The New York Times
March 4, 2002

“2 Powerful Groups Hold Sway Over Buying at Many Hospitals” By Walt Bogdanich

“These two private groups (Premier and Novation) act as middlemen for about half the nation’s nonprofit hospitals, negotiating contracts last year for some $34 billion in supplies, from pharmaceuticals to pacemakers, bandages to beds.

“Each group has the same basic mission: to use the market power of its more than 1,500 hospitals to find the best medical products at the lowest prices.

“But many in the medical world – Mr. Kiani among them – question whether that mission is being compromised by financial ties that the groups, Premier and Novation, have to medical supply companies, ties that, according to an investigation by The New York Times (news/quote), are both extensive and highly unusual.

“The problem begins with this simple fact: The buying groups are financed not by the hospitals that buy products but by the companies that sell them. In other words, the groups take money from the very companies they are supposed to evaluate objectively. Each year, companies pay Premier and Novation hundreds of millions of dollars in fees that represent a percentage of hospital purchases. The more hospitals spend on medical supplies, the more dollars Premier and Novation get from the suppliers.

“In a few cases, Premier or some of its officials have also received stock or options from companies with which Premier contracts.

“Critics say such conflicts of interest can mean that the buying groups do not always choose the products that are best for patients, hospitals or the taxpayers and insurers that pay their bills.”

“Larry Dickson oversees purchasing through Novation for Providence Health System in Seattle.. He says he cannot get specific information on fees, despite the critical role he plays in supplying his hospitals.”

Larry Dickson, purchaser for Providence Health System:

“Why is this so secret? There is an accountability question that is very much concerning a lot of people in health care. And if you ask, and the response you get is, ‘That’s none of your business,’ that raises more questions than it answers.”

http://www.nytimes.com/2002/03/04/business/04BUY.html

Comment: This is yet one more example of marketplace dynamics in our health care system. Theoretically, these middlemen organizations negotiate discounts with the manufacturers of the medical supplies. Bulk purchasing and negotiated pricing are very legitimate methods to help control health care costs. But, because of this business model, most of the benefit passes to the shareholders and executives, with only enough savings passed on to the hospital-providers to create some semblance of lower pricing. With only two major middlemen, this oligopolistic market borders on a monopoly, preventing the realization of the full potential benefit for the hospitals and ultimately the patients.

Another concern about oligopolistic middlemen medical suppliers, which would apply to the oligopolistic pharmacy benefit managers as well, is that competitive bidding will negatively impact the manufacturers that do not receive the contracts, and some of them could actually fail. Those that would remain might defensively increase merger activity and would thereby create an oligopoly of manufacturers. With the oligopolistic middlemen already in place, prices would be driven up sharply.

Consider the following:

National Bureau of Economic Research NBER Working Paper No. 8802 “Health Care and the Public Sector” By David M. Cutler, Ph.D., Professor of Economics, Harvard University

“The make or buy decision in health care has been a subject of debate for decades. The traditional debate pitted arguments of monopoly and monopsony on the one side, and innovation on the other. Government intervention was justified because of monopoly power of physicians and the information problems noted above (in his paper). By controlling medical provision, it was believed that the government could use its monopsony power to purchase such services at a low price. The counter-argument focused on incentives for efficiency. Without market incentives, it was feared that government production would be technologically inefficient and innovation would be stifled.

“Empirically countries where the public sector runs the medical system spend less on medical care than countries with private providers. In OECD countries, for example, the correlation between the public sector share of financing and the share of GDP devoted to medical care is -0.41. More formal analysis controlling for additional variables also finds this conclusion (Globerman and Vining, 1998). There is also evidence for the inefficiency view. People in many European countries are disenchanted with the quality of medical care, and these countries have struggled to increase the efficiency of the medical care system in recent years (Cutler, 2001).

