PNHP

Bush's Rx for insurance: Buy your own

Bush's Rx for insurance: Buy your own

By John McCarron
Chicago Tribune
February 10, 2006
Additional material published Feb. 11, 2006

CORRECTIONS AND CLARIFICATIONS
In his Commentary column Friday, John McCarron stated that General Motors recently announced it will cap spending on health insurance premiums for salaried employees at 2006 levels. In fact, the announced cap applies only to retired salaried employees.

Say good-bye to your group health insurance.

OK, maybe not right away. Your employer may stick with your plan for a few more years. Don’t toss out that health-care card just yet.

But if you’ve been following the business news lately, and if you paid close attention–very close attention–to President Bush’s State of the Union address, you may hear a distant knell for the way most Americans get their health insurance.

General Motors, which spends more on health care for its workers than on steel, announced that it will cap spending on health insurance for salaried employees. Any future cost increases–and costs have been rising by double digits–will be borne by paying higher premiums, deductibles and co-pays.

That’s not so drastic, really, when you consider big outfits like GM, where labor contracts set a high standard, have offered employees some of the nation’s best benefits. But it does signal that the cost-sharing arrangement between employers and employees–you pay half, we pay half (or some such split)–is going the way of the defined-benefit pension. Remember the defined-benefit pension?

Then again, GM had little choice but to unhook from the great medical money machine here in Viagra Nation. The company must compete globally, as must all U.S. manufacturers. Compete for investors, too, in a world where you can buy the stock of Honda or Toyota as easily as Ford or GM.

So the race is on to limit corporate exposure to runaway health insurance costs. And sure enough, President Bush has a plan.

In his address, the president said government has a responsibility to “help people afford the insurance coverage they need.” The way to do that, his aides later explained, is to “level the playing field” so folks who buy their own insurance get as good a deal as folks who join their company’s plan.

Sounds reasonable. But details of the proposal, released by the Treasury Department, are causing quite a stir among the fraternity of insurance wonks who understand the implications.

Bush proposes a supercharged version of the health savings accounts, or HSAs, that Congress first authorized in 2003. Think of HSAs as an individual retirement account for health-care expenses. The way it works now, workers who choose “high-deductible” plans–plans that require patients to pay the first $1,500 or more out-of-pocket–are eligible to make tax-deductible contributions–up to $5,450 a year in a family plan–to an HSA and later use that money to pay uncovered medical expenses.

Bush would let that family sock away $10,500 per year tax-free. Moreover, they could claim a tax credit equal to 15.3 percent of the amount they deposited. But it gets sweeter. If the worker buys his own high-deductible insurance policy, rather than one offered at work, the premiums he pays would be fully tax-deductible and eligible for the 15.3 percent tax credit.

It’s all very complicated, but the bottom line is that relatively healthy people who can afford to set aside 10 grand a year would come out ahead by opening an HSA and buying their own insurance. After all, most employees cannot deduct the premiums they pay for their group plans, much less claim a refundable credit.

So what’s wrong with this picture? What’s wrong with encouraging workers, and their employers, to opt out of group insurance and go it alone … with large amounts of help from Uncle Sam?

Plenty, according to the Center on Budget and Policy Priorities, a Washington-based think tank. You can read its analysis online (www.cbpp.org), but an abbreviated list of horribles goes like this:

– If, as expected, the healthiest and wealthiest leave the group insurance pool, premiums will shoot up for the not-so-healthy and not-so-wealthy. That’s if they can find a plan that will take them. What insurance company is going to want your diabetic wife or disabled child?

– If, as expected, small-business owners, many of whom earn too much to qualify for a tax-deductible IRA, opt for the Bush HSA, which has no income limits, won’t many owners simply do away with their company’s group plan altogether? What’s good for the boss must be good for the workers, right?

– If, as the free-market theorists predict, people with high deductibles “shop around” for bargain health care and forgo “unnecessary” care, how are folks to decide what and when care is necessary, much less where they’ll get the most for their money? Surf the Internet? Thumb the Yellow Pages? So much for your primary-care physician and his or her trusted referral network of specialists.

No, what we have here is another Texas “two-fer,” a combo better than $3 gasoline and lower taxes on capital gains. What we have here is the fig leaf behind which corporate America will walk away from group health insurance, along with the sweetest tax shelter ever invented for the fortunate few with six-figure incomes.

RIP, group health insurance.

John McCarron writes, teaches and consults on urban affairs.

Former NEJM editor Relman supports single-payer in New York Times

New York Times
February 11, 2006

To the Editor:

Your Feb. 3 editorial “The Lopsided Bush Health Plan” nicely summarizes all the reasons why health savings accounts are a very bad idea and will not help solve the nation’s health crisis. But it disappoints at the end by failing to suggest what kinds of reforms might really work.

The evidence seems clear: Market-based policies cannot produce the system we need. Isn’t it time to consider a unified “single payer” insurance arrangement (“Medicare for all”) coupled with thoroughgoing reform of the delivery side as well?

Arnold S. Relman, M.D.
Boston, Feb. 3, 2006

The writer, professor emeritus of medicine and social medicine at Harvard Medical School, was editor of The New England Journal of Medicine, 1977-91.

Ownership Society Redux: New Name, Same Policy

By Sebastian Mallaby
Washington Post
February 13, 2006

The president likes to be consistent. Loves Laura; sticks to Laura. Kicks drink; keeps kicking it. First inaugural address: blue tie, white shirt. Second inaugural address: blue tie, white shirt. Weight in 2001: 190 pounds. Weight in 2005: 192 pounds. Hair length: same. Mood: same. No Clintonian gyrations.

