PNHP

Employers offer private underinsurance

Employers offer private underinsurance

To Keep Health Plans, Many Firms Shift Costs

By Fran Hawthorne
The New York Times
September 26, 2007

Health insurance premiums have been rising faster than the rate of inflation for years. Lack of health coverage has become a major issue in the presidential race. Yet somehow, 59 percent of small businesses provide some kind of insurance, according to a recent survey by the Kaiser Family Foundation.

True, that percentage was down from 68 percent just six years ago, says the foundation, a health policy research group that conducted the study of more than 3,100 employers.

How do they afford it? By cutting benefits and shifting more costs onto their workers. There are also newer insurance products geared to this market:

HIGH-DEDUCTIBLE PLANS These are sometimes called “consumer-driven plans,” not because consumers are driving the demand, but because they must pay such a high share of the cost that, managers hope, they will use fewer services.

Because they favor healthier employees, all these high-deductible plans are controversial.

BARE-BONES COVERAGE One way to pay less is to cover less. Group Health Inc. of New York has a “catastrophic care” option that covers hospitalization only and no routine care, cutting premiums by about two-thirds. Or a company might pay for a limited number of routine checkups but not hospitalization. Other variations impose tight caps, perhaps paying a maximum of $50,000 a year.

VIRTUAL INSURANCE Even more minimalist is companies’ paying nothing, leaving employees with the whole premium. Mr. Finnegan (of Mercer Human Resources Consulting) says companies can offer coverage through a payroll deduction and might be able to arrange group rates.

PREVENTIVE-CARE PLANS Principal Financial has started pitching to this market with a plan that gives each employee 30 minutes of face-to-face counseling a year, for about $100 a person.

GOVERNMENT HELP Tennessee has started a bare-bones plan called CoverTN, with a coverage cap of just $25,000 and the state paying one-third of the premium.

http://www.nytimes.com/2007/09/26/business/smallbusiness/26HEALTH.html

Comment:

By Don McCanne, MD

Although the numbers of uninsured continue to increase, the fastest growing problem in health care financing today is the transformation from insurance to underinsurance.

Private insurers have shifted much of the individual market into various innovative underinsurance products. Until recently, employers have attempted to maintain more comprehensive coverage. That has changed.

As this article indicates, underinsurance has now permeated the small employer market, and it is rapidly creeping into the large employer sector as well.

The leading proposals for reform call for an expansion of private insurance. The great deception in these proposals is that they really are calling for universal underinsurance, since insurance that is effective in preventing financial hardship for those individuals who actually need health care is no longer affordable.

In our national dialogue on health care reform, we should discard the term “private insurance,” and call it what it really is: “private underinsurance.”

Mandatory insurance isn't reform

Forcing consumers to buy policies without regulating the market won’t solve the healthcare crisis.

By Jamie Court
The Los Angeles Times
September 25, 2007

Is it the right of the government to impose an obligation to buy a private product that costs $12,000 a year for a family of four?

Gov. Arnold Schwarzenegger and Assembly Speaker Fabian Nuñez claim they are close to a deal on healthcare reform that will require every Californian to prove they have a private health insurance policy — but does not cap how much insurers can charge for it. Hillary Clinton’s health plan, released last week, would require all Americans to have health insurance, also with no cap on premiums.

The goal of universal healthcare plans, including the one Clinton designed while first lady, has been to rein in waste and profiteering, then redistribute the savings to the public in the form of guaranteed healthcare. But these new “post-partisan” plans have been stripped of all effective cost containment. They simply force businesses, individuals and taxpayers to pick up the tab. Apparently, if you can’t beat the medical-insurance complex, join it. If it passes, the new system could be in place next year.

Under the proposed California compromise, employers will have to pay a share, but the ultimate responsibility lies with the individual. Policies for the poor would be subsidized, but taxpayers surely would be overcharged to boost corporate profits: Insurance premiums have increased 78% since 2001, compared with a 17% increase in inflation.

Health insurance is so unaffordable today precisely because no one is watching costs. With regulation of all medical charges, insurance would be cheaper and people might want to buy it. But Sacramento politicians already refused to standardize what doctors, hospitals, drug companies and insurers charge.

Californians are ready for market reforms to make health insurance more available and affordable, including forcing insurers to price policies fairly and preventing them from denying coverage to less healthy patients. Sacramento legislators should make the system fairer, regulate healthcare costs, then expand subsidies for low-income families. They should fix the broken market, not foist it on the public.

Mandatory purchase is nothing but a sop to top health insurers, which have given more than $4 million in campaign contributions to Sacramento politicians since 2001. Health insurers have had a hard time selling their increasingly expensive and less generous policies. So their plan is to make the government the big stick to force more customers into this market.

There is a big difference between mandatory participation in a cost-effective government program that protects us all (like Medicare) and being forced to buy an unregulated private product. This proposed mandate may get us closer to universal insurance coverage, but we’ll still be far from achieving universal healthcare. Why? Because the requirement will likely be for “affordable,” bare-bones policies — the kind that come with $5,000 deductibles, big co-pays and holes in coverage and benefits.

Research shows that high-deductible policies discourage patients of moderate incomes from seeking preventive treatment. So low- and middle-income patients likely will wind up with coverage they won’t or cannot use until they are very sick, the point at which their illnesses are the most expensive to treat.

Forcing citizens to buy an expensive, unregulated private product is nothing less than taxation without representation. If California were to follow the Massachusetts model for mandatory private insurance purchase (the only one in the United States), Californians would have to prove on their tax returns that they were insured or face tax penalties.

