The Orange County Register
June 22, 2003
Commentary

Lawmakers have strong case for health reform

By Dr. Don McCanne
The San Juan Capistrano resident is President of Physicians for a National Health Program.

Everyone agrees that health-care costs are out of control and that something must be done to ensure access to health care for the growing numbers of uninsured. Although the California Legislature is grappling with these issues, several recent opinion articles in The Orange County Register have protested that the public should not want the government involved in reform, and that we do not want any system of rationing that comprehensive reform might entail.

These opponents of reform are too late. We already have both. Our government spends more of our taxes on health care than is spent in any other industrialized nation. But we are receiving the worst value, primarily because of the profound waste in the private sector. The megabureaucracies of the private plans create an administrative burden that wastes more than enough funds to pay for health care for all of the uninsured. We need new government policies that would redirect health-care dollars to patient care instead.

And rationing? Other nations ration by limiting the capacity of their health-care delivery systems. Since they spend far less than we do, they sometimes end up with delays for elective services such as C-T or MRI scans. Those nations need to spend more to improve capacity. But in the United States we already have adequate capacity in our system.

Nevertheless, we have the worst rationing of all nations, and that is because we ration by the ability to pay for health care. Tens of millions of our citizens potentially go without essential medical care simply because they are uninsured and cannot afford to pay for it. We are the only nation that forces families into bankruptcy court because of medical bills.

This is unnecessary. We can provide access to comprehensive care for everyone without spending one more penny on health care.

Last year, California completed a detailed study of nine models of health-care reform.

Two general concepts evolving from this study have attracted the attention of the legislators.

SB 2 (Burton-Speier) would build on our current system by requiring employers to provide insurance for all employees. Although this is the most expensive proposal studied, primarily because it leaves in place the administrative excesses of our current system, it is considered the least disruptive.

Two bills in the Assembly provide variations of this proposal.

SB 921 (Kuehl) would replace all insurers and other funding sources with a single public program similar to Medicare, but with more comprehensive benefits. Not only is Medicare our most popular insurance program, it also has the lowest administrative costs, and it has been the most effective in limiting health-care cost increases. The study showed that not only would a single insurance program provide comprehensive benefits for everyone, it actually would reduce overall health-care spending for Californians.

The instability caused by rising health-care costs and the increasing numbers of uninsured make reform imperative. The debate is no longer over whether we want the government involved; it already is. The debate now is over which public policies we wish our Legislature to enact to ensure that we are receiving maximum value for our public and private health-care dollars. All Californians need to become informed participants in this debate.

http://www2.ocregister.com/ocrweb/ocr/article.do?id=44682&section=COMMENTARY&subsection=COMMENTARY_COLUMNS&year=2003&month=6&day=22

The Urban Institute
April 2003
Does the Health Care Safety Net Narrow the Access Gap?
By Brenda C. Spillman, Stephen Zuckerman & Bowen Garrett

The empirical results in this paper find little variation in utilization and access among low- income adults by local safety net conditions, but very large differences by insurance status, after controlling for several individual demographic characteristics. In addition, use and access differences between insured and uninsured adults were found to have relatively little relation to local safety net conditions. These results suggest that expanding insurance coverage would be a more effective tool for increasing access to health care among low-income adults than expanding the safety net.

In other respects as well, the safety net is not a substitute for insurance, since insurance coverage confers greater access to the full range of health care providers. As noted earlier, the limited capacity of specialized safety net providers makes it inevitable that improving access requires participation of all providers as well as support for safety net providers. A recent study based on a survey of medical directors of community health centers found that while they generally reported confidence in their ability to provide needed primary care to all of their patients, they reported far greater obstacles in helping their uninsured patients obtain additional services their clinics could not provide.

Our findings suggest that expanded direct support for key safety net facilities, such as the increased support for community health centers in the Bush administration’s budget proposal, is unlikely to be an effective policy tool for narrowing access and utilization gaps between the insured and the uninsured.

http://www.urban.org/UploadedPDF/310668_DP03-02.pdf

Comment: Safety net institutions are extremely important, but comprehensive health insurance is essential. Current innovative private health insurance products that provide flexibility in benefits and cost-sharing actually threaten affordability of care, and thereby may fail to adequately reduce access and utilization gaps. It is unlikely that the management of the private health plans would make the same effort to close these gaps as would the public administrators of a program of social insurance.