Same deal when it comes to politics. Fights terrorists; keeps fighting them. Cuts taxes; keeps cutting them. Trusted Karl in Texas; still trusts him. Simple man. Straightforward man. How many policy moods and political gurus did Bill Clinton go through?

Same deal with the “ownership society.” First used the term in 2002. Went big with it at the Republican convention in 2004. Pretty much taped the slogan to his head in 2005, when he campaigned for personal Social Security accounts all across the country. You think George Bush would let go of this stuff just because Social Security reform failed? Fuhgedaboutit.

The ownership society is back, though it’s got a new label. Bush may not be pushing individual Social Security accounts these days. But he is pushing things called health savings accounts, which turn out to be similar.

Health savings accounts are ostensibly supposed to fix the health system. Right now, tax rules subsidize company-provided health insurance, but they’re less generous toward out-of-pocket medical payments; as a result, company health plans pay most bills and patients have no incentive to shop around for the best bargain. Health savings accounts end this tax bias. Anyone who buys an insurance policy with a deductible of $1,050 or more can open an account and save $5,250 a year toward out-of-pocket health costs, tax-free. This will shift control of medical spending into the hands of consumers, who will discipline overpriced hospitals and clinics.

Or so goes the theory. In practice, probably less than half of all health spending outside Medicaid and Medicare would be affected by the new consumer-driven discipline. Many hospital stays cost more than any deductible, so consumers would have no incentive to bargain; emergency-room patients aren’t in a fit state to negotiate prices with their doctors. But consider an even more basic question: Is the ostensible reason for health savings accounts the real one?

If the administration’s goal were merely to remove the tax bias against out-of-pocket health payments, it could simply make these tax-deductible. No need for health savings accounts to accomplish that — just tell people to count out-of-pocket payments against taxable income.

Even if the administration were determined to shelter out-of-pocket payments using health savings accounts, why make them so generous? It proposes both a tax deduction and a tax credit when money goes into the accounts; savings would accumulate tax-free and could be withdrawn tax-free also. As Jason Furman points out in a paper for the Center on Budget and Policy Priorities, no other savings vehicle enjoys so many privileges. And then there’s the size of these accounts. If the aim is to discipline health spending below the deductible, why subsidize savings up to $5,250 a year — five times more than the deductible?

In sum, health savings accounts are not just about ending the tax bias in favor of traditional company health plans. The administration is proposing a new kind of 401(k), and using it as an inducement to quit low-deductible insurance. Rich people, who gain most from the tax breaks on saving, will be first to sign on; healthy people, who subsidize sicker people in company health plans, will be right behind them. Their exit may force traditional health plans into a death spiral. The loss of the subsidy from healthy workers will drive premiums up, which will drive more healthy people into health savings accounts, which will drive premiums up further.

The State of the Union address (blue tie, white shirt) contained barely a mention of health savings accounts, but don’t let that fool you. Because these accounts are being pushed modestly, with no grand Social Security-style talk of remaking the social contract, there’s a chance that they’ll be seen as just one of various bewildering tax tweaks and slip quietly through Congress. But the proposal cries out for a debate very much like last year’s — a debate about personal saving vs. collective insurance.

A rerun of last year’s debate would show that health savings accounts are harder to defend than personal retirement ones. They are shockingly regressive: Furman’s study shows how a poor family might get a subsidy of $150 while a rich one might get more than $4,000. They have not just a transition cost but a real cost: The tax breaks could widen the deficit by at least $132 billion over 10 years and a lot more after that. And health savings accounts pose a more formidable threat to traditional corporate health plans than personal accounts posed to Social Security. Market forces are already dislodging company health plans; an extra shove could cause an avalanche.

The limited consumer discipline that would come from health savings accounts could not justify these disadvantages. But when you talk to administration officials, they express remarkably few doubts. They believed in the ownership society last year; they still believe in it this year. They believe in individual choice; they distrust collective programs. They don’t worry too much about the risks to the budget. Or to distributional justice. Or to existing safety nets.

Simple administration. Straightforward administration. The Clinton team would never have proposed such a clunker of a policy.

mallabys@washpost.com

Make state health insurance plan available to small firms

By Joseph Q. Jarvis
Salt Lake Tribune
February 12, 2006

Two days ago a bill, HB122, intended to provide Utah’s small-business owners with a new option for employee health benefits, was eviscerated by the Utah Health Insurance Association.

HB122, as originally written, authorized Public Employees Health Plan (PEHP) to organize a health benefit plan for employees of Utah’s small businesses. Written into the bill were planning steps which were adequate to identify and solve all problems and concerns related to cost, outreach and risk management.

A survey of more than 200 small-business owners in Utah found that their average employee age is 10 years younger than the average age of PEHP’s current beneficiaries. It is therefore possible that a PEHP small-business plan could be good both for small businesses and for the taxpayers who buy PEHP benefits for state, county and municipal employees.

Now, instead of providing a plausible solution to a critical problem, the bill merely proposes that a health insurance-dominated commission study the issue.

Recently, a Goldman-Sachs financial analyst observed that the Big Three U.S. automakers are “HMOs with wheels” that only happen to make cars. A well-known Princeton health economist added: “It’s insane to think that a company embedded in a fierce global competition can function as an insurance system.”

