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What's behind Ireland's economic miracle–and G.M.'s financial crisis?

What's behind Ireland's economic miracle–and G.M.'s financial crisis?

by MALCOLM GLADWELL
THE RISK POOL
The New Yorker
Issue of 2006-08-28 | Posted 2006-08-21

The years just after the Second World War were a time of great industrial upheaval in the United States. Strikes were commonplace. Workers moved from one company to another. Runaway inflation was eroding the value of wages. In the uncertain nineteen-forties, in the wake of the Depression and the war, workers wanted security, and in 1949 the head of the Toledo, Ohio, local of the United Auto Workers, Richard Gosser, came up with a proposal. The workers of Toledo needed pensions. But, he said, the pension plan should be regional, spread across the many small auto-parts makers, electrical-appliance manufacturers, and plastics shops in the Toledo area. That way, if workers switched jobs they could take their pension credits with them, and if a company went bankrupt its workers’ retirement would be safe. Every company in the area, Gosser proposed, should pay ten cents an hour, per worker, into a centralized fund.

The business owners of Toledo reacted immediately. “They were terrified,” says Jennifer Klein, a labor historian at Yale University, who has written about the Toledo case. “They organized a trade association to stop the plan. In the business press, they actually said, ‘This idea might be efficient and rational. But it’s too dangerous.’ Some of the larger employers stepped forward and said, ‘We’ll offer you a company pension. Forget about that whole other idea.’ They took on the costs of setting up an individual company pension, at great expense, in order to head off what they saw as too much organized power for workers in the region.”

A year later, the same issue came up in Detroit. The president of General Motors at the time was Charles E. Wilson, known as Engine Charlie. Wilson was one of the highest-paid corporate executives in America, earning $586,100 (and paying, incidentally, $430,350 in taxes). He was in contract talks with Walter Reuther, the national president of the U.A.W. The two men had already agreed on a cost-of-living allowance. Now Wilson went one step further, and, for the first time, offered every G.M. employee health-care benefits and a pension.

Reuther had his doubts. He lived in a northwest Detroit bungalow, and drove a 1940 Chevrolet. His salary was ten thousand dollars a year. He was the son of a Debsian Socialist, worked for the Socialist Party during his college days, and went to the Soviet Union in the nineteen-thirties to teach peasants how to be auto machinists. His inclination was to fight for changes that benefitted every worker, not just those lucky enough to be employed by General Motors. In the nineteen-thirties, unions had launched a number of health-care plans, many of which cut across individual company and industry lines. In the nineteen-forties, they argued for expanding Social Security. In 1945, when President Truman first proposed national health insurance, they cheered. In 1947, when Ford offered its workers a pension, the union voted it down. The labor movement believed that the safest and most efficient way to provide insurance against ill health or old age was to spread the costs and risks of benefits over the biggest and most diverse group possible. Walter Reuther, as Nelson Lichtenstein argues in his definitive biography, believed that risk ought to be broadly collectivized. Charlie Wilson, on the other hand, felt the way the business leaders of Toledo did: that collectivization was a threat to the free market and to the autonomy of business owners. In his view, companies themselves ought to assume the risks of providing insurance.

America’s private pension system is now in crisis. Over the past few years, American taxpayers have been put at risk of assuming tens of billions of dollars of pension liabilities from once profitable companies. Hundreds of thousands of retired steelworkers and airline employees have seen health-care benefits that were promised to them by their employers vanish. General Motors, the country’s largest automaker, is between forty and fifty billion dollars behind in the money it needs to fulfill its health-care and pension promises. This crisis is sometimes portrayed as the result of corporate America’s excessive generosity in making promises to its workers. But when it comes to retirement, health, disability, and unemployment benefits there is nothing exceptional about the United States: it is average among industrialized countries–more generous than Australia, Canada, Ireland, and Italy, just behind Finland and the United Kingdom, and on a par with the Netherlands and Denmark. The difference is that in most countries the government, or large groups of companies, provides pensions and health insurance. The United States, by contrast, has over the past fifty years followed the lead of Charlie Wilson and the bosses of Toledo and made individual companies responsible for the care of their retirees. It is this fact, as much as any other, that explains the current crisis. In 1950, Charlie Wilson was wrong, and Walter Reuther was right.

The key to understanding the pension business is something called the “dependency ratio,” and dependency ratios are best understood in the context of countries. In the past two decades, for instance, Ireland has gone from being one of the most economically backward countries in Western Europe to being one of the strongest: its growth rate has been roughly double that of the rest of Europe. There is no shortage of conventional explanations. Ireland joined the European Union. It opened up its markets. It invested well in education and economic infrastructure. It’s a politically stable country with a sophisticated, mobile workforce.

But, as the Harvard economists David Bloom and David Canning suggest in their study of the “Celtic Tiger,” of greater importance may have been a singular demographic fact. In 1979, restrictions on contraception that had been in place since Ireland’s founding were lifted, and the birth rate began to fall. In 1970, the average Irishwoman had 3.9 children. By the mid-nineteen-nineties, that number was less than two. As a result, when the Irish children born in the nineteen-sixties hit the workforce, there weren’t a lot of children in the generation just behind them. Ireland was suddenly free of the enormous social cost of supporting and educating and caring for a large dependent population. It was like a family of four in which, all of a sudden, the elder child is old enough to take care of her little brother and the mother can rejoin the workforce. Overnight, that family doubles its number of breadwinners and becomes much better off.

This relation between the number of people who aren’t of working age and the number of people who are is captured in the dependency ratio. In Ireland during the sixties, when contraception was illegal, there were ten people who were too old or too young to work for every fourteen people in a position to earn a paycheck. That meant that the country was spending a large percentage of its resources on caring for the young and the old. Last year, Ireland’s dependency ratio hit an all-time low: for every ten dependents, it had twenty-two people of working age. That change coincides precisely with the country’s extraordinary economic surge.

Demographers estimate that declines in dependency ratios are responsible for about a third of the East Asian economic miracle of the postwar era; this is a part of the world that, in the course of twenty-five years, saw its dependency ratio decline thirty-five per cent. Dependency ratios may also help answer the much-debated question of whether India or China has a brighter economic future. Right now, China is in the midst of what Joseph Chamie, the former director of the United Nations’ population division, calls the “sweet spot.” In the nineteen-sixties, China brought down its birth rate dramatically; those children are now grown up and in the workforce, and there is no similarly sized class of dependents behind them. India, on the other hand, reduced its birth rate much more slowly and has yet to hit the sweet spot. Its best years are ahead.

The logic of dependency ratios, of course, works equally powerfully in reverse. If your economy benefits by having a big bulge of working-age people, then your economy will have a harder time of it when that bulge generation retires, and there are relatively few workers to take their place. For China, the next few decades will be more difficult. “China will peak with a 1-to-2.6 dependency ratio between 2010 and 2015,” Bloom says. “But then it’s back to a little over 1-to-1.5 by 2050. That’s a pretty dramatic change. Thirty per cent of the Chinese population will be over sixty by 2050. That’s four hundred and thirty-two million people.” Demographers sometimes say that China is in a race to get rich before it gets old.

Economists have long paid attention to population growth, making the argument that the number of people in a country is either a good thing (spurring innovation) or a bad thing (depleting scarce resources). But an analysis of dependency ratios tells us that what’s critical is not just the growth of a population but its structure. “The introduction of demographics has reduced the need for the argument that there was something exceptional about East Asia or idiosyncratic to Africa,” Bloom and Canning write, in their study of the Irish economic miracle. “Once age-structure dynamics are introduced into an economic growth model, these regions are much closer to obeying common principles of economic growth.”

This is an important point. People have talked endlessly of Africa’s political and social and economic shortcomings and simultaneously of some magical cultural ingredient possessed by South Korea and Japan and Taiwan that has brought them success. But the truth is that sub-Saharan Africa has been mired in a debilitating 1-to-1 ratio for decades, and that proportion of dependency would frustrate and complicate economic development anywhere. Asia, meanwhile, has seen its demographic load lighten overwhelmingly in the past thirty years. Getting to a 1-to-2.5 ratio doesn’t make economic success inevitable. But, given a reasonably functional economic and political infrastructure, it certainly makes it a lot easier.