“A recent literature emphasizing the role of public sector contracting has expanded the dimension of this analysis, considering issues of allocational as well as technical efficiency (Hart, Shleifer, and Vishny, 1997; Shleifer, 1998). Consider the question of whether a government should provide hospital services itself or contract with a for-profit hospital company to provide the services. For-profit companies will respond to financial incentives more rapidly than government-run companies, since for-profit managers receive more of the payoff from responding to these incentives. Thus, contracting to a for-profit provider will be preferred IF the incentives that the firm faces are the correct ones. If the incentives are not correct, however, having more responsive for-profit firms may lead to poor outcomes, and providing the service in house might be preferred.”

http://papers.nber.org/papers/w8802

Further comment: Although Dr. Cutler is referring to health care services, his comments can apply to the narrower topic of medical supplies and pharmaceuticals. “Contracting to a for-profit provider (e.g., middlemen firms) will be preferred IF the incentives… are the correct ones.” But we now have more than ample evidence that the incentives of for-profit firms derive from maximizing profit. This can only result in compromise of the public interest to negotiate the maximum benefit for the patient. So the middleman function should be provided “in house,” that is, by a public negotiator.

In the single payer model of reform, the system becomes the single, monopsonistic purchaser of services and goods (supplies, pharmaceuticals, etc.). The negotiations are made with all manufacturers. By shifting emphasis from an oligopoly of manufacturers to a monopsonistic purchaser, the public single payer negotiator will gain control of the negotiating process. Because the negotiator is representing the public good, negotiations will be in the interests of the patients. That means fair prices, not only for the benefit of patients, but also for the manufacturers since it is in the public interest to assure the financial viability of the producers of the products.

Dr. Cutler’s comments about the European disenchantment with quality as representing the inefficiency view of public sector health care must be viewed from the perspective that European health care budgets are significantly smaller than the amount that is already dedicated to health care in the United States. A system of public funding in this country could avoid patient disenchantment by locking into the budget our current high level of funding.

Since the incentives of the for-profit firms can never provide the motivation to place the interests of patients over the interests of investors, let’s finally quit trying to make that model work. Instead, let’s go ahead and use an in-house negotiator that places the interests of patients above all else, avoiding disenchantment by targeting our abundant resources for health care. Let’s adopt a publicly administered, single payer health care system.

Kip Sullivan responds on health care oligopolies:

If I were the New York Times reporter who wrote this sentence, I would have written it this way: “The problem is two-fold: (1) The buying groups are financed by companies that stand to gain from the buying groups’ decisions, and (2) the buying groups are the natural outgrowth of a health-care system which has forced all players into a race to get big.” The article discusses the problem of oligopoly, but it doesn’t call the reader’s attention to the basic cause of rampant consolidation in the hospital industry.

The most fundamental problem is that the introduction of HMOs into the US health care system by the HMO Act of 1973 eventually made size the highest priority for all participants in the health care system. That was not, of course, the stated goal of HMO proponents. HMO proponents argued that HMOs would save money because they would improve medical practice — ignorant and greedy doctors would be induced or forced to cut out unnecessary services and beef up the provision of preventive services. In fact, HMOs saved money by rationing and extracting large discounts from providers. Both tactics were executed most successfully by the largest HMOs and, eventually, the largest traditional insurers which morphed into managed-care plans. HMO advocates most definitely did not argue that the creation of an HMO industry would confer oligopsony power upon the nation’s dominant health insurers, and that this power would be used to force doctors to cut medical services and to extract discounts from providers. But they might as well have, because that’s what we got.

It didn’t take long for the rest of the health care system to respond in kind. By the mid-1980s, the pace of consolidation had picked up throughout the entire health care industry, and by 1993, when politicians everywhere endorsed managed competition, the pace became just plain frantic. With the possible exception of the federal and state enforcers of anti-trust laws, there is no force capable of stopping this rush to feudalism. But even if anti-trust authorities wake up, it’s unlikely anti-trust suits will ever force a significant deconsolidation of the system. Anti-trust suits are just too slow and too expensive.

My off-the-cuff opinion is that deconsolidation is only possible under a single-payer system, and even then it won’t be easy to accomplish. My on-the-cuff opinion is that it’ll never happen under the current system.

Uwe Reinhardt responds to Kip Sullivan’s comments on health care oligopolies:

One can put a somewhat different spin than Kip’s on the consolidation in the hospital industry.