Yet U.S. health policy continues that insanity: American employers outspend Canadian employers 13-to-1 for the purchase of employee health benefits and 8-to-1 for the internal costs of arranging for and supervising benefits.

Nowhere do those costs hit harder than for small businesses. While 95 percent of the more than 600,000 Utahns working for businesses with 50 or more employees have a health benefit, only approximately half of the 250,000 Utahns working for small businesses do. Approximately 25,000 Utah small-business employees have lost their health insurance since 2000.

The vast majority of the 300,000 uninsured in Utah are small-business employees or their dependents. Unquestionably, the loss of health benefits can be attributed to the rapid rise of health premiums, which have risen five times faster than earnings over the past five years and double the national rate.

Health costs are making it difficult for Utah small businesses to compete either in the market for their goods and services or in attracting skilled workers. Ninety percent of Utah’s small-business owners indicate that health benefit costs negatively impact their profitability and employee retention.

If we care about economic development in Utah, we must find a way to make health benefits sustainably affordable for small-business employees.

High health care costs in the United States are not caused by Americans overutilizing health services, as some claim. International comparisons document that physician visits and hospital bed days by American patients are at or below the per capita average of other nations.

Rather, high American health care costs are caused by the related failures of efficiency and economies of scale. American health financing has a bureaucratic burden five times that of other industrialized nations.

Health insurance companies pay to deny health care. In response, providers of health care hire staff to extract payment from insurers.

Because insurers fail to aggregate people into large risk pools, they fail both to spread and manage risk optimally and to maximize group purchasing power to moderate prices.

It stands to reason that a search for sustainable health financing for small-business employees in Utah should begin by identifying the most efficient health financing system in the state and making that available to small-business owners.

Unquestionably, the Public Employee Health Plan is Utah’s most efficient payer for health services. At 3.8 percent, PEHP administrative costs are about one-fourth of the average similar costs for the state’s commercial carriers.

Unfortunately, by state statute, PEHP is currently unable to offer a small-business health plan, which means that while the state’s commercial carriers are apparently increasingly unable to meet the needs of small business, PEHP is not allowed to even try.

The only opposition to the bill came from commercial insurance carriers. It is apparently not in their interest to allow small businesses to experience sustainably affordable health benefits through the state’s most efficient payer.

If you support the interests of small-business owners, employees and taxpayers over health insurance carriers, call Gov. Jon Huntsman Jr. and your legislators and tell them to reinstate the original intent of HB122.

Joseph Q. Jarvis is a physician and president of the Utah Health Alliance.

Trusted Rx for Ill Nation

By Dan Carpenter
Indianapolis Star
February 12, 2006

To prescribe health savings accounts for a medical system that’s the most overpriced, overcomplicated, underperforming and unfair in the developed world is an artless dodge that denies the possibility the real cure may already be in hand.

It’s called Medicare. It’s run by the government at an overhead rate of roughly 5 percent, compared to upwards of 25 percent for private insurance companies. It doesn’t waste a lot of resources evading payment of claims or driving undesirably sick people off the rolls. It offers pretty much all the choices anybody else does and boasts a high satisfaction rate. You don’t lose it when you lose your job or your employer loses market share.

Medicare, or single-payer insurance by its generic label, is so good that other capitalist nations offer it to everybody. And no, heart attack victims don’t die waiting for a cot. The industrialized world’s average per-capita spending on health care is less than half ours, and their results are better in category after category, from infant mortality to life expectancy to doctor visits.

Why does it work so well? Because it works differently from health savings accounts. Single-payer insurance operates with the widest possible risk pool, meaning the wealthiest and healthiest chip in to pick up the poorest and potentially sickest.

This means there’s enough money to provide routine/preventive attention to everyone, instead of leaving scores of millions to put off care until they die or seek highly expensive emergency care as welfare cases.

This means no wasting billions on advertising to compete for the least needy customers. This means fewer clerks getting paid to cull out the cancer patients and more funds to hire cancer treatment personnel. Not to mention fewer eight-figure bonuses to executives for raising rates and reducing claims.

It has to happen, says retired Indianapolis surgeon Chris Stack, who works with a single-payer advocacy group called Physicians for a National Health Program. “You have GM, Wal-Mart, plus the average guy making $50,000 working his (deleted) off with two kids — he’s getting screwed. This cuts across ideological lines.”

So why is President Bush proposing not to expand Medicare but to cut it, while offering tax incentives to those who can go out and buy their own health care with high premiums and high deductibles, thus shrinking the risk pool?

Vested interests, of course. That’s why they made a labyrinth of the Medicare drug component with Plan D, an epochal transfer of national wealth to corporations, which waste more than $100 million of our health resources a year in lobbying.

So, you have top-heavy politics abetting a top-heavy health care system. Why isn’t the public pushing back?

“It’s such a puzzle,” says Matthew Gutwein, president of Wishard Memorial Hospital. “There is general skepticism about government as a better alternative to the private market. It’s not true of health care that private is better.”

While Gutwein doesn’t oppose health savings accounts, he calls them a Band-Aid and sees signs all about that single-payer is inevitable. The United States, he says, can’t compete globally and remain the only nation that ties health care to the workplace and marketplace.

So husband your money and try a hospital-tested home remedy. “We love Medicare,” the Wishard head man says. The question grows ever more pressing: What’s not to love?

Carpenter is Star op-ed columnist. Contact him at (317) 444-6172 or at dan.carpenter@indystar.com.