The Henry J. Kaiser Foundation
Harvard School of Public Health
Press Release
June 19, 2003
New Survey Finds Most Seniors Favor Reforms that Build on Existing Medicare
Program, But Younger Adults Are More Favorable Toward Private Plans

Eighty percent of seniors have a favorable impression of Medicare and more than six in ten (62%) say the program is well-run. About seven in ten (72%) of those ages 65 and over feel seniors should continue to get their health insurance through Medicare rather than through private plans (16%), and 63% favor offering prescription drug coverage through Medicare over offering all benefits including drug coverage through private plans (23%). When it comes to their own insurance coverage, seniors are far more likely to prefer the current Medicare program over private plans (63% vs. 19%).

Younger adults 18-64 are less likely than seniors to have a favorable view of Medicare and to think that it is well-run: 45% of those under 65 say their view is favorable, 23% unfavorable, and one-third don’t know; and just over a third (36%) say it is well-run (31% say not well-run and 32% don’t know). They are generally less familiar with Medicare, with more than half (55%) of adults ages 18-64 incorrectly saying Medicare covers prescription drugs (vs. 16% of seniors) and less than three in ten (28%) knowing that people on Medicare can choose any doctor or hospital they want (vs. 73% of seniors).

A majority of the public (54%) favors a plan that provides seniors with a benefit that is as generous as what most workers get even if it costs taxpayers more, while 38% choose a less generous benefit at a lower government cost. After hearing arguments against their initial position (would you still favor if it meant giving up further tax cuts; still oppose if some seniors would not fill prescriptions because of the cost), 65% favor the more generous plan and 22% the cheaper plan.

http://www.kff.org/content/2003/20030619a/Final_Medicare_Survey_Release.pdf

Comment: You cannot have escaped the news that this latest KFF/Harvard-Blendon poll has demonstrated that most seniors prefer the traditional Medicare program, whereas younger individuals would prefer private plans. But the comments above, selected from their press release, reveal a couple of very important facts.

Younger adults express their opinions based on inadequate and even incorrect perceptions of the Medicare program. Another point is that when they are provided with merely a short phrase that improves their understanding of the policy issues, they change their opinion to one more supportive of beneficial reform.

Although seniors do have a better understanding of the Medicare program, it is still surprising to see that a small but significant minority still don’t understand that the traditional Medicare program does offer free choice of providers and that outpatient prescription drugs are not a benefit of the program.

A well-functioning democracy requires an informed electorate. With solid facts, they’ll do the right thing. We have a lot of work to do.

Kaiser Daily Health Policy Report
June 18, 2003
House Ways and Means Panel Approves Medicare Reform Bill

The House Ways and Means Committee on June 17 voted 25-15 to approve an approximately $413 billion, 10-year bill (HR 2473) that would attempt to increase participation of private plans in Medicare and offer all beneficiaries a drug benefit, the Wall Street Journal reports (Rogers, Wall Street Journal, 6/18).

The bill also would establish direct price competition between traditional Medicare and private health plans beginning in 2010.

The House bill includes a provision that would increase payments to existing Medicare+Choice health plans up to 3% to 16% above fee-for-service payments in their area, the Journal reports. The increased payments would take effect before 2006, creating an “investment window” in which Republicans believe private plans could compete profitably but also use the increased subsidies to reduce premiums or increase benefits packages to make them more attractive to beneficiaries, according to the Journal.

http://www.kaisernetwork.org/daily_reports/rep_hpolicy_recent_rep.cfm?dr_cat=3&show=yes&dr_DateTime=18-Jun-03

Comment: The fundamental principle that competition reduces costs applies only to a truly free marketplace. Medicare and the private Medicare options do not adjust their costs based on free market forces. In this legislation, the Republicans are suggesting that a free market is created by offering more private plans, and, especially, by requiring the traditional Medicare program to compete with the private plans. But they apparently don’t really believe it.

Even the Republicans seem to understand that market competition isn’t working. Otherwise, why do they have to offer Medicare + Choice HMOs payments that are 3% to 16% above the fee-for-service payments? Every study has confirmed that the private Medicare options have cost more than the traditional program when corrections are made for the fact that the private plans have been successful in selectively marketing to a comparatively healthy subset of Medicare beneficiaries. Efforts to set up competitive Medicare models failed when no insurer would agree to participate. The reason for reinforcing the private options with larger payments is to create a larger private sector that would eventually replace the traditional program. At the current level of funding, the private Medicare sector is shrinking, rather than growing.