Insurance companies, meanwhile, remain beholden only to profit-driven shareholders, not taxpayers or their elected representatives. That will mean either bigger premiums or fewer benefits. In Greenfield, Mass., for instance, a couple in their 50s with one child pays $767 a month for the cheapest mandatory health plan, one without prescription drug coverage. If legislators want to enact their universal private insurance program, they should do it honestly through an across-the-board tax — not a backdoor tax like this.

Most important, mandatory private insurance on this scale will not work. Mandatory auto insurance, which has been in force in California for more than two decades, has failed miserably. That’s why a portion of our auto insurance premiums today go to pay for “uninsured motorist” coverage.

One in seven drivers has no auto insurance, compared to one in five without health insurance under a nonmandatory system. California’s auto insurance is the most tightly regulated in the nation, and because of that, premiums have declined since Proposition 103 was passed in 1988. When car insurance was required, but before the industry was regulated, the uninsured motorist rate was double what it is today.

We can choose not to own a car and not to be subject to mandatory insurance, as inconvenient as that might be. Californians’ only choice to avoid mandatory health insurance would be to flee the state.

Jamie Court is president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

About single-payer insurance

by Michele Swenson
Colorado Springs Independent – Colorado Springs,CO,USA
September 27, 2007

Perhaps the greatest conceit of health-care reform debates is the notion that free-market competition among private insurance companies will lower costs.

Instead of a free market, the insurance industry is increasingly a monopoly market, now dominated by three national firms: UnitedHealth, WellPoint and Aetna.

Inflationary premium rates have increased more than 70 percent in just the past six years. Even as we pay more for coverage, we experience less access and denial of free choice of providers and hospitals.

Abandoning the principle of shared risk, private insurers maximize profits by insuring the healthy and excluding everyone else with pre-existing conditions, denying or delaying provider reimbursements and peddling high-deductible policies with Health Savings Accounts that shift greater out-of-pocket expenses to individuals.

Such catastrophic insurance often lacks primary preventive health care such as mammograms, prostate screenings and mental health care. Higher deductibles and co-pays tend to discourage early treatment, resulting in higher future costs for chronic or emergency crisis care.

Due in part to increased marketing of catastrophic insurances, individual out-of-pocket health costs soared 59 percent over the decade preceding 2005, reports the American Hospital Association. During the same period, unpaid medical bills rose 60 percent. Medical bills account for an estimated 50 percent of all U.S. personal bankruptcies. Of the 50 percent increase in bankruptcy filings from 2006 to 2007, fully 99 percent were personal bankruptcies.

Commercial insurances carry high overhead costs — 20 percent of health care dollars go to administration, marketing and profits — compared to 1.8 percent overhead cost for Medicare. Another 12 percent administrative cost is imposed on providers and hospitals, due to different paperwork, medication formularies and requirements of multiple insurers. Add to that the cost of resubmitting denied claims, and the annual ritual of provider re-credentialing by each insurer.

The Colorado Health Services single-payer proposal is the only one of four recently evaluated by the Lewin Group (asked by the state to develop and analyze health-care expansion proposals) projected to save substantial money and insure everyone. Single-payer saves money by eliminating wasteful administrative costs of multiple insurers, and permitting negotiation of bulk rates for pharmaceutical and durable medical goods. Estimated overall net savings is $1.4 billion.

Indeed, single-payer insurance is an antidote to the wasteful corporate bureaucracy of 1,200-plus private health insurers. More than 20 studies since the 1990s, by the Congressional Budget Office, General Accounting Office and others, have demonstrated substantial savings with single-payer insurance — enough to insure the uninsured and upgrade coverage for the underinsured.

The single-payer reform proposal is a public-payer, private-provider system permitting free choice of providers and hospitals. Its benefits encompass a broader range than currently available through any single private insurance plan.

CHS would operate as a publicly owned, nonprofit insurance company. Savings would also be achieved by transferring federal (Medicare, Medicaid, etc.), state and local health care monies to a CHS trust, insulated from the general state budget.

The medical-expense portions of liability, workers’ compensation and automobile insurance would also be rolled into the program, eliminating related medical administrative and adjudication costs. Universal access to continuous health care would permit cutting costs of malpractice premiums and eliminating awards for future medical expenses.

Employers and employees would pay a progressive tax, at a substantially reduced cost for the vast majority, compared to current out-of-pocket and premium health expenditures (averaging $11,000 per family). Freed from administering health plans, businesses may compete more equally in the global marketplace. All institutions currently providing employee health plans (e.g., public education, state employment) would realize savings when relieved of responsibility for current inflationary health coverage costs.

View results of the current Colorado proposal report and 19 previous federal and state studies of single-payer health insurance at healthcareforallcolorado.org.

Michele Swenson is a board member of Health Care for All Colorado, which co-authored the Colorado Health Services single-payer insurance proposal.

Fiscal Study of Four Health Options for Colorado – Lewin Group, September, 2007

The Colorado Health Services (CHS) single-payer proposal is the only one of the four reform options evaluated by the Lewin Group projected to save substantial money and insure everyone. Estimated overall net savings is $1.4 billion.

CHS would operate as a publicly owned, nonprofit insurance company. Single-payer saves money by eliminating wasteful administrative costs of multiple insurers, and permitting negotiation of bulk rates for pharmaceutical and durable medical goods. The medical-expense portions of liability, workers’ compensation and automobile insurance would also be rolled into the program, eliminating related medical administrative and adjudication costs. Universal access to continuous health care would permit cutting costs of malpractice premiums and eliminating awards for future medical expenses.

The single-payer reform proposal is a public-payer, private-provider system permitting free choice of providers and hospitals. Its benefits encompass a broader range than currently available through any single private insurance plans.