VA Care Is Rated Superior to That in Private Hospitals

By Rob Stein
Washington Post Staff Writer
Friday, January 20, 2006; A15

The Department of Veterans Affairs medical system once epitomized poor-quality care. But after a series of changes, the system has been hailed in recent years as a model for health care reform.

Now, survey results released this week indicate that those improvements have translated into a high level of satisfaction among veterans getting treated by the rehabilitated VA.

The telephone survey, conducted in October, found inpatient care received a rating of 83 on a 100-point scale; outpatient care got a rating of 80. In comparison, a similar survey of patients receiving private care found they rated their satisfaction at 73 for inpatient care and 75 for outpatient care. The survey involved more than 200 veterans who received care at one of the VA’s 154 hospitals or 875 clinics.

“We’re very pleased and continue to be very proud of the work that people are doing in this vast health care system,” said Veterans Affairs Secretary Jim Nicholson. “The real proof in the pudding is in the taste — that is, ‘What do the people we’re taking care of think?’ And they give us very good grades.”

The findings mark the sixth consecutive year the VA health care system has outranked the private sector for customer satisfaction.

Nicholson attributed the high ratings to the changes in the system, such as implementation of electronic records to reduce the risk of errors.

“Our system has become not only much more efficient, but safer,” Nicholson said.

The survey, known as the American Customer Satisfaction Index, has been conducted since 1994 by the National Quality Research Center at the University of Michigan business school and two consultants, the CFI Group and the Federal Consulting Group.

Peter S. Gaytan, director of veterans affairs and rehabilitation for the American Legion, said he was not surprised by the findings because the quality of VA care has been steadily improving.

“The old image of the VA warehousing veterans has changed immensely in the past 20 years,” Gaytan said.

But Gaytan said many veterans have to wait months or travel long distances to get care because tight budgets have forced many facilities to cut back on service.

“The problem that the American Legion has is the accessibility to care. There are veterans waiting in line to receive care,” Gaytan said. “With the veterans returning from Iraq and Afghanistan, it’s our hope that they won’t be turned away.”

Nicholson acknowledged that some veterans do have to wait for care, but he said the waiting time has been improving and continues to improve.

“We absolutely are working on that and are making progress,” he said.

It's the high deductible, not the HSA cash account

Pearlstein Live
washingtonpost.com
February 8, 2006

Steven Pearlstein writes about business and the economy for The Washington Post. This is from a transcript of his online discussion.

Washington, D.C.: I’m hoping you can clarify a key point during your discussion. Nearly every newspaper article I’ve seen recently reports that there are now 3 million HSAs (this is based on a recent survey of health plans conducted by AHIP and has been cited by the White House). This is misleading. AHIP’s study found that 3 million lives were covered by a high-deductible health plan (HDHP) that is COMPATIBLE with an HSA. HSAs must be opened by a bank or other qualified trustee. Based on some early data we’re compiling, it looks like about 1 million HSAs (the actual accounts) have been established as of Jan. 1.

Steve Davis
Managing Editor
Inside Consumer-Directed Care

Steven Pearlstein: Thanks for that clarification.

http://www.washingtonpost.com/wp-dyn/content/discussion/2006/02/07/DI2006020700721.html

Inside Consumer-Directed Care is an industry publication:
http://www.aishealth.com/Products/NewsICD.html

Comment: By Don McCanne, M.D.

CDHC advocates (consumer-directed health care) are using AHIP’s report (America’s Health Insurance Plans) on three million HSA-compatible (health savings account) HDHPs (high-deductible health plans) to “prove”
that they’re not only for the young and wealthy. Their claim is that many older individuals with more modest incomes are turning to HSAs.

Higher-income individuals welcome the tax advantages and the opportunity to expand their pensions through the HSAs. Lower-income individuals are more desperate and are seeking health care coverage with lower premiums.
Higher-income individuals also welcome the HDHPs as smarter insurance when paying up-front costs is no problem, but lower-income individuals lack the discretionary income to fund the HSAs.

We do not yet have the data defining the income levels of the one-third opening HSAs and of the two-thirds selecting only the HDHPs but not the HSAs. But if the studies show any other trend than the blatantly obvious, the news headlines should reflect the view of a nation gone mad.

I checked eHealthInsurance for HSA-compatible plans in my zip code, and the lowest deductible I found for a family of four was $3500 individual/$7000 family, and the lowest premium was $2448. Median household income in 2004 was $44,389. Calculate the cost of housing, food, clothing, transportation, and other essentials, and then add the cost of HDHP premiums and the deductibles required before health care coverage begins, and then see how much you have left to deposit in a health savings account (even if you gave up computers, television cable, cell phones, etc.). It is no wonder that the nation’s savings rate is now a negative.

The CDHP advocates claim that these policies are great for older, lower-income individuals. To be fair, they are not quite countering our argument that they’re for the healthy and wealthy. They avoid using the spin that they also work for the sick and poor, substituting, instead, older and with lower incomes. But ignoring the needs of the sick is the fatal flaw in their proposal.

There is an important consequence of the HDHPs, intended or unintended. Only individuals with health care needs will be contributing to the health-cost-related expansion of the negative national savings rate. The majority of us who remain healthy will not have to share in this particular burden, at least not until the cost-shifting exceeds our discretionary income.

Okay. So young or old, sick or healthy, high-deductible health plans work for you as long as you qualify on the basis of wealth.