Why should we be concerned about giving the traditional Medicare program a stimulus to become “more efficient” by forcing it to compete with private plans? The answer is quite complex, but briefly, healthier patients would end up in the private plans, leaving chronically ill, high-cost patients in the traditional program. These higher costs, in the Republican competitive model, would be passed on to the beneficiaries in the traditional program in the form of higher premiums. This premium “death spiral” would force them out of the traditional program, destroying Medicare as we know it. A private plan Medicare system would deprive patients of choice of their physicians and hospitals, would waste resources in administrative excesses, and, perhaps worst of all, would be subjected to the political forces that would result in diminution of the public funding component of Medicare, severely impairing the equitable nature of this system. For low-income individuals, the inevitable result would be inadequate benefits and unaffordable cost sharing.

Families USA has posted an explanation of the how forcing Medicare to compete would result in the death spiral for the traditional program:

http://www.familiesusa.org/site/PageServer?pagename=Medicare_Central_private_example&JServSessionIdr007=t1imducywy.app5b

Kaiser Daily Health Policy Report
June 18, 2003
House Ways and Means Panel Approves Medicare Reform Bill

The House Ways and Means Committee on June 17 voted 25-15 to approve an approximately $413 billion, 10-year bill (HR 2473) that would attempt to increase participation of private plans in Medicare and offer all beneficiaries a drug benefit, the Wall Street Journal reports (Rogers, Wall Street Journal, 6/18).

The bill also would establish direct price competition between traditional Medicare and private health plans beginning in 2010.

The House bill includes a provision that would increase payments to existing Medicare+Choice health plans up to 3% to 16% above fee-for-service payments in their area, the Journal reports. The increased payments would take effect before 2006, creating an “investment window” in which Republicans believe private plans could compete profitably but also use the increased subsidies to reduce premiums or increase benefits packages to make them more attractive to beneficiaries, according to the Journal.

http://www.kaisernetwork.org/daily_reports/rep_hpolicy_recent_rep.cfm?dr_cat=3&show=yes&dr_DateTime=18-Jun-03

Comment: The fundamental principle that competition reduces costs applies only to a truly free marketplace. Medicare and the private Medicare options do not adjust their costs based on free market forces. In this legislation, the Republicans are suggesting that a free market is created by offering more private plans, and, especially, by requiring the traditional Medicare program to compete with the private plans. But they apparently don’t really believe it.

Even the Republicans seem to understand that market competition isn’t working. Otherwise, why do they have to offer Medicare + Choice HMOs payments that are 3% to 16% above the fee-for-service payments? Every study has confirmed that the private Medicare options have cost more than the traditional program when corrections are made for the fact that the private plans have been successful in selectively marketing to a comparatively healthy subset of Medicare beneficiaries. Efforts to set up competitive Medicare models failed when no insurer would agree to participate. The reason for reinforcing the private options with larger payments is to create a larger private sector that would eventually replace the traditional program. At the current level of funding, the private Medicare sector is shrinking, rather than growing.

Why should we be concerned about giving the traditional Medicare program a stimulus to become “more efficient” by forcing it to compete with private plans? The answer is quite complex, but briefly, healthier patients would end up in the private plans, leaving chronically ill, high-cost patients in the traditional program. These higher costs, in the Republican competitive model, would be passed on to the beneficiaries in the traditional program in the form of higher premiums. This premium “death spiral” would force them out of the traditional program, destroying Medicare as we know it. A private plan Medicare system would deprive patients of choice of their physicians and hospitals, would waste resources in administrative excesses, and, perhaps worst of all, would be subjected to the political forces that would result in diminution of the public funding component of Medicare, severely impairing the equitable nature of this system. For low-income individuals, the inevitable result would be inadequate benefits and unaffordable cost sharing.

