World Health Care Congress
April 19, 2006
Bush Administration’s Health Reform Plan Allan Hubbard, Director, National Economic Council, The White House

Allan Hubbard: …there are three visions, but the third vision is not sustainable, the third vision being the status quo… I promise you, things are going to change, and we can go one of two ways. One way… is a single payer system, basically expand Medicare to take over everything. Medicare will set prices. They will find that it costs more than they expect, so they will cut back reimbursement. They will cut back the options that people have in terms of doctors, in terms of procedures. Eventually care will be rationed, and that’s one vision, and that’s what happened in every other country that had a single payer system… Or we can go to a consumer-directed health care system where the consumer is incentivized to be a wise consumer, incentivized to care about price, to care about quality… That is the vision of this president. We believe health savings accounts are exactly the way to go, with high deductible, low cost health insurance policies, and then… tax deductions for your contributions to your health savings accounts, which means what you pay for out-of-pocket gets the same tax advantage as what’s paid for by insurance, and then you have an incentive to be a wise consumer…

Later…

Stuart Altman, reading a question from the audience: You talked about consumers as a way to reduce prices and increase efficiency. What about the medical emergency situation, when the patient doesn’t have a choice about when, where, and what type of care takes place?

Allan Hubbard: Obviously it doesn’t work there, and I think we all know that, but that’s the exception. You can only shop in a non-emergency.

Later, in response to another question…

Allan Hubbard: Now for the chronically ill, to be perfectly frank, that is the biggest challenge in health care. The president has two proposals on that. And when I talk about chronically ill, it’s the people who have predictably high costs year in and year out… The president’s proposals are the following – an employer provided health savings account… it will put extra money into the health savings accounts of the chronically ill… And then, secondly, the president wants to provide 500 million dollars to the Secretary of HHS to be able to award to up to ten states a year, for innovative ideas in accommodating the chronically ill. But, I want to be perfectly frank, the chronically ill is a problem that is very difficult to solve.

http://www.worldcongress.com/events/NW600/index.cfm

Comment:

By Don McCanne, M.D.

So the president’s proposal for consumer-directed health care doesn’t work for acute problems since individuals are not in a position to be informed consumers, and it doesn’t work for chronic disease since they haven’t figured out a way to pay for it.

Since it doesn’t work for either acute or chronic problems, apparently the president’s proposal works only for those without significant medical needs. Are healthy individuals really the appropriate target for health care reform?

Why would the administration support a reform proposal that they quite frankly concede will not work? It’s because they recognize that the status quo is not sustainable, and the only other realistic option is a single payer system. Although Hubbard drags out the canard of rationing, it is only because their bogeyman bag is otherwise relatively empty. Their real reason for opposing single payer is that their anti-government ideology overrides all other considerations and trumps reform that they know will work, merely because it is a government solution. Should reform be driven by ideology, or by health policy science?

Allan Hubbard is right about one thing. He promises us that there will be change. He has explained why the consumer-directed nonsense cannot lead us to reform. It looks like it will have to be single payer, by default.

San Diego Physician
February/March 2006
Single Payer, By Default
By Don McCanne, M.D.

(Editor’s Note: Though Dr. McCanne’s article is not the position of the San Diego County Medical Society, it will – it is hoped – stimulate discussion.)

Regardless of personal ideology or political persuasion, everyone in the policy community understands the strengths of the single-payer model of national health insurance. It would provide truly comprehensive coverage for absolutely everyone while putting into place mechanisms that would slow the rate of healthcare inflation.

There is no mystery about how this would be accomplished. Coverage would be automatic for everyone, from birth on. All reasonable, beneficial health services would be included. The current, highly inequitable mechanisms of funding care would be replaced with a single, equitable system of public funding. Numerous micro-simulations and the experiences of other nations have confirmed that replacing our highly inefficient, fragmented private and public insurance systems with a single, publicly administered program would free up more than enough wasted funds to pay for the deficiencies in healthcare coverage today.

The real task before us is to ensure that the large number of us who are healthy pay into a fund that covers care for the 20 percent of individuals who use 80 percent of health services. The most equitable method of doing that would be to establish a single risk pool. A multi-payer system might work, but it would have to be so tightly regulated that it functions as a single-payer system. Furthermore, micro-simulations have shown that multi-payer systems are the most expensive method of achieving universal coverage, whereas a single-payer system actually reduces healthcare spending.