Using technology better

Is Technological Change In Medicine Always Worth It? The Case Of Acute Myocardial Infarction
By Jonathan S. Skinner, Douglas O. Staiger, Elliott S. Fisher
Health Affairs
February 7, 2006

Abstract:

We examine Medicare costs and survival gains for acute myocardial infarction (AMI) during 1986-2002. As David Cutler and Mark McClellan did in earlier work, we find that overall gains in post-AMI survival more than justified the increases in costs during this period. Since 1996, however, survival gains have stagnated, while spending has continued to increase. We also consider changes in spending and outcomes at the regional level. Regions experiencing the largest spending gains were not those realizing the greatest improvements in survival. Factors yielding the greatest benefits to health were not the factors that drove up costs, and vice versa.

From the Discussion:

Dramatic progress has been made in the treatment of heart attacks among the elderly during the past two decades. Between 1986 and 2002 the average one-year survival rate following AMI increased by nearly 10 per 100 elderly AMI patients at an estimated cost of less than $25,000 per life year saved. But underlying these numbers is tremendous heterogeneity across time and space: There was little improvement in survival after 1996, despite continued growth in costs, and there was much variation in survival gains across regions and over time, with regional gains that were (if anything) negatively related to costs. These facts and others like them have generated a debate over the value of additional medical care spending. On the one hand, aggregate trends in patient outcomes suggest that the technological innovations were “worth it.” In contrast, the apparent lack of any strong association between costs and patient outcomes or quality of care across regions suggests that aggressive cost-control policies might benefit society by eliminating unnecessary medical care for patients in high-cost regions.

A key assumption is that uneven diffusion of cost-effective innovations is a key factor driving differences in patient costs and outcomes. Support for this view comes from Paul Heidenreich and McClellan, who concluded that the vast majority of the increase in thirty-day survival following AMI between 1975 and 1995 was the consequence of low-cost treatments such as aspirin, beta-blockers, angiotensin-converting enzyme (ACE) inhibitors, and thrombolytics. Furthermore, both observational and clinical trial evidence suggests that use of these noninvasive treatments reduces the incremental benefit of more-expensive treatments such as invasive surgery.

It is important to note that our new view does not apply solely to “low-tech” effective treatments such as aspirin and beta-blockers, but rather it applies equally to any highly effective treatment, whether high-tech or low-tech.

The benefits of health care technology are often substantial. However, as health care costs continue to rise, squeezing consumers, producers, and the federal budget alike, principles of accountability-that each incremental dollar should provide something of real value to patients-become increasingly important. That some regions could implement technological innovations at remarkably low cost is a reminder that waste and inefficiency are not inevitable by-products of technological growth. Thus, efforts to develop measures of quality and efficiency that can encourage hospitals or provider groups to adopt low-cost, highly effective care, while discouraging incremental spending with no apparent benefits, might allow us to keep the golden goose of technological progress alive and well nourished.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.
25.w34

And…

To Use Technology Better
By Alan M. Garber

… their findings suggest that we should reexamine our approach to biomedical innovation. In nearly every disease area, we could use better treatments and better diagnostic approaches. For some diseases, like most cancers, dramatic improvements in outcomes are unlikely to occur without major investments in the development of new drugs, devices, and biotechnology products. As much as we would like new tools, though, Skinner and colleagues show that we haven’t mastered the tools that we already possess. The gains from more effective, efficient approaches to heart attack care, without using any medications or procedures that are not already available, would be enormous.

We have much to learn about promoting better medical care, and we should not underestimate the difficulty of the task. But in comparison to the money spent to develop new technologies, we spend a paltry sum on finding ways to improve the use of technologies we already have. According to a widely cited estimate, the average cost of developing a new drug-an average drug, not a breakthrough-was $802 million in 2000, or about $900 million in 2005 dollars. The entire 2005 budget for the only federal agency responsible for research on more effective care delivery, the Agency for Healthcare Research and Quality (AHRQ), was less than $320 million.

Encouraging both innovation and access to new technologies is the central challenge facing the U.S. health care system. If the cost of medical innovations is too high, only the well-insured-such as today’s Medicare beneficiaries-will have access to them. But as health spending rises, fewer and fewer people will have insurance, and swelling out-of-pocket payments will place some new treatments out of the reach of even the insured. A shrinking number of patients will then benefit from advances in care. New technologies can improve health, but unless we learn to use them better, we cannot expect to harness their value.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.
25.w51

Comment: By Don McCanne, M.D.

Should we continue with our current fragmented system of funding care that results in ever more costly expansion of both mediocre and valuable high-tech services? Or should we change to a single, integrated system of funding care that would make better use of what we have, while rewarding new technology that truly improves health care value?

With dedicated public stewards, a single payer system would be much more effective in achieving the latter goal.

Where does all the money go?

By Dr. Susanne King
Berkshire Eagle
Tuesday, February 7, 2006

The United States spent $1.9 trillion on health care in 2004, 16 percent of the nation’s economy. Yet 46 million Americans remain uninsured, a 6 million increase since President Bush took office. In his State of the Union address last week, the president failed to mention these statistics, nor did he offer any effective solutions to the health care crisis.

His suggestion for wider use of electronic records could help provide more efficient care, but provides no help toward addressing the glaring inequities and financial costs of our health care system. The health savings accounts he proposes, which would make patients “take ownership” of their health care, are unaffordable for the vast majority of people who don’t have extra money for a savings account, or for the enormous deductible they would have to pay before using the account. Health savings accounts please Wall Street banks, as the New York Times noted last week; that should make us all suspicious.