Like the airline industry, the hospital industry is characterized by high operating leverage–that is, high fixed costs relative to variable costs. When such an industry slides into a state of excess capacity–as it had by the mid 1980s–it would engage in price wars under competition. Until 1990s, the hospitals weathered this condition, because the private insurance industry paid them 130% of average cost, which was enough to finance an average occupancy ratio of 60% or so. (Medicare probably paid full cost calculated at full occupancy).

When the demand side started to force real price competition on the hospitals sector, it initially was driven into price wars that pushed many hospitals into the red. The only way to react to this threat is what the airlines did earlier: consolidate or slice up the market. The airlines did both–and used frequent flyer miles to cement a clientele in place. Hospitals simply aggregated into larger oligopolies.

Under a single payer system you would ultimately need capacity planning. No single payer would sit by idly, covering the full costs of half empty hospitals.

Thus, the choice in the 1980s was never competition vs. regulation, but oligopoly vs. regulation.

Uwe R.

The New York Times
March 4, 2002

“2 Powerful Groups Hold Sway Over Buying at Many Hospitals” By Walt Bogdanich

“These two private groups (Premier and Novation) act as middlemen for about half the nation’s nonprofit hospitals, negotiating contracts last year for some $34 billion in supplies, from pharmaceuticals to pacemakers, bandages to beds.

“Each group has the same basic mission: to use the market power of its more than 1,500 hospitals to find the best medical products at the lowest prices.

“But many in the medical world – Mr. Kiani among them – question whether that mission is being compromised by financial ties that the groups, Premier and Novation, have to medical supply companies, ties that, according to an investigation by The New York Times (news/quote), are both extensive and highly unusual.

“The problem begins with this simple fact: The buying groups are financed not by the hospitals that buy products but by the companies that sell them. In other words, the groups take money from the very companies they are supposed to evaluate objectively. Each year, companies pay Premier and Novation hundreds of millions of dollars in fees that represent a percentage of hospital purchases. The more hospitals spend on medical supplies, the more dollars Premier and Novation get from the suppliers.

“In a few cases, Premier or some of its officials have also received stock or options from companies with which Premier contracts.

“Critics say such conflicts of interest can mean that the buying groups do not always choose the products that are best for patients, hospitals or the taxpayers and insurers that pay their bills.”

“Larry Dickson oversees purchasing through Novation for Providence Health System in Seattle.. He says he cannot get specific information on fees, despite the critical role he plays in supplying his hospitals.”

Larry Dickson, purchaser for Providence Health System:

“Why is this so secret? There is an accountability question that is very much concerning a lot of people in health care. And if you ask, and the response you get is, ‘That’s none of your business,’ that raises more questions than it answers.”

http://www.nytimes.com/2002/03/04/business/04BUY.html

Comment: This is yet one more example of marketplace dynamics in our health care system. Theoretically, these middlemen organizations negotiate discounts with the manufacturers of the medical supplies. Bulk purchasing and negotiated pricing are very legitimate methods to help control health care costs. But, because of this business model, most of the benefit passes to the shareholders and executives, with only enough savings passed on to the hospital-providers to create some semblance of lower pricing. With only two major middlemen, this oligopolistic market borders on a monopoly, preventing the realization of the full potential benefit for the hospitals and ultimately the patients.

Another concern about oligopolistic middlemen medical suppliers, which would apply to the oligopolistic pharmacy benefit managers as well, is that competitive bidding will negatively impact the manufacturers that do not receive the contracts, and some of them could actually fail. Those that would remain might defensively increase merger activity and would thereby create an oligopoly of manufacturers. With the oligopolistic middlemen already in place, prices would be driven up sharply.

Consider the following:

National Bureau of Economic Research NBER Working Paper No. 8802 “Health Care and the Public Sector” By David M. Cutler, Ph.D., Professor of Economics, Harvard University

“The make or buy decision in health care has been a subject of debate for decades. The traditional debate pitted arguments of monopoly and monopsony on the one side, and innovation on the other. Government intervention was justified because of monopoly power of physicians and the information problems noted above (in his paper). By controlling medical provision, it was believed that the government could use its monopsony power to purchase such services at a low price. The counter-argument focused on incentives for efficiency. Without market incentives, it was feared that government production would be technologically inefficient and innovation would be stifled.