Democratic Hopefuls Urged to Scrap Private Insurers

By Avram Goldstein
Bloomberg News

Sept. 27 (Bloomberg) — Democratic presidential candidates, already criticized by Republicans for moving too far toward a government-run health system, are being urged by advocacy groups and lawmakers to go the rest of the way.

With backing from labor unions, 83 Democrats in the U.S. House are sponsoring a measure to create a national health plan, abolish the role of private insurers such as market leader United HealthGroup Inc. and second-place rival WellPoint Inc. and make all hospitals nonprofit, supporters said today.

The three leading Democratic presidential candidates largely agree on plans to preserve private insurance, provide tax incentives to make insurance more affordable and offer the uninsured a government option like the Medicare program for the elderly. Advocates of a “single-payer” system fully run by the government say they are gaining public support.

“When you build up a head of steam on an issue, people will do what they need to do to get re-elected or to get that campaign cash in the coffers,” said Representative John Conyers Jr., a Democrat from Detroit, at a press briefing today. “All we have to do is build up support for it, and they’ll come around. Many are secretly for it.”

Conyers and allies, led by the 80,000-member California Nurses Association of Oakland, California, and the 14,000 members of Chicago-based Physicians for a National Health Plan, say insurers take 31 percent of revenue for administration and profit. That compares with 3 percent for Medicare, they say.

Medicare, with a budget of $440 billion this year, provides benefits to 43 million elderly and disabled people.

TV Commercials

The doctor and nurse groups aired TV commercials yesterday challenging the health plans of the Democratic frontrunners, Senator Hillary Clinton of New York, former Senator John Edwards of North Carolina and Senator Barack Obama of Illinois. The ads ran only in New England and the Washington area during MSNBC’s broadcast of a Democratic candidates’ debate at Dartmouth College in New Hampshire.

In one of the commercials, a woman laments that she may go into bankruptcy because of insurance company penny-pinching over her benefits.

“It’s not good enough just to be better than the Republicans on this,” she tells a life-size cardboard photo of Obama. “We know Medicare works for seniors. So why can’t we have single-payer, guaranteed health care for every American, Senator Obama?”

Two other 30-second spots showed citizens addressing photos of Clinton and Edwards. Spokesmen for each of the campaigns declined to comment on the commercials.

Polls Cited

The group cited polling data it said showed most Americans are dissatisfied with rising health insurance costs and want “major” and “fundamental” changes. Supporters say insurance companies have a goal of not covering the sick.

Employers, companies and individuals will spend about $776 billion on health insurance in 2007, up 56 percent since 2001, according to the U.S. Centers for Medicare and Medicaid Services. That will reach $1.4 trillion in 2016, the agency says.

America’s Health Insurance Plans, a Washington trade group representing 1,300 insurance companies, is pushing for what it calls a “public-private partnership” to provide coverage for everyone while preserving its members’ role.

“The Medicare system faces tremendous burdens and it is not providing the benefits that the over-65 population needs and deserves,” said Mohit Ghose, the group’s spokesman. “Some candidates want to discuss building on what works. Our proposal not only will improve access but has a huge component on quality improvement.”

$10.6 Billion

In 2006, the five biggest U.S. health insurers reported combined net income of $10.6 billion on revenue of $188.4 billion as the number of uninsured reached a record.

“The insurance industry’s culpability in the health-care crisis is irrefutable,” said Todd Main, campaign director of the Physicians for a National Health Plan. “We pay the most and have lower outcomes. As a business model, it’s failing consumers, and as a result it’s hurting businesses across the country.”

To contact the reporter on this story: Avram Goldstein in Washington at agoldstein1@bloomberg.net .

Mandatory insurance isn’t reform

Forcing consumers to buy policies without regulating the market won’t solve the healthcare crisis.

By Jamie Court
The Los Angeles Times
September 25, 2007

Is it the right of the government to impose an obligation to buy a private product that costs $12,000 a year for a family of four?

Gov. Arnold Schwarzenegger and Assembly Speaker Fabian Nuñez claim they are close to a deal on healthcare reform that will require every Californian to prove they have a private health insurance policy — but does not cap how much insurers can charge for it. Hillary Clinton’s health plan, released last week, would require all Americans to have health insurance, also with no cap on premiums.

The goal of universal healthcare plans, including the one Clinton designed while first lady, has been to rein in waste and profiteering, then redistribute the savings to the public in the form of guaranteed healthcare. But these new “post-partisan” plans have been stripped of all effective cost containment. They simply force businesses, individuals and taxpayers to pick up the tab. Apparently, if you can’t beat the medical-insurance complex, join it. If it passes, the new system could be in place next year.

Under the proposed California compromise, employers will have to pay a share, but the ultimate responsibility lies with the individual. Policies for the poor would be subsidized, but taxpayers surely would be overcharged to boost corporate profits: Insurance premiums have increased 78% since 2001, compared with a 17% increase in inflation.

Health insurance is so unaffordable today precisely because no one is watching costs. With regulation of all medical charges, insurance would be cheaper and people might want to buy it. But Sacramento politicians already refused to standardize what doctors, hospitals, drug companies and insurers charge.

Californians are ready for market reforms to make health insurance more available and affordable, including forcing insurers to price policies fairly and preventing them from denying coverage to less healthy patients. Sacramento legislators should make the system fairer, regulate healthcare costs, then expand subsidies for low-income families. They should fix the broken market, not foist it on the public.

Mandatory purchase is nothing but a sop to top health insurers, which have given more than $4 million in campaign contributions to Sacramento politicians since 2001. Health insurers have had a hard time selling their increasingly expensive and less generous policies. So their plan is to make the government the big stick to force more customers into this market.