This demographic logic also applies to companies, since any employer that offers pensions and benefits to its employees has to deal with the consequences of its nonworker-to-worker ratio, just as a country does. An employer that promised, back in the nineteen-fifties, to pay for its employees’ health care when they were retired didn’t set aside the money for that while they were working. It just paid the bills as they came in: money generated by current workers was used to pay for the costs of taking care of past workers. Pensions worked roughly the same way. On the day a company set up a pension plan, it was immediately on the hook for all the years of service accumulated by employees up to that point: the worker who was sixty-four when the pension was started got a pension when he retired at sixty-five, even though he had been in the system only a year. That debt is called a “past service” obligation, and in some cases in the nineteen-forties and fifties the past-service obligations facing employers were huge. At Ford, the amount reportedly came to two hundred million dollars, or just under three thousand dollars per employee. At Bethlehem Steel, it came to four thousand dollars per worker.

Companies were required to put aside a little extra money every year to make up for that debt, with the hope of someday–twenty or thirty years down the line–becoming fully funded. In practice, though, that was difficult. Suppose that a company agrees to give its workers a pension of fifty dollars a month for every year of service. Several years later, after a round of contract negotiations, that multiple is raised to sixty dollars a month. That increase applies retroactively: now that company has a brand-new past-service obligation equal to another ten dollars for every month served by its wage employees. Or suppose the stock market goes into decline or interest rates fall, and the company discovers that its pension plan has less money than it had expected. Now it’s behind again: it has to go back to using the money generated by current workers in order to take care of the costs of past workers. “You start off in the hole,” Steven Sass, a pension expert at Boston College, says. “And the problem in these plans is that it’s very difficult to dig your way out.”

Charlie Wilson’s promise to his workers, then, contained an audacious assumption about G.M.’s dependency ratio: that the company would always have enough active workers to cover the costs of its retired workers–that it would always be like Ireland, and never like sub-Saharan Africa. Wilson’s promise, in other words, was actually a gamble. Is it any wonder that the prospect of private pensions made people like Walter Reuther so nervous?

The most influential management theorist of the twentieth century was Peter Drucker, who, in 1950, wrote an extraordinarily prescient article for Harper’s entitled “The Mirage of Pensions.” It ought to be reprinted for every steelworker, airline mechanic, and autoworker who is worried about his retirement. Drucker simply couldn’t see how the pension plans on the table at companies like G.M. could ever work. “For such a plan to give real security, the financial strength of the company and its economic success must be reasonably secure for the next forty years,” Drucker wrote. “But is there any one company or any one industry whose future can be predicted with certainty for even ten years ahead?” He concluded, “The recent pension plans thus offer no more security against the big bad wolf of old age than the little piggy’s house of straw.”

In the mid-nineteen-fifties, the largest steel mill in the world was at Sparrows Point, just east of Baltimore, on the Chesapeake Bay. It was owned by Bethlehem Steel, one of the nation’s grandest industrial enterprises. The steel for the Golden Gate Bridge came from Sparrows Point, as did the cables for the George Washington Bridge, and the materials for countless guns and planes and ships that helped win both world wars. Sparrows Point, a so-called integrated mill, used a method of making steel that dated back to the nineteenth century. Coke and iron, the raw materials, were combined in a blast furnace to make liquid pig iron. The pig iron was poured into a vast oven, known as an open-hearth furnace, to make molten steel. The steel was poured into pots to make ingots. The ingots were cooled, reheated, and fed into a half-mile-long rolling mill and turned into semi-finished shapes, which eventually became girders for the construction industry or wafer-thin sheets for beer cans or galvanized panels for the automobile industry. Open-hearth steelmaking was expensive and time-consuming. It required great amounts of energy, water, and space. Sparrows Point stretched four miles from one end to the other. Most important, it required lots and lots of people. Sparrows Point, at its height, employed tens of thousands of them. As Mark Reutter demonstrates in “Making Steel,” his comprehensive history of Sparrows Point, it was not just a steel mill. It was a city.

In 1956, Eugene Grace, the head of Bethlehem Steel, was the country’s best- paid executive. Eleven of the country’s eighteen top-earning executives that year, in fact, worked for Bethlehem Steel. In 1955, when the American Iron and Steel Institute had its annual meeting, at the Waldorf-Astoria, in New York, the No. 2 at Bethlehem Steel, Arthur Homer, made a bold forecast: domestic demand for steel, he said, would increase by fifty per cent over the next fifteen years. “As someone has said, the American people are wanters,” he told the audience of twelve hundred industry executives. “Their wants are going to require a great deal of steel.”

But Big Steel didn’t get bigger. It got smaller. Imports began to take a larger and larger share of the American steel market. The growing use of aluminum, concrete, and plastic cut deeply into the demand for steel. And the steelmaking process changed. Instead of laboriously making steel from scratch, with coke and iron ore, factories increasingly just melted down scrap metal. The open-hearth furnace was replaced with the basic oxygen furnace, which could make the same amount of steel in about a tenth of the time. Steelmakers switched to continuous casting, which meant that you skipped the ingot phase altogether and poured your steel products directly out of the furnace. As a result, steelmakers like Bethlehem were no longer hiring young workers to replace the people who retired. They were laying people off by the thousands. But every time they laid off another employee they turned a money-making steelworker into a money-losing retiree–and their dependency ratio got a little worse. According to Reutter, Bethlehem had a hundred and sixty-four thousand workers in 1957. By the mid-to-late-nineteen-eighties, it was down to thirty-five thousand workers, and employment at Sparrows Point had fallen to seventy-nine hundred. In 2001, Bethlehem, just shy of its hundredth birthday, declared bankruptcy. It had twelve thousand active employees and ninety thousand retirees and their spouses drawing benefits. It had reached what might be a record-setting dependency ratio of 7.5 pensioners for every worker.

What happened to Bethlehem, of course, is what happened throughout American industry in the postwar period. Technology led to great advances in productivity, so that when the bulge of workers hired in the middle of the century retired and began drawing pensions, there was no one replacing them in the workforce. General Motors today makes more cars and trucks than it did in the early nineteen-sixties, but it does so with about a third of the employees. In 1962, G.M. had four hundred and sixty-four thousand U.S. employees and was paying benefits to forty thousand retirees and their spouses, for a dependency ratio of one pensioner to 11.6 employees. Last year, it had a hundred and forty-one thousand workers and paid benefits to four hundred and fifty-three thousand retirees, for a dependency ratio of 3.2 to 1.

Looking at General Motors and the old-line steel companies in demographic terms substantially changes the way we understand their problems. It is a commonplace assumption, for instance, that they were undone by overly generous union contracts. But, when dependency ratios start getting up into the 3-to-1 to 7-to-1 range, the issue is not so much what you are paying each dependent as how many dependents you are paying. “There is this notion that there is a Cadillac being provided to all these retirees,” Ron Bloom, a senior official at the United Steelworkers, says. “It’s not true. The truth is seventy-five-year-old widows living on less than three hundred dollars to four hundred dollars a month. It’s just that there’s a lot of them.”

A second common assumption is that fading industrial giants like G.M. and Bethlehem are victims of their own managerial incompetence. In various ways, they undoubtedly are. But, with respect to the staggering burden of benefit obligations, what got them in trouble isn’t what they did wrong; it is what they did right. They got in trouble in the nineteen-nineties because they were around in the nineteen-fifties–and survived to pay for the retirement of the workers they hired forty years ago. They got in trouble because they innovated, and became more efficient in their use of labor.