“Empirically countries where the public sector runs the medical system spend less on medical care than countries with private providers. In OECD countries, for example, the correlation between the public sector share of financing and the share of GDP devoted to medical care is -0.41. More formal analysis controlling for additional variables also finds this conclusion (Globerman and Vining, 1998). There is also evidence for the inefficiency view. People in many European countries are disenchanted with the quality of medical care, and these countries have struggled to increase the efficiency of the medical care system in recent years (Cutler, 2001).

“A recent literature emphasizing the role of public sector contracting has expanded the dimension of this analysis, considering issues of allocational as well as technical efficiency (Hart, Shleifer, and Vishny, 1997; Shleifer, 1998). Consider the question of whether a government should provide hospital services itself or contract with a for-profit hospital company to provide the services. For-profit companies will respond to financial incentives more rapidly than government-run companies, since for-profit managers receive more of the payoff from responding to these incentives. Thus, contracting to a for-profit provider will be preferred IF the incentives that the firm faces are the correct ones. If the incentives are not correct, however, having more responsive for-profit firms may lead to poor outcomes, and providing the service in house might be preferred.”

http://papers.nber.org/papers/w8802

Further comment: Although Dr. Cutler is referring to health care services, his comments can apply to the narrower topic of medical supplies and pharmaceuticals. “Contracting to a for-profit provider (e.g., middlemen firms) will be preferred IF the incentives… are the correct ones.” But we now have more than ample evidence that the incentives of for-profit firms derive from maximizing profit. This can only result in compromise of the public interest to negotiate the maximum benefit for the patient. So the middleman function should be provided “in house,” that is, by a public negotiator.

In the single payer model of reform, the system becomes the single, monopsonistic purchaser of services and goods (supplies, pharmaceuticals, etc.). The negotiations are made with all manufacturers. By shifting emphasis from an oligopoly of manufacturers to a monopsonistic purchaser, the public single payer negotiator will gain control of the negotiating process. Because the negotiator is representing the public good, negotiations will be in the interests of the patients. That means fair prices, not only for the benefit of patients, but also for the manufacturers since it is in the public interest to assure the financial viability of the producers of the products.

Dr. Cutler’s comments about the European disenchantment with quality as representing the inefficiency view of public sector health care must be viewed from the perspective that European health care budgets are significantly smaller than the amount that is already dedicated to health care in the United States. A system of public funding in this country could avoid patient disenchantment by locking into the budget our current high level of funding.

Since the incentives of the for-profit firms can never provide the motivation to place the interests of patients over the interests of investors, let’s finally quit trying to make that model work. Instead, let’s go ahead and use an in-house negotiator that places the interests of patients above all else, avoiding disenchantment by targeting our abundant resources for health care. Let’s adopt a publicly administered, single payer health care system.

Kip Sullivan responds on health care oligopolies:

If I were the New York Times reporter who wrote this sentence, I would have written it this way: “The problem is two-fold: (1) The buying groups are financed by companies that stand to gain from the buying groups’ decisions, and (2) the buying groups are the natural outgrowth of a health-care system which has forced all players into a race to get big.” The article discusses the problem of oligopoly, but it doesn’t call the reader’s attention to the basic cause of rampant consolidation in the hospital industry.

The most fundamental problem is that the introduction of HMOs into the US health care system by the HMO Act of 1973 eventually made size the highest priority for all participants in the health care system. That was not, of course, the stated goal of HMO proponents. HMO proponents argued that HMOs would save money because they would improve medical practice — ignorant and greedy doctors would be induced or forced to cut out unnecessary services and beef up the provision of preventive services. In fact, HMOs saved money by rationing and extracting large discounts from providers. Both tactics were executed most successfully by the largest HMOs and, eventually, the largest traditional insurers which morphed into managed-care plans. HMO advocates most definitely did not argue that the creation of an HMO industry would confer oligopsony power upon the nation’s dominant health insurers, and that this power would be used to force doctors to cut medical services and to extract discounts from providers. But they might as well have, because that’s what we got.