*

When I was in medical school, I spent a few of my clinical clerkships in the Veterans’ Administration (VA) hospital allied with my medical school. The difference between the VA hospital and the private hospitals where I also trained was remarkable. In the VA hospital, laboratory and radiology services were so slow and inept that medical students would wheel patients to the X-ray department and perform blood counts in the laboratory. The elevators never worked. Nor did many of the ancillary staff. I directed my first “code blue” (a cardiac arrest) as a junior medical student on a young veteran with pneumonia. I ran the code until the resident physician arrived from the far reaches of
the hospital.

But all that has changed. Last week I spoke with my nephew, a junior medical student who has just finished a rotation at a VA hospital. He spoke of the high quality of care he observed there, as well as the efficiency of the system. Recent studies have shown that both the quality of care and patient satisfaction are higher in the VA system than in the private sector.

And the VA system has improved health care to veterans, even as it is spending less per patient. Between 1999 and 2003, the number of patients enrolled in the VA system increased by 70 percent, yet funding only increased by 41 percent. Amazingly, the VA system has been able to provide better care, for satisfied patients, with less money. Why hasn’t President Bush looked at a government program that works, to offer a solution to the health care crisis?

My nephew, a future doctor of America, said that the VA system has made him a believer in a national health care system, a “single-payer” insurance system. “Single-payer” means that there would be one administrator of health care funds, the government, which would collect and disperse the $1.9 trillion that are now administered by a huge patchwork of private insurance companies. That is a major reason why health care in the U.S. is so expensive, yet provides too little care to too few people. Too much of the $1.9 trillion goes toward the profiteering of drug and insurance companies. There is no private insurance in the VA system; and an additional source of savings is that drug companies have to negotiate prices with the VA, with resultant discounts for VA drugs, making their prices more commensurate with drug prices in other countries.

While many Americans cannot afford insurance coverage or medications, drug companies made more profits in 2002 than the other 490 companies in the Fortune 500 combined. The new Medicare drug bill, however, does not allow Medicare to negotiate with drug companies; it is yet another gift to the pharmaceutical industry from the Bush administration. While he is handing huge profits to the drug companies, as well as the insurance companies who are anticipating their windfall profits from Medicare, he plans to reduce payments to hospitals, the actual providers of care.

A new study from the University of California supports a 2003 study by Harvard researchers, Drs. David Himmelstein and Steffie Woolhandler, on the administrative costs that beleaguer our current health care system. Using conservative estimates, they found that only 66 percent of the health care dollar actually goes toward medical care. The rest goes toward billing (every doctor’s nightmare), marketing, insurance company profits, and administration. The Harvard study showed that a single-payer national health insurance, which would eliminate the insurance companies and streamline the healthcare system, would save almost $300 billion, enough to provide comprehensive health care for everyone.

Our veterans have the reformed health care system they deserve, one that provides comprehensive, high quality, efficient health care for their entire lives, including nursing home care. And we all deserve this kind of care.

Unlike the VA, which is restricted to specific public hospitals with salaried doctors, a single-payer national health care system would include private hospitals and doctors’ offices. But like the VA, everyone would be covered for all their health care needs, and, like the VA, this health care system would decrease administrative costs and prescription drug costs.

*

And here at home in Massachusetts, where we spend more per person on health care than anywhere in the world, the state Legislature’s health care conference committee still hasn’t been able to negotiate legislation to expand access to affordable health insurance. Ironically, financing is the sticking point, as the legislators look for more money to finance a plan that includes the insurance companies, with their administrative waste, profits and complexity.

It would be so simple if our Legislature would just consider single-payer legislation for our state, the Massachusetts Health Care Trust (Senate Bill 755). No extra funds would be needed; the studies have been done which show a single-payer system is feasible with the money we currently spend on health care. We need to elect the legislators who will make affordable health care reform happen.

Reinhardt on HSAs and having "skin in the game"

Economist bashes Bush HSA proposal
United Press International
February 6, 2006

President Bush’s health savings account (HSA) plan will mean income-based healthcare rationing, an economist said Tuesday.

“Should healthcare be cheaper for high-income people?” asked Princeton economics professor Uwe Reinhart at the National Health Policy Conference in Washington. “Is this a faithful reflection of America’s social ethic?”

Assuming a premium rise of 8 to 10 percent over the next 10 years, the cost of keeping an average family healthy–including insurance premiums, deductibles and co-payments–will be $21,000 per year, far more than low-income families can afford, he said.

And giving a tax break for HSAs will help the wealthy, who pay a relatively high tax rate, but do little to alleviate the problem of soaring healthcare costs for the poor, who will likely be forced to forego medical treatment.

Saving the maximum allowed by HSAs, which could be increased to as much as $10,000 per year, is “easy when you make $200,000, harder if you make $30,000,” he said.

It is also not clear if patients will be willing and able to gather information and make informed decisions about treatments, as they would be called on to do in a transition to a system of individually-based health savings accounts and high-deductible insurance, Reinhart added.

Finally, if paying for medical expenses out of pocket is really about consumers taking charge, he asked, why do corporate executives always negotiate for excellent insurance as part of their compensation packages?

“I propose that coronary bypasses for corporate executives cost $1 million,” he said, “so they can have skin in the game and be empowered.”

http://www.upi.com/

Comment: By Don McCanne, M.D.

You hear it everywhere. Health care consumers need to have “skin in the game.” HSA advocates from the very highest levels, even The White House, are calling for empowering patients by requiring them to have more “skin in the game.” Every time I hear that, I cringe.