“We are making as much steel as we made thirty years ago with twenty-five per cent of the workforce,” Michael Locker, a steel-industry consultant, says. “And it is a much higher quality of steel, too. There is simply no comparison. That change recasts the industry and it recasts the workforce. You get this enormous bulge. It’s abnormal. It’s not predicted, and it’s not funded. Is that the fault of the steelworkers? Is that the fault of the companies?”

Here, surely, is the absurdity of a system in which individual employers are responsible for providing their own employee benefits. It penalizes companies for doing what they ought to do. General Motors, by American standards, has an old workforce: its average worker is much older than, say, the average worker at Google. That has an immediate effect: health-care costs are a linear function of age. The average cost of health insurance for an employee between the ages of thirty-five and thirty-nine is $3,759 a year, and for someone between the ages of sixty and sixty-four it is $7,622. This goes a long way toward explaining why G.M. has an estimated sixty-two billion dollars in health-care liabilities. The current arrangement discourages employers from hiring or retaining older workers. But don’t we want companies to retain older workers–to hire on the basis of ability and not age? In fact, a system in which companies shoulder their own benefits is ultimately a system that penalizes companies for offering any benefits at all. Many employers have simply decided to let their workers fend for themselves. Given what has so publicly and disastrously happened to companies like General Motors, can you blame them?

Or consider the continuous round of discounts and rebates that General Motors–a company that lost $8.6 billion last year–has been offering to customers. If you bought a Chevy Tahoe this summer, G.M. would give you zero-per-cent financing, or six thousand dollars cash back. Surely, if you are losing money on every car you sell, as G.M. is, cutting car prices still further in order to boost sales doesn’t make any sense. It’s like the old Borsht-belt joke about the haberdasher who lost money on every hat he made but figured he’d make up the difference on volume. The economically rational thing for G.M. to do would be to restructure, and sell fewer cars at a higher profit margin–and that’s what G.M. tried to do this summer, announcing plans to shutter plants and buy out the contracts of thirty-five thousand workers. But buyouts, which turn active workers into pensioners, only worsen the company’s dependency ratio. Last year, G.M. covered the costs of its four hundred and fifty-three thousand retirees and their dependents with the revenue from 4.5 million cars and trucks. How is G.M. better off covering the costs of four hundred and eighty-eighty thousand dependents with the revenue from, say, 4.2 million cars and trucks? This is the impossible predicament facing the company’s C.E.O., Rick Wagoner. Demographic logic requires him to sell more cars and hire more workers; financial logic requires him to sell fewer cars and hire fewer workers.

Under the circumstances, one of the great mysteries of contemporary American politics is why Wagoner isn’t the nation’s leading proponent of universal health care and expanded social welfare. That’s the only way out of G.M.’s dilemma. But, from Wagoner’s reticence on the issue, you’d think that it was still 1950, or that Wagoner believes he’s the Prime Minister of Ireland. “One thing I’ve learned is that corporate America has got much more class solidarity than we do–meaning union people,” the U.S.W.’s Ron Bloom says. “They really are afraid of getting thrown out of their country clubs, even though their objective ought to be maximizing value for their shareholders.”

David Bloom, the Harvard economist, once did a calculation in which he combined the dependency ratios of Africa and Western Europe. He found that they fit together almost perfectly; that is, Africa has plenty of young people and not a lot of older people and Western Europe has plenty of old people and not a lot of young people, and if you combine the two you have an even distribution of old and young. “It makes you think that if there is more international migration, that could smooth things out,” Bloom said.

Of course, you can’t take the populations of different countries and different cultures and simply merge them, no matter how much demographic sense that might make. But you can do that with companies within an economy. If the retiree obligations of Bethlehem Steel had been pooled with those of the much younger industries that supplanted steel–aluminum, say, or plastic–Bethlehem Steel might have made it. If you combined the obligations of G.M., with its four hundred and fifty-three thousand retirees, and the American manufacturing operations of Toyota, with a mere two hundred and fifty-eight retirees, Toyota could help G.M. shoulder its burden, and thirty or forty years from now–when those G.M. retirees are dead and Toyota’s now youthful workforce has turned gray–G.M. could return the favor. For that matter, if you pooled the obligations of every employer in the country, no company would go bankrupt just because it happened to employ older people, or it happened to have been around for a while, or it happened to have made the transformation from open-hearth furnaces and ingot-making to basic oxygen furnaces and continuous casting. This is what Walter Reuther and the other union heads understood more than fifty years ago: that in the free-market system it makes little sense for the burdens of insurance to be borne by one company. If the risks of providing for health care and old-age pensions are shared by all of us, then companies can succeed or fail based on what they do and not on the number of their retirees.

When Bethlehem Steel filed for bankruptcy, it owed about four billion dollars to its pension plan, and had another three billion dollars in unmet health-care obligations. Two years later, in 2003, the pension fund was terminated and handed over to the federal government’s Pension Benefit Guaranty Corporation. The assets of the company–Sparrows Point and a handful of other steel mills in the Midwest–were sold to the New York-based investor Wilbur Ross.

Ross acted quickly. He set up a small trust fund to help defray Bethlehem’s unmet retiree health-care costs, cut a deal with the union to streamline work rules, put in place a new 401(k) savings plan–and then started over. The new Bethlehem Steel had a dependency ratio of 0 to 1. Within about six months, it was profitable. The main problem with the American steel business wasn’t the steel business, Ross showed. It was all the things that had nothing to do with the steel business.

Not long ago, Ross sat in his sparse midtown office and explained what he had learned from his rescue of Bethlehem. Ross is in his sixties, a Yale- and Harvard-educated patrician with small rectangular glasses and impeccable manners. Outside his office, by the elevator, was a large sculpture of a bull, papered over from head to hoof with stock tables.

“When we showed up to the Bethlehem board to approve the deal, they had an army of people there,” Ross said. “The whole board was there, the whole senior management was there, people from Credit Suisse and Greenhill were there. They must have had about fifty or sixty people there for a deal that was already done. So my partner and I–just the two of us–show up, and they say, ‘Well, we should wait for the rest of your team.’ And we said, ‘There is no rest of the team, there is just the two of us.’ It said the whole thing right there.”

Ross isn’t a fan of old-style pensions, because they make it impossible to run a company efficiently. “When a company gets in trouble and restructures,” he said, those underfunded pension funds “will eat it alive.” And how much sense does employer-provided health insurance make? Bethlehem made promises to its employees, years ago, to give them medical insurance in exchange for their labor, and when the company ran into trouble those promises simply evaporated. “Every country against which we compete has universal health care,” he said. “That means we probably face a fifteen-per-cent cost disadvantage versus foreigners for no other reason than historical accident. . . . The randomness of our system is just not going to work.”

This is what Walter Reuther believed. He went along with Wilson’s scheme in 1950 because he thought that agreeing with Wilson was the surest way of getting Wilson and the other captains of industry to agree with him. “Reuther and his brain trust had a theory of capitalism,” Nelson Lichtenstein, the Reuther biographer, says. “It was: If we force G.M. to pay extra, we can create an incentive for G.M. to join our side.” Reuther believed, in other words, that when American corporations reached the point where they couldn’t make their business more efficient without making it less profitable, when their dependency ratios soared to unimaginable heights, when they got tens of billions behind in their health-care obligations, when the cost of carrying thou-sands of retirees forced them to stare bankruptcy in the face, they would come around to the idea that the markets work best when the burdens of benefits are broadly shared. It has taken half a century, but the world may finally be catching up with Walter Reuther.

What Would Lenin Do?

Attempting to shore up our dysfunctional employer-based health care system is counterproductive, not progressive.

By Maggie Mahar
The American Prospect
Web Exclusive: 08.25.06

While some progressives applaud efforts to force employers like Wal-Mart to take on greater responsibility for health care, others argue that our employer-based health care system is a failing relic of the past and that such gambits are actually counterproductive. Rather than trying to shore up our employer-based system, they say, we should seek to capitalize on that system’s mounting woes to build support for replacing it with national health insurance. Call it the Leninist road to universal health care — things have to get worse before they get better.