It didn’t take long for the rest of the health care system to respond in kind. By the mid-1980s, the pace of consolidation had picked up throughout the entire health care industry, and by 1993, when politicians everywhere endorsed managed competition, the pace became just plain frantic. With the possible exception of the federal and state enforcers of anti-trust laws, there is no force capable of stopping this rush to feudalism. But even if anti-trust authorities wake up, it’s unlikely anti-trust suits will ever force a significant deconsolidation of the system. Anti-trust suits are just too slow and too expensive.

My off-the-cuff opinion is that deconsolidation is only possible under a single-payer system, and even then it won’t be easy to accomplish. My on-the-cuff opinion is that it’ll never happen under the current system.

Uwe Reinhardt responds to Kip Sullivan’s comments on health care oligopolies:

One can put a somewhat different spin than Kip’s on the consolidation in the hospital industry.

Like the airline industry, the hospital industry is characterized by high operating leverage–that is, high fixed costs relative to variable costs. When such an industry slides into a state of excess capacity–as it had by the mid 1980s–it would engage in price wars under competition. Until 1990s, the hospitals weathered this condition, because the private insurance industry paid them 130% of average cost, which was enough to finance an average occupancy ratio of 60% or so. (Medicare probably paid full cost calculated at full occupancy).

When the demand side started to force real price competition on the hospitals sector, it initially was driven into price wars that pushed many hospitals into the red. The only way to react to this threat is what the airlines did earlier: consolidate or slice up the market. The airlines did both–and used frequent flyer miles to cement a clientele in place. Hospitals simply aggregated into larger oligopolies.

Under a single payer system you would ultimately need capacity planning. No single payer would sit by idly, covering the full costs of half empty hospitals.

Thus, the choice in the 1980s was never competition vs. regulation, but oligopoly vs. regulation.

Uwe R.

The New England Journal of Medicine
February 21, 2002
Volume 346:635-640
By Sara Rosenbaum, J.D.

“Medicaid, codified under Title XIX of the Social Security Act, provides federal financial assistance to states operating approved medical-assistance plans. Unlike eligibility for Medicare, eligibility for Medicaid is means-tested (i.e., there are financial criteria for enrollment); like Medicare, however, Medicaid is an individual legal entitlement.”

“In August 2001, apparently in response to recommendations by the National Governors Association, the Bush administration announced a section-1115 demonstration initiative known as Health Insurance Flexibility and Accountability (HIFA).”

“The initial purpose of HIFA may have been to permit reductions in coverage as a trade-off for a limited expansion of eligibility.”

“HIFA appears to be an attempt to restructure Medicaid as a program that provides “premium support,” with the states subsidizing the enrollment of low-income persons in private insurance plans that offer more limited coverage than the traditional Medicaid program. Were most or all states to apply for participation in the HIFA program (section 1115 does not impose an upper limit on the number of participating states), then eventually the principles of Medicaid coverage would parallel those of private insurance coverage. In 1997, Congress took a step in this direction when it enacted the State Children’s Health Insurance Program. This program gives states the option of buying private insurance for uninsured children in families near the federal poverty level, rather than expanding Medicaid to cover them.

“The long-term consequences of such changes for the millions of beneficiaries with chronic illness or disability are unclear. As of the end of 2001, Congress had held no oversight hearings on HIFA. Nor has there been congressional scrutiny of the program’s emphasis on demonstration projects that help low-income workers buy coverage through their employers when it is available – despite concern about ‘health insurance crowd-out.’ This phenomenon occurs when public funds are substituted for employers’ contributions to health insurance coverage.

“In view of the fundamental disagreement over which features of Medicaid are problematic, much less how to change them, broad congressional action is unlikely in the near future. It remains to be seen whether Congress will permit the Bush administration to transform Medicaid into a premium-support program and to do so with a minimum of oversight.”

http://content.nejm.org/cgi/content/full/346/8/635 (Available for subscribers or by purchase only.)

Comment: Recent attempts to reform health care coverage have been left primarily to the employers and health plans interacting in the health care marketplace. Health security for average-income individuals and families is being threatened by the market’s response in shifting risk to the patient-employee-beneficiary.