Families USA has posted an explanation of the how forcing Medicare to compete would result in the death spiral for the traditional program:

http://www.familiesusa.org/site/PageServer?pagename=Medicare_Central_private_example&JServSessionIdr007=t1imducywy.app5b

Los Angeles Times
June 18, 2003
CalPERS Members Object to Rate Hike
By Debora Vrana and Ronald D. White

The California Public Employees’ Retirement System is facing a growing member revolt as the giant pension fund Tuesday approved a nearly 17% rate increase in health insurance payments for next year.

Although rising health-care costs are straining many employees and employers nationwide, the situation at CalPERS is especially dire. As one of the nation’s largest buyers of health care, CalPERS for many years used its clout to obtain favorable rates from insurance carriers.

But now its members are balking at escalating costs, and some of the public agencies they work for – already under stress because of the state’s budget problems – are privately threatening to pull out of CalPERS health plans and find cheaper medical coverage on the open market. Those agencies, most of which are clustered in Southern California, tend to have relatively younger and healthier workforces than others.

In turn, any exodus from CalPERS’ health plans would leave those left in the system vulnerable to ever bigger rate increases in the future – a scenario that analysts call “the death spiral.”

http://www.latimes.com/business/la-fi-calpersmo18jun18,1,3674659.story?coll=la-headlines-business-manual

The Orange County Register June 18, 2003 PacifiCare goes after CalPERS members By Nancy Luna

PacifiCare Health Systems launched a campaign Tuesday to woo a large chunk of public agencies in the California Public Employees’ Retirement System, which could raise premiums today by 18 percent.

The Cypress-based health- care organization was dumped last year when CalPERS raised premiums by 25 percent.

http://www2.ocregister.com/ocrweb/ocr/article.do?id=44166&section=BUSINESS&subsection=BUSINESS&year=2003&month=6&day=18

Comment: CalPERS has not only had to face the general increases in health care costs, but it also covers a population that has greater health care expenses because of increasing age and a greater incidence of chronic disease. Last year, in an attempt to reduce the scale of cost increases, CalPERS terminated more expensive contracts, including PacifiCare’s. Now PacifiCare is back with a vengeance, attempting to cherry pick the portion of CalPERS’ contracted agencies that have lower costs because of regional market and other demographic differences. Removing lower cost beneficiaries from CalPERS can only result in even greater premium increases, threatening the affordability of CalPERS’ plans.

Even one of the nation’s largest purchasers of health plans is not immune to the death spiral. Although PacifiCare has become a vulture, this is not to criticize it for seeking revenge at having been cancelled, but rather it is to recognize that this smart move in the marketplace enhances investor value at the cost of patients being dumped into the swirl of the death spiral.

Splitting patients into separate pools, even very large pools such as CalPERS, will always result in inequities. Only a single, universal pool can prevent adverse selection, cost shifting, and the other inequities of multiple plans and programs, public and private. Establishing a monopsony (single purchaser) would not only end these inequities, but it would also establish a mechanism of effective negotiation for fair payment for the providers. We can control costs while making certain that an adequately funded health care system is there when we need it.

Institute of Medicine
The National Academies Press

Hidden Costs, Value Lost
Uninsurance in America

The best available estimate of the value of uncompensated health care services provided to persons who lack health insurance for some or all of a year is roughly $35 billion annually, about 2.8% of total national spending for personal health care services.

The Committee’s best estimate of the aggregate, annualized cost of the diminished health and shorter life spans of Americans who lack health insurance is between $65 and $130 billion for each year of health insurance forgone.

Estimates of the cost of the additional health care that would be provided to the uninsured once they became insured range from $34 to $69 billion per year, assuming no structural changes in the systems of health care financing or delivery, average scope of benefits, or provider payment.

Conclusion

This report and the work of the Committee on the Consequences of Uninsurance not only provide information about the costs resulting from the lack of coverage and some of the costs and benefits of expanding it to everyone, it also presents us with an ethical dilemma. In light of the information and analyses that the Committee has developed about choices we have not made as a society, as well as those we have made to invest heavily in health care, we cannot excuse the unfairness and insufficient compassion with which our society deploys its considerable health care resources and expertise. Providing all members of American society with health insurance coverage would contribute to the realization of democratic ideals of equality of opportunity and mutual concern and respect. By tolerating a society in which a significant minority lacks the health care and coverage that most Americans enjoy, we are missing opportunities to become more fully the nation we claim to be.

http://books.nap.edu/books/030908931X/html/index.html