Chicago’s recent decision to pass a “living wage” ordinance that would require big-box retailers to pay $3 an hour in benefits has revived that debate. Last week, the Prospect’s own Ezra Klein offered quotes from labor leader Andy Stern to buttress his own argument against efforts like Chicago’s. Rather than continuing to try to build on what Stern describes as “a very unstable” employer-based foundation, Klein argued that we need wholesale reform — that is, national health insurance. “Progressives are, or at least should be, engaged in a longer-term project of creating a better, more just society for everyone, regardless of employment status.”

Labor lawyer and blogger Nathan Newman wasn’t impressed:

There is a strain of liberal advocacy for national health care that hopes for the system to get worse, in the assumption that only then can serious reform happen. . . . [A]ccording to Ezra, progressives should “view a slightly better menu of options for Wal-Mart employees as delaying the ultimate, more important victory.”

So the worse the lives of low-wage workers, the better for certain liberal social engineers trying to enact national health insurance. Then, we can eliminate employer responsibility for health care with a completely government-financed system.

He goes on to argue that “currently, federal and state governments cover just 39 percent of funding for $1.75 trillion in U.S. health care spending annually. So for the government to take over the rest of health care financing would require roughly a $1 trillion annual increase in general revenue taxes.” (His emphasis.)

While making it clear that, over the long run, he favors moving toward national health insurance, Newman suggests that, at present, there is no way to hike taxes enough to replace the hundreds of billions contributed by private sector employers to health care: “Some believe that the worse the health care system gets [as employers back away from offering health benefits], the better, since that will open up the possibility of national health care reform,” he observes. “But it’s actually the opposite — the more we shore up the employer side of health care responsibility, the more likely we can afford to bring the rest of the population into a reformed system.”

This sounds like a reasonable case for incremental reform. But on closer inspection, Newman’s argument doesn’t hold up.

Begin with the contention that at present, federal and state government cover just 39 percent of the nation’s health care bill. The numbers Newman uses show only the government’s direct contributions to healthcare. The question that needs to be asked is how much of the total bill is subsidized — directly or indirectly — by taxpayers.

When you put the question that way, it turns out that taxpayers bankroll 51 percent of the nation’s $2 trillion health care bill: this includes paying for private insurance for public employees (accounting for 6 percent of total health care spending), Medicare (17 percent of the total), Medicaid and SCHIP (16 percent), and other public health services including veterans’ programs, public hospitals, and school programs (12 percent). (These figures come from the Centers for Medicare and Medicaid Services.) And as the number of people on Medicare, Medicaid, and SCHIP climbs, the taxpayers’ share of the bill is rising. By contrast, private insurers pick up just 30 percent of the tab — and the money they lay out comes from the premiums paid by employees as well as employers. In other words, private sector employers pay less than 30 percent of the total. The remaining 19 percent of the $2 trillion total is covered by patients themselves (14 percent) and by the nonprofit philanthropy sector (5 percent).

But even those numbers don’t do justice to how much of total health care spending is subsidized by taxpayers. In 2004, when employers laid out roughly $443 billion for health benefits for their employees and retirees, employers deducted that $443 billion from their taxable income as part of the cost of doing business — just like wages. But while employees pay taxes on their wages, neither current employees nor retirees are required to declare their health benefits as part of their income. As a result, a recent study published in Health Affairs calculates that in 2004 the government lost $108.5 billion in tax revenues and another $66.4 billion in payroll taxes for Social Security and Medicare.

Other taxpayers, not fortunate enough to work for an employer who offers health benefits, must cough up income and payroll taxes to make up for that $174.9 billion in lost revenue. Add that amount to the $950 billion that taxpayers spent in 2004 to fund both government programs and private insurance for government workers — plus the money they spent out of pocket — and their contributions to the health care system ultimately equal roughly 74 percent of the nation’s total bill. Some “private” health care system.

Moreover, contra Newman, reformers who talk about replacing employer-based healthcare with national health insurance are not suggesting that we simply bid farewell to the employers’ contribution. Rather, they propose that, instead of paying premiums to private insurers, both employers and employees pay taxes into a common fund that would finance health care for all.

Physicians for National Health Insurance points out that for large employers, “a payroll tax in the 7 percent range would mean that they would be shelling out less than they currently do (about 8.5 percent).” As for small employers, the physicians’ group argues that with everyone contributing to the pool, small businesses would find healthcare insurance far more affordable — especially since the government would be negotiating prices with drug-makers, device-makers, and health care providers with an eye to insuring that taxpayers are getting value for their health care dollars.

Today, our profit-driven health care system is bloated with waste. Studies published in journals like the Annals of Internal Medicine and Health Affairs reveal that roughly half of our health care dollars are squandered, each year, on unnecessary or redundant tests, ineffective, sometimes unproven treatments, and over-priced new drugs and devices that are no better — and sometimes worse — than the products that they replaced. Meanwhile, a fee-for-service system encourages over-treatment. Last week, when The New York Times asked its readers, “Have you ever suspected that a physician had financial incentives for recommending a medical treatment to you?,” the paper received 237 replies in just one day.

In virtually every other developed country in the world, the government takes responsibility for trying to check health care inflation. This is why patients in other countries pay so much less for both drugs and medical devices. In nationalized systems, governments are the health care industry’s biggest customer, and they use their clout to negotiate lower prices. By contrast, in our fragmented employer-based system, individual employers are left to attempt to negotiate lower premiums with insurers who, in turn, are fighting their own price wars with drug-makers, device-makers, and health care providers.

When employers find they cannot afford to fight the battle, they retire from the field. Over the past five years, the share of employers who offer health benefits has fallen from 70 percent to 60 percent. As for insurers, if they cannot persuade a drug-maker to offer the drug at a discount, they simply pass the higher costs on in the form of higher premiums — one reason why premiums have jumped by more than 75 percent over the past six years. Little wonder that a recent poll by the Commonwealth Fund shows that 23 percent of families earning $75,000 or more report they have trouble paying for health insurance

This is where “heightening the contradictions” — or letting things get worse so they can get better — comes into play. The fact that not only the middle-class but many in the upper-middle-class are beginning to panic over whether they can afford healthcare suggests that national health insurance is becoming a political possibility. Indeed, a 2005 Pew Poll shows that 65 percent of Americans want universal insurance — “even if it means paying higher taxes.” Even more surprising, a 2003 study by the University of Indiana shows that nearly half of all physicians favor national health insurance.

But if support for universal healthcare is swelling, does Washington really have the will to fight the lobbyists who defend the health care system’s hazardous waste? On this point, recent history is discouraging. The 2003 Medicare reform infamously prohibits the government from negotiating with drug-makers for lower prices. And earlier this year, when Medicare announced that it was planning to cut reimbursements for some of the most over-priced medical devices and procedures, lobbyists representing companies like Boston Scientific marshaled their forces, Congressmen wrote letters—and Medicare capitulated. Describing the incident on his blog, Brown University medical professor Dr. Roy Poses quoted Piper Jaffrey securities analyst Thomas Gunderson: “[T]hey didn’t even back off — they folded.”

Poses does an outstanding job of tracking the conflicts of interest that fuel healthcare inflation; and his blog also documents how the opposition to collusion and corruption in our system is mounting As more and more Americans worry that neither they, nor their employers, can afford to keep up with spiraling health care costs, both patients and doctors are beginning to call for government intervention. In the end it seems inconceivable that Americans will be willing to continue supporting a health care system that is funded largely by the public but run largely by lobbyists.

Winston Churchill famously said that “You can always count on Americans to do the right thing — after they’ve tried everything else.” When it comes to healthcare, haven’t we tried everything else long enough?

Maggie Mahar is the author of Money-Driven Medicine: The Real Reason Health Care Costs So Much (Harper/Collins, 2006).