In the meantime, in Washington, less attention has been given to low-income health care disparities because of the “success” of Medicaid and S-CHIP in meeting those needs (though there have been notable attempts on the state level to expand S-CHIP to the parents of the covered children). But what is happening to these programs designed to assure that the most vulnerable do have health care coverage? They are falling victim to the administration’s favored policy principles of “accountability and flexibility,” using the model of “premium support.” What this means is that these chronically under-funded programs will not only face further budget limitations, but they will also provide fewer benefits. This will be disastrous for low-income individuals in America because of unaffordable out-of-pocket expenses and fewer providers willing to accept patients on these programs.

More than ever, the moral imperative is quite clear. Since we already have the resources to provide comprehensive care for everyone, we must accelerate our efforts to reform the way in which we pay for health care since that has been the primary cause of misallocation of our resources. In the meantime, it is absolutely essential that we protect the programs that we do have until we can enact an equitable system of funding comprehensive coverage for everyone.

Professor Donald Light, responding on premium support and HIFA (Health Insurance Flexibilty and Accountability):

A major consequence of any premium support approach that depends on individuals neogtiating in the individual market and with providers is that purchasing power will plummet for the same amount of money. Hospitals, clinics, labs and physicians charge individuals about 4-5 times as much as their regular negotiated rates with plans and insurers. Insurance companies charge much higher premiums for less coverage on the argument that they are at serious risk when they insure one patient at a time. This argument, to my knowledge, is completely false from the perspective of the overall risk pool that an insurer subscribes. In short, a HIFA approach saddles the poorest citizens with the highest bills for the least care.

Subcommittee on Health
Committee on Energy and Commerce U.S. House of Representatives
February 28, 2002

Mary R. Grealy, President, Healthcare Leadership Council:

“The members of the HLC also support the President’s inclusion of more than $90 billion in his recent budget to begin mapping the way to coverage for a significant number of the uninsured. The majority of this funding would provide a refundable health tax credit that could be advanced to families to help them purchase insurance plans in the non-group insurance market. The HLC believes this is an important step toward providing easier access to health care coverage for the millions of working Americans who are without it.”

Judith Feder, Ph.D., Dean of Public Policy, Georgetown University:

“Although seemingly addressing the same problem, two different policy mechanisms can have very different impacts. Tax credits reach a large number of people, but most of them are not uninsured. Indeed, only a small proportion of the uninsured population-disproportionately young and healthy-are likely to participate in the new program and those who do will receive only modest benefits. And, at the same time it expands coverage, the pursuit of tax equity actually undermines coverage already in existence. As a result some of its coverage gains are offset by coverage offsets. In large part, this outcome reflects the fact that tax credits are not simply aimed at expanding coverage; they also aim at greater tax equity-that is, equalizing tax preferences wherever health insurance is purchased.

“The sole purpose of a public program is to expand coverage. It concentrates a comprehensive benefit on a narrowly defined population, the vast majority of whom are uninsured. If the nation’s primary goal is to expand meaningful coverage for those who need it the most, the public program is by far the more effective mechanism.”

http://energycommerce.house.gov/107/hearings/02282002Hearing499/hearing.htm

Comment: This hearing was significant because it heard testimony from several individuals on one of the most important subjects in health care today: providing coverage for the uninsured.

Much of the testimony on behalf of tax credits was based on political ideology as is exemplified by Mary Grealy’s comment that, “HLC believes this is an important step.”

Other testimony objectively defined the problem of the uninsured and provided solid evidence of the potential impact of various policy approaches on expanding coverage. Judith Feder’s testimony reveals that tax proposals are poorly targeted, whereas public programs such as Medicaid and S-CHIP are much more effective in expanding coverage for the uninsured.

In approaching health care reform through incremental steps, there is no question as to the proper approach. By defining the problem and analyzing the impact of various health policy approaches, it is clear that expanding public programs would work, and using tax credits wouldn’t. Ideology for the sake of ideology must be dismissed.

But the most disconcerting feature of the hearings is that testimony was limited to incrementalisim. The consensus, if you believe it, is that any single program of universal health care coverage must be left off of the agenda. All parties have entered an implied agreement that we will meet in the center through incrementalisim. But this is absolutely untrue. The Robert Wood Johnson coalition on the uninsured demonstrates this. The dozen organizations involved are spending $10 million to publicize the plight of the uninsured, but they are in agreement that they are not in agreement on what we should do about it. The only agreement that they have reached is that they will keep single payer advocates out of the process.