The greatest crisis in health care today is affordability, for the uninsured and many of the insured as well. A significant number of the 20 percent or so of people who have significant health care needs have already depleted their reserves. To suggest that they need “skin in the game” conjures up thoughts in me of, “Oh my God, they’re going to skin them alive before they get more health care.” I don’t actually envision much blood and gore, but I do see hapless people stretched to their limits, having to make choices about which of life’s basics should be forgone.

I am grateful to Professor Reinhardt for giving me a new mental image that appears in response to having “skin in the game.” My image actually goes further than the million dollar coronary bypasses for the corporate executives. I see a new health-care funding system tailored to the policies supported by the leaders of the consumer-directed health care movement. To be sure that everyone with health care needs would have “skin in the game,” we’ll make fees flexible and set them at a level that would deplete a person’s assets, leaving them with just enough so they have to make decisions about such basics as food and housing.

What a relief. A vision of Uwe Reinhardt is so much more pleasant than a vision of Hannibal Lecter!

Internal and external validity and the RAND HIE

By Don McCanne, M.D.

In a KPBS debate between James Knight and Don McCanne on consumer-directed health care and health savings accounts, Dr. Knight stated, “… the Rand Health Insurance Experiment… shows that people who pay for their own health care services themselves… will spend about 45 percent less on health care with no significant change in their health care status…”

Actually, the study showed that people who paid 95 percent of their health care costs out-of-pocket had annual expenditures that were 28 percent lower than those who paid nothing for health care. But the much more important point to be challenged is the implication that reduced utilization due to out-of-pocket spending never impacts health status.

Dr. Knight’s statement requires a response which the structured radio format did not permit. Below, internal and external validity are defined, followed by my response to Dr. Knight.

The KPBS debate:
http://www.publicbroadcasting.net/kpbs/news.newsmain?action=article&ARTICLE_ID=873506

The Economics of Health Reconsidered, Second Edition
By Thomas Rice, Ph.D.
Health Administration Press

Two major classifications designate the validity of research studies: internal validity and external validity. Internal validity refers to how well study results accurately represent what actually occurred in the specific setting being examined. External validity refers to how well the results from a particular study can be generalized to other settings and/or populations.

It is generally agreed among the health services research community that the RAND Health Insurance Experiment was very strong in terms of its internal validity. External validity is more of a concern, however.

http://www.ache.org/pubs/rice2.cfm

Email message from Don McCanne (not always known for his diplomacy):

Dr. Knight,

It was a pleasure to debate you on KPBS on the issues of CDHC and HSAs.
We’ll certainly never agree on health care reform, but we really should agree on the objective data in the health policy literature. Bending or breaking the data does not advance the dialogue on reform.

As with other CDHC supporters, you cited the RAND HIE as demonstrating that the decreased utilization due to patient cost sharing did not change health care status. But you are likely aware that economists rightfully have questioned the external validity of this study. Innumerable other studies have demonstrated a significant impairment in access and outcomes resulting from cost sharing. Even a closer look at the RAND HIE data confirmed that cost sharing did have a negative impact on sub-sectors such as hypertensives. The internal validity of the RAND HIE study would apply only to very healthy populations followed for a short enough period of time such that chronic disease would continue to have a very low prevalence in that population.

Applying the RAND HIE results to a cross section of our entire population with its high prevalence of chronic disease is not appropriate, and if done so deliberately to deceive, then is even dishonest.

Though you won’t enjoy it, you should read my Quote of the Day from yesterday that discusses the new RAND study which demonstrates that elimination of cost sharing reduces health care spending.

Based on what I said above, you should immediately challenge my statement. It has very high internal validity for the population using cholesterol-lowering drugs, but its external validity is very limited. Instead of stating, “reduces,” it should have stated, “can reduce.”

If you wish to read more, my message on the new RAND study is at the following link:
https://pnhp.org/news/2006/february/rand_eliminating_cop.php

We’ll certainly continue the debate over single payer, CDHC, and the various incremental approaches. At PNHP we pride ourselves on the fact that our single payer advocacy is based on an honest, comprehensive assessment of the health policy literature. If CDHC is to have any credibility, you’ll have to show us solid data demonstrating that your model will not have the negative impact that has been predicted and is already being confirmed. Your task will not be easy because you are beginning with highly flawed policy theory.

Peace,
Don

Don McCanne, M.D.
Senior Health Policy Fellow
Physicians for a National Health Program www.pnhp.org

RAND – Eliminating copays can reduce health care spending

Varying Pharmacy Benefits With Clinical Status: The Case of Cholesterol-lowering Therapy
By Dana P. Goldman, PhD; Geoffrey F. Joyce, PhD; and Pinar Karaca-Mandic, PhD (From the RAND Corporation, Santa Monica, Calif.)
The American Journal of Managed Care
January 2006

Methods: Using claims data from 88 health plans, we studied 62 274 patients aged 20 years and older who initiated CL (cholesterol-lowering) therapy between 1997 and 2001. We examined the association between copayments and compliance in the year after initiation of therapy, and the association between compliance and subsequent hospital and emergency department (ED) use for up to 4 years after initiation.

Benefit Scenarios: We used estimates from both the compliance and service-use models to estimate the impact of 2 alternative BBC (benefit-based-copayment) designs relative to a base case of a $10 copayment for all patients (the modal copayment). We derived the predictions by first estimating compliance using our copayment and compliance model, and then predicting hospitalizations and ED visits with the compliance and service-use models. The first scenario was chosen to keep total pharmacy payments unchanged. Patients at high and medium risk had no copayments while copayments for low-risk individuals were increased from $10 to $22. In the second scenario, medium-and high-risk patients received the medication for free, while low-risk patients still paid $10. The estimates were computed assuming 6.3 million privately insured or Medicare-insured adults on CL therapy in the United States, as calculated using the 1999-2000 National Health and Nutrition Examination Survey.