There is a big difference between mandatory participation in a cost-effective government program that protects us all (like Medicare) and being forced to buy an unregulated private product. This proposed mandate may get us closer to universal insurance coverage, but we’ll still be far from achieving universal healthcare. Why? Because the requirement will likely be for “affordable,” bare-bones policies — the kind that come with $5,000 deductibles, big co-pays and holes in coverage and benefits.

Research shows that high-deductible policies discourage patients of moderate incomes from seeking preventive treatment. So low- and middle-income patients likely will wind up with coverage they won’t or cannot use until they are very sick, the point at which their illnesses are the most expensive to treat.

Forcing citizens to buy an expensive, unregulated private product is nothing less than taxation without representation. If California were to follow the Massachusetts model for mandatory private insurance purchase (the only one in the United States), Californians would have to prove on their tax returns that they were insured or face tax penalties.

Insurance companies, meanwhile, remain beholden only to profit-driven shareholders, not taxpayers or their elected representatives. That will mean either bigger premiums or fewer benefits. In Greenfield, Mass., for instance, a couple in their 50s with one child pays $767 a month for the cheapest mandatory health plan, one without prescription drug coverage. If legislators want to enact their universal private insurance program, they should do it honestly through an across-the-board tax — not a backdoor tax like this.

Most important, mandatory private insurance on this scale will not work. Mandatory auto insurance, which has been in force in California for more than two decades, has failed miserably. That’s why a portion of our auto insurance premiums today go to pay for “uninsured motorist” coverage.

One in seven drivers has no auto insurance, compared to one in five without health insurance under a nonmandatory system. California’s auto insurance is the most tightly regulated in the nation, and because of that, premiums have declined since Proposition 103 was passed in 1988. When car insurance was required, but before the industry was regulated, the uninsured motorist rate was double what it is today.

We can choose not to own a car and not to be subject to mandatory insurance, as inconvenient as that might be. Californians’ only choice to avoid mandatory health insurance would be to flee the state.

Jamie Court is president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

Cost savings through prevention and wellness

Prevention isn't health care answer

By Steve Jacob
The Sacramento Bee
September 25, 2007

When Sen. Hillary Clinton, D-N.Y., unveiled her $110 billion health care plan last week, one of her strategies for paying that bill was savings resulting from disease prevention and “wellness.”

As with most presidential campaign program proposals, there were few details on this, such as how prevention is being defined and how much savings would result. But this dubious claim is reminiscent of presidential candidate Ronald Reagan’s pledge to balance the federal budget by eliminating government mismanagement, fraud and abuse. And we know how well that worked. It is hard not to feel like your intelligence is being insulted.

To recast Benjamin Franklin’s aphorism, the argument is that a dime’s worth of prevention today erases a dollar’s worth of cure tomorrow. Some earnest health care reformers echo Clinton in asserting that widespread preventive care and aggressive treatment of chronic conditions result in net savings by heading off larger future medical bills resulting from lack of detection or neglect.

Prevention is a hot topic these days. Medicare officials toured 48 states this summer to promote the program’s extensive menu of reimbursed screenings, inoculations and counseling. The government’s Centers for Medicare and Medicaid Services found that fewer than 10 percent of Medicare recipients were getting the battery of recommended immunizations and screenings, and more than a third failed to take advantage of a free flu shot in 2005.

This rediscovery of Franklin’s centuries-old wisdom is difficult to dispute. But there are some fundamental flaws in seeing preventive care as the Holy Grail for cutting health care costs: People don’t like it. Flu shots and immunizations are not pleasant. Annual checkups are inconvenient, and frequently not covered by insurance. Shedding your vices requires an iron will. A lack of urgency invites inaction.

For health care providers, it isn’t profitable. They get paid to do stuff: surgeries, procedures, lots of patient appointments.

Spending the time to nag you about smoking and excessive food intake doesn’t ring the cash register.

There is no scientific proof that universal preventive care saves money. However, the return on investment is evident when it is targeted at high-risk groups.

A few hospital systems nationally are providing free preventive care to patients who repeatedly visit emergency rooms for expensive treatment for chronic ailments.

Some companies are claiming that “workplace wellness” has a significant payback in reduced absenteeism and health care costs, but the evidence remains elusive.

Safeway has been hailed as a corporate pioneer when its health coverage costs fell 11 percent in 2006 after its 2005 health care costs exceeded its annual net profits. Its preventive health plan includes a 24-hour hot line for medical advice, lifestyle counseling and a 17,000-square-foot fitness facility at its corporate headquarters.

But its first-year savings were exclusively from changing its health insurance plan design. The jury is still out on long-term impact.

No one opposes prevention. As a political stance, none is safer. Well over half of U.S. health care costs stem from individuals’ poor lifestyle choices. Bad habits do not have many advocates.

But relying on people to change them, thus ultimately creating the funds to help cover the uninsured, is a fairy tale.

Universal prevention practices will make us healthier, but they are unlikely to save money.

A 2002 Rutgers University study found that last-year-of-life medical care accounts for 26 percent of Medicare expenditures and 22 percent of all medical expenditures. The real savings in healthcare is in rationing it, especially among those whose imminent death is inevitable.

You won’t find that in any candidate’s position papers.

About the writer:
Steve Jacob is a member of the Fort Worth Star-Telegram Editorial Board and a master’s student in health policy and management at the University of North Texas Health Science Center in Fort Worth.

http://www.sacbee.com/110/story/396210.html

Comment:

By Don McCanne, MD

Prevention and wellness programs are certainly to be encouraged for their beneficial impact on health. They should be an integral part of our health care delivery system. Much more importantly, they should be incorporated into all other appropriate public and private endeavors.