The preliminary results of the California Health Care Options Project demonstrate that single payer proposals would provide comprehensive care to everyone and reduce health care costs. The other proposals that build on our current, flawed system are not universal, nor comprehensive, and they would all increase health care costs.

It’s long past time to open the door and allow single payer advocates to place their models on the table. We should be looking at all policy approaches. And the only precondition to the process that we should insist on is that everyone would agree to place the interests of the patient above that of their own special interests.

American Journal of Public Health
March, 2002
By Brady G. S. Case, AB, David U. Himmelstein, MD and Steffie Woolhandler, MD, MPH

“Conclusions. Health care personnel are losing health insurance coverage more rapidly than are other workers. Increasingly, the health care sector is consigning its own workers and their children to the ranks of the uninsured.”

http://www.ajph.org/cgi/content/abstract/92/3/404

Los Angeles Times February 28, 2002 “More Health-Care Aides Lack Insurance, Study Finds” By Sufiya Abdur-Rahman

Drew Altman, president of Kaiser Family Foundation:

“You’d like the health-care industry to practice what it preaches, but the health-care industry is just like any other industry when it comes to low-wage workers.”

Walter Zelman, president of the California Assn. of Health Plans:

“It’s not any worse for a low-wage employee in a restaurant to be uninsured than a low-wage employee in a nursing home to be uninsured. They have the same family, the same risks and it’s unfortunate for anyone to be uninsured.”

David Himmelstein, M.D., Harvard professor and co-author of the study:

“There’s something particularly offensive in saying to a woman who’s working for a hospital that if you get sick or your kids get sick, you’re not going to be able to get the care you need.”

http://www.latimes.com/news/local/la-000015228feb28.story?coll+la%2Dheadlines%2Dcalifornia

Health Affairs
February 27 2002
by Mary A. Laschober, Michelle Kitchman, Patricia Neuman, and Allison A. Strabic

“By fall 1999, 38 percent of beneficiaries lacked drug coverage, based on point-in-time estimates. This is much higher than previous estimates that measured beneficiaries’ drug coverage at any time during the calendar year. Many of Medicare’s most vulnerable beneficiaries-rural (50 percent), near-poor (44 percent), and oldest old (45 percent)-were most likely to lack drug coverage in the fall of 1999.”

“With increasingly unaffordable premiums, the Medigap market is unlikely to absorb the recent and serious declines in Medicare HMO availability. It is also improbable that employer retiree plans or Medicaid will pick up the slack. Numerous studies show trends in declining retiree coverage. Although the MCBS data presented in this paper suggest that employer-sponsored coverage was relatively stable during 1996-1999, declines in retiree coverage are expected in the future. Medicaid will likely remain a critical source of supplemental coverage for the lowest-income beneficiaries but is unlikely to help middle- and higher-income beneficiaries, who may lose coverage from other sources.”

“This uncertainty places even greater pressure on policymakers to add a prescription drug benefit to Medicare.”

http://www.healthaffairs.org/WebExclusives/Laschober_Web_Excl_022702.htm

House Ways and Means Subcommittee on Health

February 13, 2002

Excerpts from the written testimony of Jonathan Gruber, Ph.D., Professor of Economics at Massachusetts Institute of Technology:

“The results that I discuss below come from a very detailed microsimulation model of health insurance decisions… analyzing the President’s proposal for a health insurance tax credit in his FY 2003 budget.”

“… the tax credit does have its intended effect of significantly increasing the purchase of nongroup insurance by the uninsured. But it also has an unintended effect of slightly eroding the group insurance market, so that the net reduction in the uninsured is fewer than 2 million…”

“One of the key debating points about those modeling tax credits for health insurance is the extent to which individuals will find low cost nongroup plans on which they can use their tax credit. This is an important issue because the costs of nongroup insurance plans are so high. For a 40 year old male in excellent health, the average cost of nongroup insurance is roughly $2000 per year. But these costs rise dramatically with age and poor health status. Indeed, in my data, for the typical uninsured family the cost of a nongroup policy is estimated to be roughly $10,000.”