Results: Table 3 (available at link below, though this text explains the findings in the table) shows the effects on the sample of 6.3 million CL users of 2 designs for BBCs. The base case is a $10 copayment for all patients. Under scenario 1, high- and medium-risk patients faced no copayment and low-risk patients had copayments of $22. Compared with the base case, full compliance increased 9 percentage points among the high-risk group (62% to 71%) and 10 percentage points among the medium-risk group (59% to 69%), and decreased from 52% to 44% among the low-risk group. There was no change in aggregate health plan payments for drugs because reduced use by the low-risk group was offset by increased use by the high-risk group. The high-and medium-risk groups had no out-of-pocket payments, but out-of-pocket payments by the low-risk group increased $280 million (from $272 million to $552 million). This scenario averted 79 837 hospitalizations overall, even after accounting for an additional 10 406 hospitalizations among the low-risk group. Similarly, ED use was reduced in aggregate by 31 411.

Scenario 2 eliminated copayments for high- and medium-risk patients with no change in copayments for low-risk patients. This benefit increased prescription drug spending by health plans ($486 million) and lowered spending by patients ($311 million). Scenario 2 resulted in 90 243 fewer hospitalizations and 36 493 fewer ED admissions compared with the base case.

Our scenarios with BBCs (Table 3) reduced the number of hospitalizations by approximately 80 000 to 90 000 annually and the number of ED visits by 30 000 to 35 000, resulting in net aggregate savings of more than $1 billion.

Conclusion: The challenge for the healthcare system is to make patients more sensitive to the cost of treatment without encouraging them to forego cost-effective care. Health plans increasingly recognize the need to differentiate coverage based on demonstrated value. For example, some health plans have eliminated copayments for some generic drugs, while others now assign drugs to tiers based on their cost effectiveness. The problem with these approaches is that clinical efficacy of any drug varies across patients.

We showed that strategically reducing copayments for patients who are most at risk can improve overall compliance and reduce use of other expensive services. In an era of consumer-directed healthcare and improved information technology, tailoring copayments to a patient’s expected therapeutic benefit can increase the clinical and economic efficacy of prescription medications.

http://www.ajmc.com/Article.cfm?Menu=1&ID=3072

Comment: By Don McCanne, M.D.

The RAND Health Insurance Experiment (RAND HIE), completed over twenty years ago, demonstrated that patient cost sharing (coinsurance) reduces the utilization of health services and thereby reduces total health care spending. It is the study most commonly cited by supporters of consumer-directed health care (CDHC), because it makes their case that health care spending will decline if patients are required to use some of their own funds whenever health care services are accessed.

Further analysis of the RAND data confirmed that patient cost sharing does decrease use of beneficial services. In conceding this point, the CDHC advocates have called for greater transparency so that patients can select beneficial services that provide value and reject services that are of little or no benefit. Although this trend may lead to posting of price lists and primitive measures of quality, the complexities of medical decisions over which are truly beneficial services are difficult enough for the physician and will never be within the purview of the patient. Deductibles, copayments, and coinsurance will always result in decreased use of beneficial services.

This new RAND study is interesting because it almost seems to be a flip of the prior RAND conclusions. In this study, eliminating copayments reduced total health care spending. However, this principle would apply only in instances wherein the intervention encouraged (e.g., cholesterol-lowering therapy) is less expensive than the consequences of not intervening (e.g., hospitalizations and ED visits).

The concept of adjusting cost sharing based on potential health care cost reductions does have some serious flaws. Just reading this study demonstrates that the administrative complexities are great even with the simple intervention of cholesterol-lowering drugs. It is unlikely that the data required for more complex clinical situations would be readily forthcoming, not to mention the complexity of pre-assigning patients in variable cost-sharing categories. This bird likely will never fly.

Another serious concern is that this study, by design, looked at the financial impact of benefit-based-copayments while seemingly dismissing, as a trade-off, the negative clinical impact that a drug-spending-neutral shift in copayments would produce. That is, in eliminating copayments for high- and medium-risk groups, the copayments for the low-risk group were increased from $10 to $22 in order to keep the total spending for this drug benefit budget-neutral. That $12 increase in copayments saves the health plan $280 million, but for this low-risk group, it results in 10,406 additional hospitalizations and 5,082 additional ED visits. That doesn’t even include additional morbidity and mortality.

As to the focus of the study, the authors state, “…more importantly, these benefits can be achieved without increasing a health plan’s pharmacy costs.”

They didn’t even look at a scenario that would have eliminated copayments for the low risk group. That would have increased plan costs even more, but how many hospitalizations would it have prevented?

The most fundamental flaw of consumer-directed health care is that it depends on demand-side spending control that reduces utilization of truly beneficial services. A single-payer national health insurance program would depend on more carefully targeted and patient-friendly supply-side mechanisms of containing health care costs.

For their next study, instead of defining demand-side mechanisms that would reduce health plan spending at a cost of reduced patient access, RAND should study supply-side mechanisms that would improve resource allocation for all of us, perhaps starting with the reduction of detrimental high-tech excesses that impair both quality and outcomes. Reducing costs while improving outcomes would certainly provide us with greater health care value.