Ranging from educational programs in schools, to safety design of products, to development of community recreation facilities, to food industry marketing of healthier options, and on and on and on, the prospects are almost endless on how we can encourage prevention and promote wellness. Continuing awareness of the possibilities should be made a part of our culture.

But what we should NOT do is allow the dialogue on providing affordable health care for everyone to be diverted away from the well defined deficiencies in our system into some kind of nebulous wellness mumbo jumbo. During this open window of opportunity, we cannot afford to be distracted from our primary mission to reform health care financing for the benefit of all.

End the shame of our health-care crisis

Chicago Tribune
Letter to the Editor
09/26/2007

Presidential candidate Hillary Rodham Clinton presents us with yet another health-reform proposal based on the fatal strategy of keeping private insurance companies in the driver’s seat.

Her proposal won’t cover the 47 million uninsured, or even guarantee that people who have coverage today will have it when they fall ill and are unable to work.

Clinton’s proposal “preserves existing health insurance,” and includes the responsibility of individuals “to get and keep insurance” through the current private insurance market, or through a Health Choices Menu of private plans, or through a Medicare-type public program.

Thus her proposal is an individual mandate to purchase private insurance that is no longer affordable for average-income individuals, or to purchase a public plan that will be even more expensive because of adverse selection.

To make the plans affordable for individuals, she would use a combination of refundable tax credits and a cap on premiums at a percentage of income.

Assuming that the plans would provide adequate benefits and adequate protection against financial hardship, the increased spending through the tax system would be exponentially more than the estimates in her plan.

And most of the proposed savings to pay for these increases are largely nebulous, and some of those measures would actually increase costs.

Further, the administrative complexities of refundable tax credits and means-tested premium caps would still leave many without coverage.

Coverage will never be universal unless it is truly automatic for everyone.

If we are going to use the tax system to pay for health care anyway, then why should we waste funds on the profoundly inefficient system of segregated private health plans?

A universal risk pool that is equitably funded through the tax system is the most efficient and least expensive method of ensuring comprehensive coverage for everyone.

Also known as Medicare for All, a single-payer national health-insurance system would bring quality care to all Americans at a cost we can afford.

Indeed we are already paying for it: Americans pay the highest taxes for health care in the world.

Many will try to contrast the differences in the Clinton, Barack Obama, John Edwards and GOP proposals, but they are all basically the same. In spite of their rhetoric, they have each made the protection and enhancement of the private insurance plans a higher priority than patients.

It’s time for Medicare for All., which has 82 co-sponsors in the Congress. With the right presidential leadership, it could end the national shame of our health-care crisis.

Quentin D. Young, MD
National coordinator

Don McCanne, MD
Senior health policy fellow
Physicians for a National Health Program

Inexorably rising costs

The Battle Over Health Care

The New York Times
Editorial
September 23, 2007

In 2008, when it comes to health care, which is emerging as a defining domestic issue, voters will find stark differences in philosophy and commitment between Democrats and Republicans.

The three leading Democratic candidates all want to achieve universal or near universal health insurance coverage. The four leading Republican candidates espouse no such goal and barely mention the uninsured. The Democrats are willing to put substantial federal money into health care reform. The Republicans are not. The Democrats would expand government health insurance programs and give the federal government a greater role in regulating the insurance industry. The Republicans generally want to shrink federal programs and free the insurance industry from what they consider regulatory shackles.

Compared with these sharp differences between the two parties, the distinctions between leading candidates within each party are small, mostly a matter of tactics to achieve comparable goals. We far prefer the Democrats’ approach to health insurance, since at least they want to address an issue that must be resolved for reasons of economics, public health and fairness. Sadly, none of the leading candidates, in either party, has the vision or the political courage to propose radical solutions for the big underlying problem behind America’s health care crisis: the inexorably rising costs.

http://www.nytimes.com/2007/09/23/opinion/23sun1.html?ref=opinion&pagewanted=all

Health Coverage in the Balance

The New York Times
September 25, 2007

To the Editor:

Re “The Battle Over Health Care” (editorial, Sept. 23):

As long as we continue to build on our current fragmented system of financing health care through a multitude of private plans and public programs, we will never get a handle on rising health care costs.

The administrative efficiencies of a single national health insurance program would free up enough funds to pay for care for the uninsured and under-insured. But reducing administrative waste alone is not enough.

With our own national health program we could improve incentives that would reinforce our rapidly deteriorating primary care infrastructure. Providing everyone with access to a primary care medical home has been demonstrated to slow cost increases while improving quality.

Appropriate specialized high-tech services certainly provide value, but such care very often is overused, resulting in no benefit while driving up costs. A trusted primary care practitioner can provide each of us with advice on those services that actually would be of benefit.

Don McCanne, M.D.
Senior Health Policy Fellow
Physicians for a National Health Program
San Juan Capistrano, Calif.
Sept. 23, 2007

http://www.nytimes.com/2007/09/25/opinion/l25health.html

Comment:

By Don McCanne, MD

Providing health care coverage for everyone and making health care affordable are two different issues, though they are both problems that are inversely related to income.

Covering everyone is the easy problem. As in every other industrialized nation, the legislators merely need to establish public policies that would accomplish that goal. In spite of the rhetoric about controlling costs, the three leading Democratic candidates have focused primarily on this one issue, though their proposals would fall short even on this goal.

Controlling costs is quite another matter. The average premium for employer-sponsored family health insurance now exceeds $12,000. With a median household income now at $48,000, these numbers no longer work. Health care costs have risen to a level that makes it impossible for private insurers to market products with reasonably comprehensive benefits that have premiums that are still affordable for average-income families.