Single-payer health system for Maine

By Bob Lodato
Bangor Daily News
Friday, August 25, 2006

In an Aug. 12-13 op-ed piece, [Maine House candidate] Bob Walker wrote about how single-payer health care would never bring about an end to the crisis in heath care spending. I beg to disagree. According to Physicians for a National Health Plan, in 2005, half of all U.S. bankruptcies were at least in part due to medical bills, and more than three fourths of people in “medical bankruptcy” had health insurance at the time they became ill.

The Veterans Health Administration is a shining example of what Single Payer Health Care (a single national health plan) could and should be. Amazingly, just 10 years ago, the VHA was in crisis. Mismanagement and misallocation of resources resulted in surgeons who never operated and some hospitals being half empty while others were overwhelmed.

The solution was a change in management. A physician trained in public health, Ken Kizer, oversaw a radical decentralization of management, implementation of pay-for-performance contracts with top executives, and the right to fire incompetent doctors. One of the most essential components of his strategy, though, was an obsessive attention to systematization of quality and safety improvements.

The U.S. health care system’s private sector is still striving mightily to catch up. In 2003, the New England Journal of Medicine compared the VHA with private- sector hospitals. On all 11 measures of quality assessed, the VHA was “significantly better.” In 2005, the Annals of Internal Medicine showed that the VHA provided better care in seven of seven measures of quality care in the treatment of diabetic patients.

The National Committee for Quality Assurance (NCQA) ranks health care plans. Their seal of approval is the gold standard for quality of care. Last year, the VHA outperformed the best private hospital systems (including the Mayo Clinic, Massachusetts General, and Johns Hopkins) in all 17 performance measures assessed. As for patient satisfaction, a 2005 independent survey shows 81 percent of VHA patients are satisfied, compared with 77 percent of Medicare and Medicaid patients.

The Institute of Medicine considers the VHA’s integrated health information system, which includes performance measures to improve quality, one of the best in the nation. Thus the quality issue is answered: a single-payer system, with good management, can provide quality care that beats the best private institutions. What about cost effectiveness?

The VHA, unlike all private health systems, has a nearly guaranteed lifetime relationship with its patients. Thus, it has an incentive to invest in prevention and effective disease management. The savings accrued actually benefit the VHA, so the interests of both the patient and the system are aligned. In contrast, private systems usually see their patients moving into and out of their plans every year, so disease prevention only benefits the competition.

Unlike Medicare, the VHA is allowed by law to negotiate deep drug discounts, which is why a vet can get most prescriptions for under $10. Also unlike Medicare, it provides nursing home care. Even with these tremendous additional benefits, between 1999 and 2003, when VHA enrollment increased by 70 percent, funding increased by only 41 percent.

Single-payer health care is not only feasible. It will also improve quality and safety and reduce overall costs. But we need a national single-payer system. A patchwork of state systems, while better than the current patchwork of private plans, will still be bogged down by the inefficiencies of inter-relating with a multitude of private plans, each with its own forms, formularies and bureaucracy.

Our state is currently experiencing problems with its Medicaid program, with the purchase of poorly designed claims software and expansion at an inopportune time. However, system mismanagement can be corrected. The VHA is a shining example of the possible.

Don’t expect a Republican administration to make the correction, though. As Bob Walker explains, his party is dead set against any single-payer system. They will ensure, perhaps even better than the Baldacci administration, that it doesn’t work too well. The Democrats still have time to do the right thing, to put a Ken Kizer in charge. If they don’t, perhaps a new Green Independent governor will have the honor of creating a cost-effective and high-quality single-payer health system for Maine.

Bob Lodato, M.D., of Charleston, is an internist practicing in Dexter.

Has Canada Got the Cure?

by Holly Dressel
Yes Magazine
Fall issue, 2006

Publicly funded health care has its problems, as any Canadian or Briton knows. But like democracy, it’s the best answer we’ve come up with so far.

Should the United States implement a more inclusive, publicly funded health care system? That’s a big debate throughout the country. But even as it rages, most Americans are unaware that the United States is the only country in the developed world that doesn’t already have a fundamentally public–that is, tax-supported–health care system.

That means that the United States has been the unwitting control subject in a 30-year, worldwide experiment comparing the merits of private versus public health care funding. For the people living in the United States, the results of this experiment with privately funded health care have been grim. The United States now has the most expensive health care system on earth and, despite remarkable technology, the general health of the U.S. population is lower than in most industrialized countries. Worse, Americans’ mortality rates–both general and infant–are shockingly high.

Different paths

Beginning in the 1930s, both the Americans and the Canadians tried to alleviate health care gaps by increasing use of employment-based insurance plans. Both countries encouraged nonprofit private insurance plans like Blue Cross, as well as for-profit insurance plans. The difference between the United States and Canada is that Americans are still doing this, ignoring decades of international statistics that show that this type of funding inevitably leads to poorer public health.

Meanwhile, according to author Terry Boychuk, the rest of the industrialized world, including many developing countries like Mexico, Korea, and India, viscerally understood that private insurance would [never be able to] cover all necessary hospital procedures and services; and that even minimal protection [is] beyond the reach of the poor, the working poor, and those with the most serious health problems.1 Today, over half the family bankruptcies filed every year in the United States are directly related to medical expenses, and a recent study shows that 75 percent of those are filed by people with health insurance.2

The United States spends far more per capita on health care than any comparable country. In fact, the gap is so enormous that a recent University of California, San Francisco, study estimates that the United States would save over $161 billion every year in paperwork alone if it switched to a singlepayer system like Canada’s.3 These billions of dollars are not abstract amounts deducted from government budgets; they come directly out of the pockets of people who are sick.

The year 2000 marked the beginning of a crucial period, when international trade rules, economic theory, and political action had begun to fully reflect the belief in the superiority of private, as opposed to public, management, especially in the United States. By that year the U.S. health care system had undergone what has been called “the health management organization revolution.” U.S. government figures show that medical care costs have spiked since 2000, with total spending on prescriptions nearly doubling. 4

Cutting costs, cutting care There are two criteria used to judge a country’s health care system: the overall success of creating and sustaining health in the population, and the ability to control costs while doing so. One recent study published in the Canadian Medical Association Journal compares mortality rates in private forprofit and nonprofit hospitals in the United States. Research on 38 million adult patients in 26,000 U.S. hospitals revealed that death rates in for-profit hospitals are signifi cantly higher than in nonprofit hospitals: for-profit patients have a 2 percent higher chance of dying in the hospital or within 30 days of discharge. The increased death rates were clearly linked to “the corners that for-profit hospitals must cut in order to achieve a profit margin for investors, as well as to pay high salaries for administrators.”5

“To ease cost pressures, administrators tend to hire less highly skilled personnel, including doctors, nurses, and pharmacists…,” wrote P. J. Devereaux, a cardiologist at McMaster University and the lead researcher. “The U.S. statistics clearly show that when the need for profits drives hospital decisionmaking, more patients die.”

The value of care for all

Historically, one of the cruelest aspects of unequal income distribution is that poor people not only experience material want all their lives, they also suffer more illness and die younger. But in Canada there is no association between income inequality and mortality rates–none whatsoever.

In a massive study undertaken by Statistics Canada in the early 1990s, income and mortality census data were analyzed from all Canadian provinces and all U.S. states, as well as 53 Canadian and 282 American metropolitan areas.6 The study concluded that “the relationship between income inequality and mortality is not universal, but instead depends on social and political characteristics specific to place.” In other words, government health policies have an effect.

“Income inequality is strongly associated with mortality in the United States and in North America as a whole,” the study found, “but there is no relation within Canada at either the province or metropolitan area level &ndash between income inequality and mortality.”

The same study revealed that among the poorest people in the United States, even a one percent increase inincome resulted in a mortality decline of nearly 22 out of 100,000.

What makes this study so interesting is that Canada used to have statistics that mirrored those in the United States. In 1970, U.S. and Canadian mortality rates calculated along income lines were virtually identical. But 1970 also marked the introduction of Medicare in Canada — universal, singlepayer coverage. The simple explanation for how Canadians have all become equally healthy, regardless of income, most likely lies in the fact that they have a publicly funded, single-payer health system and the control group, the United States, does not.