We’ve tried most everything else, but high costs and fragmentation grow worse. Current trends, including CDHC, will only compound the problems. Employers and patients want something done now. More voices are joining the call for a “national solution.” The nation is growing weary of waiting for someone to come up with a better solution. Since there really isn’t any, we will soon have a single-payer program of national health insurance, even if only by default. Once Americans become comfortable with it, they will be as supportive as they are of our other social insurance programs: Social Security and Medicare.

For the full article (1200 words, single page):
https://pnhp.org/PDF_files/singlepayerbydefault.pdf

Comment:

By Don McCanne, M.D.

Reform advocates may find this single-page article to be useful as a handout to explain to others why national health insurance is inevitable.

(Today’s message addresses one of the most important perversities in our flawed system of funding health care. It needs to be included in every dialogue on reform. Please share this message with others who really do care about the future of health care in America.)

American Medical Association
Competition in Health Insurance
A Comprehensive Study of U.S. Markets
2005 Update

The study’s purpose is two-fold: first, to identify problem markets where competition is diminished and second, to prompt discussion about the long-term impact of consolidated health insurance markets on the health care system. This year’s study demonstrates that competition is undermined in hundreds of markets across the country.

Our study shows unequivocally that physicians across the country have virtually no bargaining power with dominant health insurers and that those health insurers are in a position to exert monopsony power. In 280 of the
294 markets surveyed, one health insurer accounts for at least 30 percent of the combined HMO/PPO market.

In terms of market concentration (HHI or Herfindahl-Hirschman Index, a measure of market concentration used by the Department of Justice), the study found the following:

In the combined HMO/PPO product market, 95 percent (279) of the MSAs (metropolitan statistical areas) are highly concentrated (HHI>1800).

In the HMO product market, 99 percent (290) of the MSAs are highly concentrated (HHI>1800).

In the PPO product market, 99 percent (293) of the MSAs are highly concentrated (HHI>1800).

While a number of large health insurers (including WellPoint and United) are posting record profits, premiums for consumers have increased without any increase in benefits. Instead, consumers are paying more out-of-pocket for their health care, through increased deductibles, co-payments and co-insurance. It is clear that patients – the ultimate consumers of health care – are not benefiting from these mergers.

The American Medical Association (AMA) has long been concerned about the impact of consolidated markets on patient care. Today it appears that the physician’s role as patient advocate is being systematically undermined as dominant insurers impose take-it-or-leave-it contracts that directly impact the provision of care and the patient-physician relationship. This role has never been more important. Physicians have a professional and ethical obligation to their patients; health insurers’ primary legal obligation is to their shareholders.

The AMA believes that it is time to reexamine the legal landscape that has allowed unfettered consolidation of health insurance markets. If not corrected, the imbalances in the marketplace will have serious negative long-term consequences for the health care system.

AMA press release:
http://www.ama-assn.org/ama/pub/category/16197.html

Full report:
http://www.ama-assn.org/ama1/pub/upload/mm/368/competitionstud_406.pdf

Comment:

By Don McCanne, M.D.

This study provides one of the most important additions to the overwhelming body of evidence confirming the principle that private insurers should no longer control health care funding.

This report discusses the monopsony (single buyer) power of private insurers. Through consolidation, private insurers now control the markets both as monopolies and as monopsonies.

By using the contracting process to gain control of the providers of health care, the private insurers have gained monopolistic control of the market in which they sell their insurance products. By gaining control of patients through their restricted-panel insurance products, the private insurers have gained monopsonistic control of the market in which they purchase their health care services and products.

Free markets promote fair pricing. Monopolistic and monopsonistic control of markets drive prices up while reducing investment in products and services.
What better example could there be than these very expensive and highly profitable private insurance plans that are leaving patients much more exposed to the costs of health care.

Market perversities absolutely mandate government intervention. It would require a treatise to explain why a simple increase in regulatory oversight would be totally inadequate to correct the perversities in our private insurance system. Suffice it to say that it is time for the government to take over the funding of health care through a single payer program of national health insurance.

Public Employees’ Health Benefits Survive Major Threats, So Far Public-sector workers continue to receive benefits that help offset their more modest salaries compared with their private-sector peers.

Health Affairs
By Robert E. Hurley, Laurie Felland, Anneliese Gerland, and Jeremy Pickreign
April 18, 2006

State and local elected officials have shown much restraint in their approach to modifying public employees’ benefits. Despite budget pressures, few public employers indicated that they felt political pressure to make deep cuts in health benefits. Many elected officials value the contributions of public workers and expressed great concern about not making major reductions in the workforce, given the responsibilities borne by state and local government agencies. Likewise, officials themselves often have a personal stake in the benefits, including health care coverage, so preservation might be a matter of self-interest.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.25.w195

Comment:

By Don McCanne, M.D.