Furthermore, private insurers control health care financing for a majority of us, but they have had no significant impact on controlling health care costs (except for a blip in the curve when they instituted private sector price controls). Leaving the private plans in charge can only result in a continued failure to slow the growth of health care costs.

A single payer national health program would accomplish both goals. It would automatically cover everyone, and it would put into place mechanisms that would slow the rate of growth in health care spending while actually increasing value in our health care purchases. Reinforcing our primary care infrastructure, as mentioned in the letter above, is one of the more important measures, though the single payer model includes several other mechanisms that are also important.

The candidates hear and understand our message, but they remain timid. Why? Because we have failed to enlist enough support of the roughly 35 percent or so of Americans who are healthy and have what they believe, on blind faith, to be adequate private insurance coverage. They are beginning to understand their vulnerability, but we have much more work to do to educate them. And we must do it now, while the window is open.

Health Coverage in the Balance

The New York Times
Letters to the Editor
September 25, 2007

To the Editor:

Re “The Battle Over Health Care” (editorial, Sept. 23):

As long as we continue to build on our current fragmented system of financing health care through a multitude of private plans and public programs, we will never get a handle on rising health care costs.

The administrative efficiencies of a single national health insurance program would free up enough funds to pay for care for the uninsured and under-insured. But reducing administrative waste alone is not enough.

With our own national health program we could improve incentives that would reinforce our rapidly deteriorating primary care infrastructure. Providing everyone with access to a primary care medical home has been demonstrated to slow cost increases while improving quality.

Appropriate specialized high-tech services certainly provide value, but such care very often is overused, resulting in no benefit while driving up costs. A trusted primary care practitioner can provide each of us with advice on those services that actually would be of benefit.

Don McCanne, M.D.
Senior Health Policy Fellow
Physicians for a National Health Program
San Juan Capistrano, Calif.
Sept. 23, 2007

To the Editor:

It is amazing how the presidential candidates are determined to come up with health insurance programs that are invariably complicated, often tied to employers, and frequently based on taxation gimmicks. They seem to ignore the one insurance program that is overwhelmingly popular and already has infrastructure in place: Medicare.

It is a highly efficient program that confounds all the critics of government-run health care. There are no restrictions on choosing doctors, the medical providers do not work for the government, and the processing of insurance claims is virtually transparent to the consumer.

In fact, from a consumer standpoint, Medicare is the best health insurance program ever invented.

The easiest solution to the problem of health care coverage, without resorting to one of the half-baked schemes offered by the candidates, is to simply offer Medicare coverage to anyone who wants it.

Of course, indigent people would be given a break on premiums. Employers could still offer insurance coverage if they wish, as a way of attracting employees. And if an individual does not like Medicare coverage he can still go to the private market.

As for states enacting their own insurance plans, sure, go to it. But let’s also offer consumers another choice: voluntary Medicare. Then, the consumers themselves, not the politicians, can decide whether they want public or private health insurance.

Ron Sheppe
Rochester, N.H., Sept. 23, 2007

To the Editor:

Thank you for your excellent editorial focusing on the heath care “debate.” There is another major factor in the debate, however, that was largely absent from your editorial. Specifically, your discussion only briefly touched on excessive insurance company costs and profits.

You commented on the fact that all of the Democratic candidates are looking at a system of universal coverage provided by private insurance companies and government programs. While that is likely our current political reality, it does not negate the need to look far more closely at insurance companies.

The fact is that private insurance companies spend far more on administrative costs than their government counterparts. Further, the amount of profit that the insurance companies retain is often excessive. If the United States is going to provide care to an additional 47 million people, we cannot afford inefficient administrative systems and the payment of outrageous profits to insurance companies.

Ellen Schiff
Los Angeles, Sept. 23, 2007

To the Editor:

The Democratic candidates for president all have similar proposals, which are steps in the right direction, but as your editorial points out, they lack measures for cutting costs. The most effective way to cut costs is to adopt a single-payer system, which is now available as Medicare, and would cut administration costs in half.

Since that seems to be beyond the pale, it is doubtful that any realistic cost savings will occur. It is apparent that a reassessment and redefinition of hospital goals and practices is in order.

Hospitals should be cooperative institutions rather than competitive institutions. As long as hospitals are profit-seeking and competitive, all will need to be full-service hospitals, maintain significant advertising and public relations budgets, and continue the plethora of building and expansion programs. Like all profit-seeking corporations, they can’t afford to appear as second best.

Hospitals are not the only problem area. Medical schools, insurance companies, pharmaceutical corporations and physicians all contribute to the high cost of health care. As long as we continue the myth of health care as market-driven and profit-oriented, the costs will continue to increase. The Democrats should have enough backbone to do the right thing and endorse what we all know is best: a single-payer system.

Harry E. Berndt
Webster Groves, Mo., Sept. 23, 2007

To the Editor:

Your attempt to address “The Battle Over Health Care” is admirable, but your conclusions under the heading of “What’s Missing” are as timid as those of the political candidates. If we value the health of our citizens, then just as we provide basic fire protection and police protection, we should also provide basic medical protection.

We cannot morally countenance winners and losers in the free-market sense in health care, just as we cannot in security and fire protection. It’s time to drop the ridiculous phobia of the “single payer” system and set about designing the most efficient government-run program we can, caring for the greatest number of people without driving up costs artificially for third parties like insurance industries.

Pam Dassenko
San Luis Obispo, Calif.
Sept. 23, 2007
The writer is a dentist.

To the Editor:

Paul Krugman’s mention of the scare tactics of health care reform opponents should have included the demonization of universal health care by the news media among his fears (“Health Care Hopes,” column, Sept. 21).