Infant mortality

Infant mortality rates, which refl ect the health of the mother and her access to prenatal and postnatal care, are considered one of the most reliable measures of the general health of a population. Today, U.S. government statistics rank Canada’s infant mortality rate of 4.7 per thousand 23rd out of 225 countries, in the company of the Netherlands, Luxembourg, Australia, and Denmark. The U.S. is 43rd–in the company of Croatia and Lithuania, below Taiwan and Cuba.

All the countries surrounding Canada or above it in the rankings have tax-supported health care systems. The countries surrounding the United States and below have mixed systems or are, in general, extremely poor in comparison to the United States and the other G8 industrial powerhouses.

There are no major industrialized countries near the United States in the rankings. The closest is Italy, at 5.83 infants dying per thousand, but it is still ranked five places higher.7

In the United States, infant mortality rates are 7.1 per 1,000, the highest in the industrialized world — much higher than some of the poorer states in India, for example, which have public health systems in place, at least for mothers and infants. Among the inner-city poor in the United States, more than 8 percent of mothers receive no prenatal care at all before giving birth.

Overall U.S. mortality

We would have expected to see steady decreases in deaths per thousand in the mid-twentieth century, because so many new drugs and procedures were becoming available. But neither the Canadian nor the American mortality rate declined much; in fact, Canada’s leveled off for an entire decade, throughout the 1960s. This was a period in which private care was increasing in Canadian hospitals, and the steady mortality rates reflect the fact that most people simply couldn’t afford the new therapies that were being offered. However, beginning in 1971, the same year that Canada’s Medicare was fully applied, official statistics show that death rates suddenly plummeted, maintaining a steep decline to their present rate.

In the United States, during the same period, overall mortality rates also dropped, reflecting medical advances. But they did not drop nearly so precipitously as those in Canada after 1971. But given that the United States is the richest country on earth, today’s overall mortality rates are shockingly high, at 8.4 per thousand, compared to Canada’s 6.5.

Rich and poor

It has become increasingly apparent, as data accumulate, that the overall improvement in health in a society with tax-supported health care translates to better health even for the rich, the group assumed to be the main beneficiaries of the American-style private system. If we look just at the 5.7 deaths per thousand among presumably richer, white babies in the United States, Canada still does better at 4.7, even though the Canadian figure includes all ethnic groups and all income levels. Perhaps a one-per-thousand difference doesn’t sound like much. But when measuring mortality, it’s huge. If the U.S. infant mortality rate were the same as Canada’s, almost 15,000 more babies would survive in the United States every year.

If we consider the statistics for the poor, which in the United States have been classified by race, we find that in 2001, infants born of black mothers were dying at a rate of 14.2 per thousand. That’s a Third World figure, comparable to Russia’s.8

But now that the United States has begun to do studies based on income levels instead of race, these “cultural” and genetic explanations are turning out to be baseless. Infant mortality is highest among the poor, regardless of race.

Vive la différence! Genetically, Canadians and Americans are quite similar. Our health habits, too, are very much alike — people in both countries eat too much and exercise too little. And, like the United States, there is plenty of inequality in Canada, too. In terms of health care, that inequality falls primarily on Canadians in isolated communities, particularly Native groups, who have poorer access to medical care and are exposed to greater environmental contamination. The only major difference between the two countries that could account for the remarkable disparity in their infant and adult mortality rates, as well as the amount they spend on health care, is how they manage their health care systems.

The facts are clear: Before 1971, when both countries had similar, largely privately funded health care systems, overall survival and mortality rates were almost identical. The divergence appeared with the introduction of the single-payer health system in Canada.

The solid statistics amassed since the 1970s point to only one conclusion: like it or not, believe it makes sense or not, publicly funded, universally available health care is simply the most powerful contributing factor to the overall health of the people who live in any country. And in the United States, we have got the bodies to prove it.

Holly Dressel was born south of Chicago and lives in Montreal, Quebec. She is a writer/researcher and the best-selling co-author, with David Suzuki, of Good News for a Change and other works.

This article was adapted from Holly Dressel’s book God Save the Queen–God Save Us All: An Examination of Canadian Hospital Care via the Life and Death of Montreal’s Queen Elizabeth Hospital, to be published in 2007 by McGill/Queen’s Press.

1 Terry Boychuk. The Making and Meaning of Hospital Policy in the United States and Canada. University of Michigan Press, Ann Arbor: 1999.

2 David U. Himmelstein, et al. Health Affairs, Jan.–June 2005, http://content.healthaffairs.org/cgi/reprint/hlthaff.w5.63v1

3 Professor James Kahn, UCSF, quoted in Harper’s Magazine, “Harper’s List,” Feb. 2006.

4 National Health Expenditure Data, www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf.

5 Devereaux, Dr. P.J., et al. “A Systematic Review and Meta-Analysis of Studies Comparing Mortality between Private For-Profit and Private Not-For-Profit Hospitals,” Canadian Medical Association Journal, May, 2002.

6 Nancy A. Ross et al. “Relation between income inequality and mortality in Canada and in the United States: cross sectional assessment using census data and vital statistics,” Statistics Canada, reprinted in Health Geography, GEOG-303, ed. Nancy Ross, McGill University, 2005, pp. 109-117.

7 CIA World Fact Book. www.cia.gov/cia/publications/factbook/rankorder/2091rank.html

8 See, among many studies blaming race, Child Health USA 2003, Health Status — Infants; HRSA, with graphs such as “Breastfeeding Rates by Race/Ethnicity, 2001”; “Very Low Birth Weight Among Infants, by Race/Ethnicity 1985-2001”; http://www.mchb.hrsa.gov/chusa03.

Queue management in U.S. emergency departments

Hospitals slash emergency room wait times By Marie-Anne Hogarth
East Bay Business Times
August 11, 2006

Sutter Delta Medical Center in Antioch says it has reduced emergency room waiting times from an average of four to six hours to one to two hours in just two months by adopting a new system for prioritizing patients.

For a hospital that expects to see 54,000 patients this year in its emergency department – the only one in eastern Contra Costa County – those shorter waits represent a big boost in efficiency.

Rapid Medical Evaluation, the new system at Sutter Delta, is not entirely original. It was developed by Emeryville-based California Emergency Physicians Medical Group, which staffs more than 50 emergency departments in the state.

The RME system is one example of a nationwide push for emergency room efficiency. Hospitals are seeking ways to reduce “door to doc” times, which in turn impact patient satisfaction scores. Strategies include using providers earlier in triage, bedside registration and setting up separate areas to treat noncritical patients quickly.

http://www.bizjournals.com/eastbay/stories/2006/08/14/story4.html?b=1155528000^1329775

Comment:

By Don McCanne, MD

Excessive queues (wait times), whether for acute problems in emergency departments or for non-urgent specialized services, are often claimed by opponents of reform to be an inevitable consequence of universal, publicly-financed health systems. The truth is that they are an inevitable consequence of any health care system that is not monitoring patient flow and making appropriate adjustments when warranted.

When excessive queues develop, two approaches may be appropriate. If the system is truly deficient in capacity, minor adjustments in capacity may be required with a very modest increase in marginal costs. Much more often, excessive queues can be moderated simply by application of queue management techniques, often with no significant increase in costs.

This article demonstrates that even the seemingly insolvable problem of excessive emergency department queues here in the United States can respond dramatically to simple queue management (even though other issues such as surge capacity may have complex solutions). Establishing policies to ensure that everyone has comprehensive health care coverage should never be a reason to abandon principles of queue management.

Some countries, but not all, have lagged in queue oversight and management.
The following Canadian website provides links to presentations on queue management. They have acknowledged their problem, and they are addressing it.

http://www.cprn.com/en/doc.cfm?doc=1447

The U.S. spends more for less because of its fragmented financing system

In this survey, a team of respected researchers lead by Gerard Anderson examines health spending and health system capacity in 30 OECD nations. Although the U.S. has by far the highest per capita health spending, it is near or below average in the number of doctors, nurses, hospital beds and hospital admissions per capita. As the authors point out, this disparity illustrates the much higher prices charged for health care in the United States.