Many still express the view that they would prefer to continue to rely on their private individual or employer-sponsored health insurance plan rather than changing to a government program, because “the government” can’t do anything right.

This study confirms that “the government,” as an employer, has been very effective in maintaining traditional comprehensive coverage for its own employees. Although the government uses private insurers, it has maintained a strong stewardship over these programs. Compared to the private sector, it looks like “the government” has been doing it right.

The efficiency that would be attained by changing to a single payer system will not be discussed here other than to state that the government would have to be the steward. Based on the track record, it looks like putting “the government” in charge actually would be the right thing to do.

Healthcare plan needs dose of common sense

By Marcia Angell
The Boston Globe
April 17, 2006

If Governor Romney thinks the state’s new plan for universal health coverage will carry him to the White House, he should think again. This Rube Goldberg contraption won’t even get him off the ground because it doesn’t touch the underlying problem — our reliance on multiple private insurance companies.

Private insurers compete not by offering better healthcare, but by avoiding high-risk individuals, limiting services for those they do cover, and, whenever possible, shifting costs to other payers or to individuals in the form of high deductibles and copayments. It’s a chaotic and fragmented system that requires a mountain of paperwork, which is one reason premiums are so high. Those employers who still offer health benefits react by capping their contributions, so that workers pay more out of pocket and bear the full brunt of premium increases. Massachusetts does better than most states, but healthcare in Massachusetts is also the most expensive in the nation.

If this system is left essentially intact, as it is under the new plan, expanding coverage will inevitably increase costs. That is common sense: Coverage and costs have to move in tandem if the system stays the same. Furthermore, the plan does nothing to keep costs from growing. For years, premiums have been rising much faster than the consumer price index. At current rates, even if the state were able to cover its proposed contributions to the plan at launch, it wouldn’t be able to keep up with soaring prices.

But already it’s clear that the governor and legislators don’t know how to pay for it even at launch. One legislator told Boston Globe columnist Joan Vennochi: ”We don’t yet know what it’s really going to cost us or where we’re going to get the money from. To some extent you might call it a Hail Mary pass.” The essence of this faith-based plan is to squeeze employers and individuals, with a relatively small state contribution. But employers who don’t offer health insurance can get away with paying a penalty of only $295 per employee per year — in a state where health insurance for individuals costs about $7,200 per year.

Individuals not covered by employers and whose income is at least 300 percent of the federal poverty level (now about $30,000) will have to buy their insurance or pay income tax penalties. Romney thinks premiums can be held to $2,400 a year with a cap of $2,100 on deductibles, but that is wildly implausible. If premiums are higher than that and continue to escalate faster than income, this will amount to fining people because they can’t afford health insurance, which, in effect, will punish them twice — an unsavory prospect.

Those individuals whose income is less than 300 percent of poverty level would receive state subsidies. That will require an enormous bureaucracy to determine what insurance is adequate and ”affordable” and who can really afford it, and there will be incessant legal and regulatory wrangling. The legislation calls for a new state agency, the Commonwealth Health Insurance Connector, to oversee insurance plans, and that is just the beginning.

Like the Medicare prescription drug benefit, the Massachusetts healthcare plan is a complicated morass that might limp along for a while, but will never cover all the people it is meant to cover, and will become increasingly unaffordable. Most likely, it will meet the same fate as the much celebrated 1988 legislation to provide universal coverage in Massachusetts, which shriveled and died with scarcely a whimper.

The only answer is to change the system entirely, so that we can expand coverage while controlling costs. Romney said, ”The old single-payer canard is gone.” No, it isn’t. Sooner or later, that is exactly what we’ll need if we’re really serious about universal healthcare. There’s no other way.

(Dr. Marcia Angell is a senior lecturer in social medicine at Harvard Medical School and former editor-in-chief of the New England Journal of Medicine.)

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2006/04/17/healthcare_plan_needs_dose_of_common_sense/

Comment:

By Don McCanne, M.D.

Dr. Angell’s perspicacious comments apply to our entire health care system.

Health care coverage must be automatic for everyone. It must be comprehensive. It must be efficient. It must include mechanisms that improve allocation of our resources. It must be affordable.

