise for Chile’s private retirement accounts. (It turns out that Chile’s system has a lot of problems.) Taiwan has more people and a much bigger economy than Chile, and its experience is a lot more relevant to America’s real problems.

The economic and moral case for health care reform in America, reform that would make us less different from other advanced countries, is overwhelming. One of these days we’ll realize that our semi-privatized system isn’t just unfair, it’s far less efficient than a straightforward system of guaranteed health insurance.

The Deadly Doughnut

By Paul Krugman
The New York Times
November 11, 2005

Registration for Medicare’s new prescription drug benefit starts next week. Soon millions of Americans will learn that doughnuts are bad for your health. And if we’re lucky, Americans will also learn a bigger lesson: politicians who don’t believe in a positive role for government shouldn’t be allowed to design new government programs.

Before we turn to the larger issue, let’s look at how the Medicare drug benefit will work over the course of next year.

At first, the benefit will look like a normal insurance plan, with a deductible and co-payments.

But if your cumulative drug expenses reach $2,250, a very strange thing will happen: you’ll suddenly be on your own. The Medicare benefit won’t kick in again unless your costs reach $5,100. This gap in coverage has come to be known as the “doughnut hole.” (Did you think I was talking about Krispy Kremes?)

One way to see the bizarre effect of this hole is to notice that if you are a retiree and spend $2,000 on drugs next year, Medicare will cover 66 percent of your expenses. But if you spend $5,000 – which means that you’re much more likely to need help paying those expenses – Medicare will cover only 30 percent of your bills.

A study in the July/August issue of Health Affairs points out that this will place many retirees on a financial “roller coaster.”

People with high drug costs will have relatively low out-of-pocket expenses for part of the year – say, until next summer. Then, suddenly, they’ll enter the doughnut hole, and their personal expenses will soar. And because the same people tend to have high drug costs year after year, the roller-coaster ride will repeat in 2007.

How will people respond when their out-of-pocket costs surge? The Health ffairs article argues, based on experience from H.M.O. plans with caps on drug benefits, that it’s likely “some beneficiaries will cut back even essential medications while in the doughnut hole.” In other words, this doughnut will make some people sick, and for some people it will be deadly.

The smart thing to do, for those who could afford it, would be to buy supplemental insurance that would cover the doughnut hole. But guess what: the bill that established the drug benefit specifically prohibits you from buying insurance to cover the gap. That’s why many retirees who already have prescription drug insurance are being advised not to sign up for the Medicare benefit.

If all of this makes the drug bill sound like a disaster, bear in mind that I’ve touched on only one of the bill’s awful features. There are many others, like the clause that prohibits Medicare from using its clout to negotiate lower drug prices. Why is this bill so bad?

The probable answer is that the Republican Congressional leaders who rammed the bill through in 2003 weren’t actually trying to protect retired Americans against the risk of high drug expenses. In fact, they’re fundamentally hostile to the idea of social insurance, of public programs that reduce private risk.

Their purpose was purely political: to be able to say that President Bush had honored his 2000 campaign promise to provide prescription drug coverage by passing a drug bill, any drug bill.

Once you recognize that the drug benefit is a purely political exercise that wasn’t supposed to serve its ostensible purpose, the absurdities in the program make sense. For example, the bill offers generous coverage to people with low drug costs, who have the least need for help, so lots of people will get small checks in the mail and think they’re being treated well.

Meanwhile, the people who are actually likely to need a lot of help paying their drug expenses were deliberately offered a very poor benefit. According to a report issued along with the final version of the bill, people are prohibited from buying supplemental insurance to cover the doughnut hole to keep beneficiaries from becoming “insensitive to costs” – that is, buying too much medicine because they don’t pay the price.

A more likely motive is that Congressional leaders didn’t want a drug bill that really worked for middle-class retirees.

Can the drug bill be fixed? Yes, but not by current management. It’s hard to believe that either the current Congressional leadership or the Mayberry Machiavellis in the White House would do any better on a second pass. We won’t have a drug benefit that works until we have politicians who want it to work.

$230 billion spent on insurance paperwork

SAN FRANCISCO, Nov. 11 (UPI) — Billing and insurance paperwork consume at least one out of every five dollars of private insurance health spending in California, a study finds.

The findings suggest that about $230 billion in healthcare spending nationally is devoted to insurance administration, according to study leader Dr. James G. Kahn, of the University of California, San Francisco.

“Over the last decade, administrative costs have accounted for 25 percent of health care spending,” said Kahn. “Little has been known, however, about the portion attributable to billing and insurance-related functions.”

Kahn analyzed data from private insurers, physician offices and hospitals and focused on spending in doctor’s offices and hospitals, which represent 80 percent of all privately insured health spending.

He found private insurers use about 10 percent of premiums for billing, marketing, financial activities and profit; while physician offices spent 14 percent of their income on insurance paperwork and hospitals spend 9 percent on insurance paperwork.

The findings appear in Health Affairs.