The authors conclude that other nations control rising health costs more effectively because of their collective purchasing of health services, and attribute the United States’ high costs directly to our fragmented system of financing health care. Only collective purchasing of health care (such as provided by a single-payer system) can control rising health costs. Reform options that do not address this aspect are bound to fail.

Read “It’s The Prices, Stupid: Why The United States Is So Different From Other Countries” (pdf)

U.S. Care Quality is No Better Than Other Countries

U.S. Care Quality is No Better Than Other Countries

What does the United States get for its exceptionally high health spending? The answer from Johns Hopkins researcher Peter S. Hussey is “not much.” In this study, Hussey led a distinguished team in developing a set of 21 indicators to evaluate health system quality in five industrialized nations: Australia, Canada, England, New Zealand, and the United States. Although the U.S. spends roughly twice per capita on health care what the other nations do, it received a significantly higher standardized score on only two of the quality measures (breast cancer survival and cervical cancer screening rates).

The U.S. health system does not provide higher quality care despite our high spending. Instead, our resources are diverted into the administrative waste inherent in our private insurance payment system and expensive interventions that are often of dubious value. Only a single-payer system has the potential to reallocate our plentiful health resources to high-quality care for all.

Read “How Does The Quality Of Care Compare In Five Countries?” (pdf)

Another view: SB 840 will cure state's struggles with health care

By Sheila Kuehl — Special to The Bee
Published 12:01 am PDT Sunday, August 20, 2006

I couldn’t agree more with the editorial that health care reform must start on the common ground that our current system is failing everyone involved.

However, the increasing costs of health insurance premiums are bankrupting our state, our businesses and working families. One in five Californians has no health insurance today, and increasing numbers of businesses are planning to drop their health insurance by next year.

Nibbling around the edges with incremental change is not enough. We need courageous and thoughtful reform that provides what all Californians want — affordable access to good-quality health care. This is what SB 840 achieves.

The current health care system and attempts at “reform” fail because they simply bicker about who is going to pay instead of addressing the underlying reasons for out-of-control health care costs. The Sacramento Bee highlights the approach taken in Massachusetts, which, if applied in California, would legally require everyone to purchase private health insurance policies and pay endlessly increasing premiums into the current system that is completely broken. Proponents of the model in Massachusetts even say the reform is not workable in California.

We are spending $186 billion a year on health care right now. With caps on administrative overhead, these monies are more than enough to provide every California resident with excellent health care. We don’t need to spend more on health care; we need to stop wasting our health care dollars on insurance company administration.

Insurance companies do not improve the quality of health care we receive, and they do not provide choices. Instead, insurance companies limit the choices we have. They oppose legislation extending coverage to lifesaving health screenings for infants, hearing aids for children and effective Alzheimer’s medications. Instead of providing simple, straightforward health care coverage, they waste billions of dollars on complicated insurance schemes designed to screen out patients who need health care and to reduce payments to doctors.

Universal health care is the best answer, and it is possible now. SB 840 works by pooling our health care resources so that everyone — state and federal government, income earners and employers — all pay in, and Californians all get quality coverage. SB 840 reduces costs and guarantees your right to choose your own doctor. It saves businesses money and is affordable for families.

Polls show that a majority of Californians support universal health care — there is no more common ground than that.

About the writer: Sen. Sheila Kuehl, D-Santa Monica, is responding to The Bee’s Aug. 13 editorial “Health reform must start on common ground.” She can be reached at senator.kuehl@sen.ca.gov

Groups Form Coalition Focused on "Healthcare Crisis"

Carole Mikita Reporting
August 22nd, 2006 @ 3:34pm

Six community groups formed a coalition to bring awareness to what they call the healthcare crisis. The coalition called this event ‘CHALK IT UP’; the chalk outlines of bodies are still on the sidewalk, each one representing a Utahn.

Dozens of people stopped at Washington Square, 400 S. State St., during their lunch hours to be ‘chalked.’

Tess Bonham, Age 10: “Because people don’t have health insurance.”

Their outlines represent individuals without health insurance who will die.

Fred Gurney, age 11: “I think people should have health care because it’s not really good to die.”

Groups gathered in downtown Salt Lake today say that’s exactly what will happen in the next twelve months. By the end of the afternoon, this coalition of groups hopes to have 132 chalk outlined bodies.

Linda Parsons, Utah Jobs with Justice: “It’s probably a lot more than that. Statistics will show that, and we hope it will bring some attention to our politicians about health care and our crisis.”

Politicians and candidates did show up… using the event to promote their platforms.

Pete Ashdown, (D) U.S. Senate candidate: “This is becoming an economic issue in America. It’s not just small businesses that are suffering, big businsses like Delta and GM. We need some imagination by our federal government to deal with this problem.”

Bob Brister, Utah Green Party candidate for 2nd District: “Every other industrialized country in the world doesn’t let their citizens go without healthcare.”

Scott McCoy, (D) State Senator: “We have almost 300-thousand in the state of Utah, 70-odd-thousand of those are children. And so it should be a priority for the legislature.”

Each group believes the United States needs a national health insurance system that covers everyone.

Barbara Toomer, The Disabled Rights Action Committee: “We joined the coalition, mainly because we have healthcare problems also. And healthcare is extremely important to a person with a disability.”

The coalition members all support a bill H.R. 676, the United States National Health Insurance Act, a publicly financed, privately delivered health care program that uses already existing Medicare.

What will happen to me if I get sick or injured and can't pay my bills?

Katrina vanden Heuvel
BLOG | Posted 08/22/2006 @ 11:13am

On the domestic front, that’s a key question on voters’ minds as the November elections approach. A poll of working women, released on August 8 by the AFL-CIO, indicated that concern about access to quality medical coverage was rated the top issue by 97 percent of respondents, outpolling the income gap between women and men for the first time. MoveOn members, asked to vote on issues that they believe should define a “new positive agenda” ranked healthcare for all persons at the top of the list.

In California, one of the country’s largest states and a decisive election-year battleground, the growing momentum behind healthcare reform is pushing two sharply different approaches into public view.

The first, a proposal for universal healthcare coverage, is presented in Senate Bill 840, authored by Southern California’s State Senator Sheila Kuehl (D-23). SB 840 would provide universal, comprehensive healthcare insurance to Californians while protecting consumers’
ability to choose their own doctors. Under the SB 840 model, consumers and businesses would pay an income or payroll-based premium for a “solid, comprehensive plan” that includes medical, dental, vision, prescription drug, hospitalization and emergency coverage. Medical care provision would remain as the mix of private and not-for-profit business that it is now. SB 840 would also mandate that California use its purchasing power to negotiate bulk rates for prescription drugs and medical equipment. (The administrative costs for medical care in California would drop below 5 percent of total costs, compared to the whopping 25 to 30 percent currently being spent.)

On the other side, on June 16, Sandra Shewry, Governor Schwarzenegger’s Director of the Department of Health Services hosted a meeting of journalists to discuss the possibility of “Massachusetts-style health reform” in California. As it turned out, uninvited healthcare experts and advocates showed up, as well, to deliver an early warning: Massachusetts’ so-called universal healthcare plan is already bad news for the people of Massachusetts and would be a disaster for California.

The heart of the Massachusetts plan is this: every resident of Massachusetts must have health insurance by July 1, 2007 or pay a fine–but costs of health insurance and medical care itself are not controlled, nor are there adequate standards for what health insurance is supposed to cover. Big insurance wins; consumers lose.