The Massachusetts plan and every other proposal fails on these measures, except for one model: a single payer national health program.

Health costs destroying our economy
National health plan only way to protect workers and employers
Detroit News
April 14, 2006
By James P. Hoffa, president of the International Brotherhood of Teamsters

Our nation’s health care system is broken. America must act now.

Health care costs are destroying our nation’s economic edge. The cards are stacked against American companies as they try to compete with low-cost, low-wage foreign producers.

The only real solution to this crisis is national health care. Meeting such a basic need should not force government budgets, companies and workers into the red. As the crisis grows, more and more Americans, workers and corporate leaders alike, are calling for government action.

We invite General Motors, Delphi, Sikorsky, UTC, Waste Management and other corporations to stop fighting against us and start fighting along side us.
It’s time for all Americans to join this fight for a country that rewards hard work and where working families don’t have to choose between going to the doctor and paying the rent.

http://www.detnews.com/apps/pbcs.dll/article?AID=/20060414/OPINION03/604140315&SearchID=73241530077956

Comment:

By Don McCanne, M.D.

The crescendo of the drum beat is now almost deafening. Isn’t it time?

State Governments Overreach in Taking on Problems Best Solved at the National Level
The New York Times
April 13, 2006
By Robert H. Frank

In most of the world… the primary responsibility for ensuring access to health care, regulating environmental quality and supporting basic scientific research is exercised by national governments. But in this country, these tasks are increasingly managed by state, and even local, governments.

Last week, for instance, Massachusetts became the first state to enact legislation trying to ensure that all its citizens have access to health care. At least 19 other states considered legislation expanding health care coverage in 2005.

In each case, there are compelling economic reasons for delegating the activities to national, rather than state or local, governments. Yet in each,arena, the federal government has failed to act.

Although it is no mystery why states are beginning to take the lead in thesem domains, it is important to understand why the recently enacted programs are destined to fall far short of what could have been achieved at the federal level.

The explanation begins with the question of why we have multiple levels of government in the first place. Almost all of us are subject to taxation and regulation by governments at the local, state and national level. Although multitiered government entails substantial redundancy and inefficiency, there are good economic reasons for it.

As the economist Charles M. Tiebout explained in a seminal paper published in 1956, an important advantage of providing public services at the local level is that this enables us to better achieve our desired mix of public and private consumption.

People who like lots of parkland, well-maintained roads, large police forces and good schools can thus gather in high-tax communities that provide these amenities, while others can choose low-tax communities and spend more of their income on private consumption. Local government also minimizes the distance between citizens and the lawmakers who tax and regulate them.

But for some public services, like national defense, scale advantages rule out primary reliance on local government.

Scale advantages, however, do not explain why health care policy, environmental regulation and support for basic scientific research are best delegated to the federal government. Rather, the problem is that in each of these instances, programs at the state and local levels create perverse economic incentives.

A case in point is a proposal recently discussed in Ithaca, N.Y., where I live. Activists in this progressive upstate community (sometimes called “the

People’s Republic of Ithaca”) called for a local income tax to finance a single-payer health care system for local residents. According to health policy experts, such a system would eliminate the substantial waste associated with attempts by insurance companies to limit authorized services and avoid covering people with chronic medical conditions.

Yet, despite this advantage, a health system operated at the local level could never work. Because people are free to move, such a plan would attract uninsured people with chronic conditions from surrounding cities, substantially raising the program’s cost. In turn, the need to raise income tax rates would induce many of the community’s more affluent taxpayers to flee to neighboring cities. The resulting death spiral would quickly doom the program.

Like local borders, state borders are completely permeable. So, unless a large number of other states simultaneously enact comprehensive health care legislation of their own, the new Massachusetts program will confront the same problem.

My point is not that states are foolish for having extended their reach. Again, the federal government has completely dropped the ball in these domains. The recent state actions may not be the most efficient ways of dealing with our most pressing problems. But they are an unmistakable signal of voter impatience with ineffective government at the federal level.

(Robert H. Frank, an economist at the Johnson School of Management at Cornell University, is the co-author, with Ben S. Bernanke, of “Principles of Economics.”)

Comment:

By Don McCanne, M.D.

Professor Frank has provided a highly credible explanation of the principle that many are now recognizing instinctively: We need a national solution to our health care crisis. That doesn’t mean that we should abandon efforts on the state level to compensate for the failures of our federal government. Rather, it means that we must intensify our efforts to enact an efficient, comprehensive, universal program of single payer health insurance on a national level.