Despite polls suggesting a high popularity for such a system, the news media regurgitate myths and fail to explain the proposals of the health care debate. Single-payer health care is frequently described as “government run” or “socialized medicine,” even though the Canadian, French and German systems involve private doctors, hospitals and other caregivers who merely get paid by the government. Even Senator Hillary Rodham Clinton’s tempered proposal that would involve a private-government partnership did not escape inaccurate accusations.

Until the mainstream media stop distorting reality on behalf of the industry, health care reform will remain at the fringe of political viability, and it will be dead on arrival for the foreseeable future.

Spyros Andreopoulos
Stanford, Calif., Sept. 21, 2007
The writer is director emeritus, Office of Communication and Public Affairs, Stanford University Medical Center.

To the Editor:

Could a Democratic candidate’s determination to deliver on his or her health care promise to voters be undermined by large contributions from companies in the insurance and pharmaceutical industries? And why does it take so much political courage to give the American people what they want? Is there a correlation here?

Barbara H. Peters
Richmond, Va., Sept. 21, 2007

Care under Conyers' bill vastly superior to status quo

The Palm Beach Post
Letter to the Editor
Tuesday, September 25, 2007

The writer of “Conyers’ universal care proposal is unmanageable,” (Sept. 8) Opinion, about the Conyers bill for universal health care is revealed as both unthinking and unfeeling.

He is the former because the bill in no way emulates Sweden’s health-care system nor could it in any way result in stunting our economic growth. He makes it sound as though huge new taxes would be required, whereas the contrary is true. Eliminating more than 1,000 insurance companies with their staffs of clerical workers, advertising and lobbying expenses, dividends to shareholders and large CEO compensation would save the system $400 billion. That is enough to cover every person in the United States. It doesn’t call for adopting a system based on Sweden’s but on simply expanding our own functioning Medicare. That system, initiated for those 65 and older 42 years ago, would now cover all.

As for the bureaucracy he warns about, nothing could possibly be worse than that now in effect, where non-medical insurance company employees make life-and-death, long-distance decisions denying procedures ordered by physicians or delaying care for long periods while searches are made for reasons to deny it.

I call the writer unfeeling because nowhere does he make any mention of the 47 million Americans with no insurance, of their sleepless nights worrying about what they’d do if faced with serious illness and of the more than 18,000 who die needlessly each year because they couldn’t get the care that could have saved them. The writer displays not one iota of concern of this worsening breakdown. He treats this issue as though naive legislators such as Rep. John Conyers, D- Mich., are promoting a foolish bit of do-goodism.

I, in supporting this desperately needed program, am accused by people like the writer, of being a bleeding heart. I infinitely prefer that to being heartless.

H. DAVID PRENSKY
Palm Beach

Care under Conyers’ bill vastly superior to status quo

The Palm Beach Post
Letter to the Editor
Tuesday, September 25, 2007

The writer of “Conyers’ universal care proposal is unmanageable,” (Sept. 8) Opinion, about the Conyers bill for universal health care is revealed as both unthinking and unfeeling.

He is the former because the bill in no way emulates Sweden’s health-care system nor could it in any way result in stunting our economic growth. He makes it sound as though huge new taxes would be required, whereas the contrary is true. Eliminating more than 1,000 insurance companies with their staffs of clerical workers, advertising and lobbying expenses, dividends to shareholders and large CEO compensation would save the system $400 billion. That is enough to cover every person in the United States. It doesn’t call for adopting a system based on Sweden’s but on simply expanding our own functioning Medicare. That system, initiated for those 65 and older 42 years ago, would now cover all.

As for the bureaucracy he warns about, nothing could possibly be worse than that now in effect, where non-medical insurance company employees make life-and-death, long-distance decisions denying procedures ordered by physicians or delaying care for long periods while searches are made for reasons to deny it.

I call the writer unfeeling because nowhere does he make any mention of the 47 million Americans with no insurance, of their sleepless nights worrying about what they’d do if faced with serious illness and of the more than 18,000 who die needlessly each year because they couldn’t get the care that could have saved them. The writer displays not one iota of concern of this worsening breakdown. He treats this issue as though naive legislators such as Rep. John Conyers, D- Mich., are promoting a foolish bit of do-goodism.

I, in supporting this desperately needed program, am accused by people like the writer, of being a bleeding heart. I infinitely prefer that to being heartless.

H. DAVID PRENSKY
Palm Beach

Cracks in the moral hazard foundation

American Health Policy: Cracks in the Foundation

By John A. Nyman
Journal of Health Policy, Politics and Law
October 2007

Abstract

Much American health policy over the past thirty-five years has focused on reducing the additional health care that is consumed when a person becomes insured, that is, reducing moral hazard. According to conventional theory, all of moral hazard represents a welfare loss to society because its cost exceeds its value. Empirical support for this theory has been provided by the RAND Health Insurance Experiment, which found that moral hazard — even moral hazard in the form of effective and appropriate hospital procedures — could be reduced substantially using cost-sharing policies with little or no measurable effect on health.

This article critically analyzes these two cornerstones of American health policy. It holds that a large portion of moral hazard actually represents health care that ill consumers would not otherwise have access to without the income that is transferred to them through insurance. This portion of moral hazard is efficient and generates a welfare gain. Further, it holds that the RAND experiment’s finding (that health care could be reduced substantially with little or no effect on health) may actually be caused by the large number of participants who voluntarily dropped out of the cost-sharing arms of the experiment. Indeed, almost all of the reduction in hospital use in the cost-sharing plans could be attributed to this voluntary attrition. If so, the RAND finding that cost sharing could reduce health care utilization, especially utilization in the form of effective and appropriate hospital procedures, with no appreciable effect on health is spurious.