The Massachusetts plan offers subsidies for the very poor–as it should, and allows those who can afford it to buy insurance pre-tax–but this plan squeezes middle class people who don’t qualify for subsidies and can’t afford to buy insurance pre-tax. The plan subsidizes people who earn up to 300 percent of the poverty level. But a typical group policy in Massachusetts costs about $4,500 annually for an individual and more than $11,000 for family coverage. Many families and business would be forced to choose between complying with the law and other vital necessities. Young and healthy people might be able to buy low premium plans, but even these are now typically considered affordable only to people whose income is greater than 499 percent of the poverty level. Furthermore, such high-deductible, low-coverage plans often don’t offer even adequate coverage.

The sort of plans available to middle-class consumers– those with deductibles that run into the thousands of dollars–mean that most consumers would wind up footing the bill for most of their own yearly healthcare in addition to the premiums that such a law would force them to pay. If such consumers found themselves truly needing extensive coverage–if they get hit by a car or contract a serious illness–they may find out that their cut-rate plan will leave them in terrible financial trouble. (About half of all bankruptcies sustained in the United States today are the result of medical expenses incurred by people who had health insurance they thought they could trust). Middle class consumers will not be able to choose the doctors they most trust but will be forced to decide among the doctors whose services are covered by the plan they can afford.

The sad joke is that plans like this are being marketed as “consumer driven.” Healthcare consumers (that is to say, everybody) please take note: any so-called ‘consumer-driven’ health plan is really an anti-consumer hit and run. California State Senator Sheila Kuehl is offering a real alternative. Her bold legislative initiative would bring truly affordable healthcare to all.

SB 840 has already been passed by the California State Senate and the Assembly Appropriations Committee. It will likely be up for a floor vote by the Assembly later this week or next Monday. Ask your California friends to support this bill–and to contact their Assembly representatives to vote “yes’ on SB 840. And urge your own state legislators to put forth similarly bold proposals.

Salinas throws support behind universal health care

By GEORGE B. SÁNCHEZ
Herald Salinas Bureau

The Salinas City Council this week endorsed a state Senate bill to provide universal health care for California residents.

The council voted 6-0 to support the California Health Insurance Reliability Act, which calls for the creation of a state health insurance agency that would be overseen by an elected commissioner. Councilwoman Janet Barnes abstained from the vote.

If the bill is enacted, the commissioner would be appointed by the governor and confirmed by the state Senate.

The resolution of support was brought to the council by the Salinas Action League, a local activist group, and introduced by Councilman Sergio Sanchez.

“One in five people in California do not have health insurance,” said Salinas Action League member Dr. Carolee Bull. “In a few years, it will be one in four.”

Bull said federal, state and local money already spent on health care, along with low premium rates by employees and employers, would go into a state fund proposed by Sheila James Kuehl, D-Los Angeles.

The cities of Berkeley, Santa Cruz and Watsonville, as well as Alameda, Marin and Los Angeles counties, have also passed resolutions in support of the bill.

“We need universal health care in this county,” said Councilwoman Gloria de la Rosa.

“Health care is like housing,” said Councilman Maria Giuriato, a social services worker. “It’s the foundation and infrastructure to leverage health and hold a good job.”

Giuriato asked the Salinas Action League to seek support for the bill from the Monterey County Board of Supervisors as well as other cities in Monterey County.

Carole Erickson, director of Student Health Services at Monterey Peninsula College, told the board about a Salinas student who had to be hospitalized for scabies, a skin-burrowing mite. If the student had access to preventive health care, Erickson said, the infection could have been properly diagnosed and treated.

Access to preventive health care is more cost effective than hospitalization, she said.

“If it’s cheaper to treat up front, then what are we doing?” said Erickson.

Jeff Richman, a school nurse who works in Salinas and the Pajaro Valley, said it is common to find students who need vision, dental and mental health care but have no access to a doctor other than the school nurse.

The proposed bill, he said, would help them.

George B. Sánchez can be reached at 753-6771 or gesánchez@montereyherald.com.

MedPAC on the increase in volume of physician services

Statement of Mark E. Miller, Ph.D., Executive Director, Medicare Payment Advisory Commission
U.S. House of Representatives
Subcommittee on Health, Committee on Energy and Commerce July 25, 2006 Medicare payment to physicians

Medicare expenditures for physician services are growing rapidly. In 2005 spending on physician services increased 8.5 percent, while the number of beneficiaries in FFS Medicare increased only 0.3 percent. To get good value for the Medicare program, the payment system should set the relative prices for services accurately. Providing incentives to control unnecessary growth in volume and intensity would be desirable, but it is much more difficult.

Measuring physician resource use

For Medicare beneficiaries living in regions of the country where physicians and hospitals deliver many more health care services there is no clear relationship with better quality of care or outcomes. Moreover, they do not report greater satisfaction with care than beneficiaries living in other regions. This finding, and others by researchers such as Wennberg and Fisher, are provocative. They suggest that the nation could spend less on health care, without sacrificing quality, if physicians whose practice styles are more resource intensive moderated the intensity of their practice.

MedPAC recommends that Medicare measure physicians’ resource use over time, and feed back the results to physicians. Physicians could then start to assess their practice styles, and evaluate whether they tend to use more resources than their peers. Moreover, when physicians are able to use this information with information on their quality of care, it will provide a foundation for them to improve the efficiency of the care they and others provide to beneficiaries. Once greater experience and confidence in this information is gained, Medicare might begin to use the results in payment, for example as a component of a pay-for-performance program.

Creating new incentives in the physician payment system

MedPAC has consistently raised concerns about the SGR as a volume control mechanism and recommended its elimination. We believe that the other changes discussed previously-pay for performance, encouraging use of IT, measuring resource use, setting quality standards for imaging services, and improving payment accuracy-can help Medicare beneficiaries receive high-quality, appropriate services and help improve the value of the program. Although the Commission’s preference is to directly target policy solutions to the source of inappropriate volume increases, we recognize that the Congress may wish to retain some budget mechanism linked to volume. An ideal volume control mechanism would overcome the incentive under fee-for-service to increase volume and instead create incentives for physicians to practice in ways that improve care coordination and quality while prudently husbanding Medicare resources. The Congress has tasked the Commission to evaluate several alternative volume control mechanisms including differing levels of application such as group practice, hospital medical staff, type of service, geographic areas, and outliers. We will report on these alternatives in March 2007.

http://www.medpac.gov/publications/congressional_testimony/072506_Testimony_physician.pdf?CFID=2415800&CFTOKEN=28943302

Comment:

By Don McCanne, MD

One of the most important features of a well-functioning national health insurance program is that it can use budgets to slow the growth in health care costs to a level closer to the growth in GDP. But what a nightmare that creates.

In a predominantly fee-for-service system, physicians respond to a slowing of rate increases by increasing the frequency and intensity of services provided (volume of services). To maintain a growth rate near that of the GDP, the rate per unit of service must be decreased to offset the increases in the number of units of services provided. This is the flaw in MedPAC’s SGR formula (sustainable growth rate). Medicare’s fee per unit of service must be reduced to slow the growth rate to a “sustainable” level.

What has been the source of the volume increase? Part of it has been that patients are brought back for return visits more frequently, and the levels of services have been increased from basic to moderate complexity. Another very important component has been the increased utilization of high-tech services, especially medical imaging. The explosion of spending in imaging has pulled a significant amount of funds away from physicians, especially family physicians and general internists just at a time that we are trying to reinforce the primary care infrastructure.

Virtually everyone agrees that the current rate of growth is not sustainable indefinitely. Costs will not be controlled without controlling volume. How do you do that? One possibility presented in this testimony is to identify the non-beneficial excesses and then educate physicians who, in response, would likely modify their practice patterns. This can be effective as has been demonstrated by the decline in the use of antibiotics in childhood viral respiratory infections once physicians were convinced that they were of no value. That approach will help, but it alone likely will not be sufficient. New innovations will continue to present new challenges.

MedPAC is currently evaluating several volume control mechanisms and will report their findings to Congress in March, 2007. Volume will be controlled, but how will they do that, and can we live with it? This is a process that requires intensive citizen oversight by the policy community. Heads up!