The article concludes by observing that the preoccupation with moral hazard is misplaced and has worked to obscure policies that would better reduce health care expenditures. It has also led us away from policies that would extend insurance coverage to the uninsured.

Introduction

The direction of health policy in the United States over the past thirty-five years is well known: increased cost sharing in the form of higher deductibles and coinsurance rates; the “management” of care by utilization reviews, exclusive contracting with certain providers, capitation, and bundling of services; and most recently health savings accounts (HSAs) and “consumer-driven” health care. Less well understood, however, are the foundations of these policies, especially among those who see such policies as mainly restricting access to care.

Two of these foundational studies are (1) the theoretical analysis of the welfare implications of moral hazard (Pauly 1968; Feldstein 1973) and (2) the RAND Health Insurance Experiment (HIE) findings concerning the health consequences of reducing moral hazard (Manning et al. 1987; Newhouse and the Insurance Experiment Group 1993).

This article presents a critical view of these two foundational studies. First, it suggests that much of the additional health care that consumers purchase when they are insured — that is, much of moral hazard — is actually efficient and welfare increasing: its value to patients exceeds (and often far exceeds, in the case of expensive, life-saving, hospital procedures that patients would not be able to afford without insurance) the cost of providing that care. Second, it suggests that the RAND HIE did not really capture consumers’ willingness to substitute other goods and services for medical care in response to increases in the price of medical care, but instead the study largely captured participants who became ill, dropped out of the experiment, and received the needed medical care under their original insurance policies outside the experiment. Because these participants received treatment outside the RAND experiment, their health care utilization was not recorded. Thus, the finding that moral hazard, especially the portion of moral hazard represented by additional hospital procedures, could be reduced dramatically by cost sharing with only a negligible health effect is spurious.

New Theory

The fundamental error in conventional theory is that it did not recognize that, while the price of medical care might drop to zero for all those who are insured, for most medical care — especially the expensive, hospital-based procedures and associated care that comprise the bulk of medical care expenditures in the United States — it is really only those who are ill who respond to that price reduction. For example, what healthy person would purchase a coronary bypass procedure, a leg amputation, or a liver transplant just because the price has fallen to zero? This means that only those who become ill are responsive to the insurance price reduction. If so, the price reduction becomes the vehicle by which income is transferred from those who purchase insurance and remain healthy to those who purchase insurance and become ill. This is an important distinction because it changes the welfare implications of moral hazard dramatically and implies that much, if not most, of moral hazard is efficient and generates a welfare gain (Nyman 1999, 2003).

New Interpretation

Of the various responses to cost sharing that were observed in the participants of the RAND HIE, by far the strongest and most dramatic was in the relative number of RAND participants who voluntarily dropped out of the study over the course of the experiment. Of the 1,294 adult participants who were randomly assigned to the free plan, 5 participants (0.4 percent) left the experiment voluntarily during the observation period, while of the 2,664 who were assigned to any of the cost-sharing plans, 179 participants (6.7 percent) voluntarily left the experiment. This represented a greater than sixteenfold increase in the percentage of dropouts, a difference that was highly significant and a magnitude of response that was nowhere else duplicated in the experiment.

The explanation that makes the most sense is that the dropouts were participants who had just been diagnosed with an illness that would require a costly hospital procedure. If they dropped out, their coverage would automatically revert to their original insurance policies, which were likely to cover major medical expenses (such as hospitalizations) with no co-payments. This is because HIE participants had agreed to relinquish their existing policies to RAND as a condition of participation, but they could revert back to their existing policies whenever they wanted if they dropped out of the experiment. Thus, when faced with a large hospital expense, the participants could have simply dropped out of the experiment but received the inpatient care outside the experiment.

As a result of dropping out, these participants’ inpatient stays (and associated health care spending) did not register in the experiment, and it appeared as if participants in the cost-sharing group had a lower rate of inpatient use. In reality, however, this finding would have been because participants who remained in the cost-sharing group simply had fewer diagnoses that required hospitalization.

Conclusion

The conventional theory of the moral-hazard welfare loss and the conventional interpretation of the RAND HIE results have created a policy environment in which health insurance is viewed as more of a problem than a solution (Gladwell 2005). We must recognize, however, that much of moral hazard generates a welfare gain that society should encourage rather than discourage. Because of this reevaluation of moral hazard, we must also realize that health insurance is much more valuable than has been recognized. Indeed, there is probably no other investment that we can make as a society that would generate as great a net return on welfare as finding a politically acceptable mechanism for insuring the large portion of U.S. citizens who are currently uninsured.

Abstract:
http://jhppl.dukejournals.org/cgi/content/abstract/32/5/759

Full article (25 pages):
http://jhppl.dukejournals.org/cgi/reprint/32/5/759

Comment:

By Don McCanne, MD

This landmark report turns upside down the policy basis of moral hazard. The entire article should be downloaded so that it can be used to refute those who insist that patients who decline health care when they have to pay for it out-of-pocket will not adversely affect their own health because they will decline only that care that has no measurable benefit on their health outcomes.

These two cornerstones of American health policy, the moral hazard theory and the RAND Health Insurance Experiment, have crumbled, taking down with them the rationale of the cost-sharing basis of the consumer-directed health care movement.

Professor Nyman has shown us that the new interpretation of the moral hazard of insurance insulation against health care costs does not produce a welfare loss, but, in fact, produces a welfare gain. That is why we need a national health program that covers all of us and that eliminates financial barriers to beneficial services.

We really don’t have to worry, after all, about unleashing a stampede for free leg amputations or free liver transplants.