“The main disadvantage (of the President’s tax credit proposal) is that this policy has a very modest impact on the number of uninsured in the U.S. My central estimates suggest that the number of uninsured will be reduced by fewer than 2 million, or 5% of the existing number of uninsured. This amount equals roughly the rise in the uninsured estimated to be caused by the recent rise in unemployment, according to a recent analysis by myself and the Kaiser Family Foundation.”

“The other disadvantage of this approach is that it displaces, rather than supplementing, the group insurance market. The group insurance market remains the most effective way to deliver insurance benefits, through its use of large pools to minimize the variation in health risk to insurers. My estimates suggest that for every one person gaining insurance coverage, two persons will be leaving the group insurance market.”

“… I am quite skeptical of claims that low cost policies can raise the effectiveness of this tax credit for two reasons. First, if such low cost policies exist today, why are there still 40 million uninsured Americans? The answer is that most Americans do not want catastrophic-type coverage; they apparently would rather be uninsured than buy low-premium, high out-of-pocket-cost policies. The enormous out-of-pocket costs that are typically associated with these low cost policies make them unattractive to the uninsured. Second, the very reason that such policies can be low cost is that they are only purchased by the very healthiest individuals for whom they are affordable; in other words, there is ‘virtuous selection,’ as opposed to ‘adverse selection.’ If a credit allows less healthy persons to purchase these policies, they will have to raise their prices to adjust for this higher cost risk pool. In other words low prices on these policies today do not guarantee low prices in the world of a health insurance tax credit; it seems likely that those low price policies will increase in price once more ‘typical’ persons are buying them.”

“… raising the income limits (to increase eligibility for the tax credits) actually had pernicious effects on the insurance market on net: the reduction in the uninsured was unchanged, but there was a much larger net movement from group to nongroup insurance. As a result, the total cost of the policy rose by over one-third with no gain in insurance coverage. This finding highlights how important it is to keep tax policies tightly targeted.”

(The full written testimony of Professor Gruber will be posted on the House Ways and Means webpage in about two months. These results are part of an ongoing project with the Kaiser Foundation to estimate the effects of tax credits and public program expansions designed to expand coverage for the uninsured; the full results from that project will be publicly released soon.)

Comment: This tightly targeted tax policy proposal would reduce the numbers of uninsured by 5%. What about the other 95%?

By supporting tax credits for the uninsured, the administration is conceding that government intervention is warranted. Then why not adopt policies targeting 100% of the uninsured? And a single risk pool would eliminate the problem of high cost plans in the non-group market.

How much longer are we going to play with the numbers? Let’s adopt policies that, by their very design, will automatically solve our health care problems: global budgeting, single risk pool, universal coverage, and comprehensive benefits. We’ve repeatedly cranked the numbers for single payer reform, and they work. Let’s do it.

The Orange County Register
February 22, 2002
By Bernard J. Wolfson

Serious political and financial obstacles stand in the way of congressional action this year to fix any of the myriad problems afflicting the Medicare program, according to analysts and legislative aides who spoke Thursday at a health policy conference hosted by UC Irvine’s graduate school of management.

Norman J. Ornstein, a political commentator and fellow at the American Enterprise Institute, raised the sobering possibility of yet another brake on Medicare action: a large-scale U.S. military attack against Iraq, which he said is in the planning stages and could happen this summer or early fall. At that point, all bets on domestic legislation would be off.

John E. McManus, Republican staff director on the House Ways and Means health subcommittee… said the interest of taxpayers must be respected in any Medicare legislation, and that costs can be held down more effectively if health-care consumers are required to shoulder a bigger share of the financial responsibility for their choices.

John McManus:

“Imagine if you had grocery insurance, and every time you went to the market your insurance paid 80 percent of it. You’d eat a whole lot differently -and so would your dog.”

http://www.ocregister.com/search/, click “Browse the past 7 days,” then “2-22-2002,” then under “Business” click “Medicare fix doubtful this year, experts say.”

Comment: This oft-repeated analogy of food insurance and health care coverage belittles the serious problems of hunger and health care access. The silliness of this argument is apparent when considering that none of those nations providing universal health care coverage also provide “grocery insurance,” but most of them have better programs to assure that hunger is eliminated.

McManus’ suggestion that Medicare beneficiaries should bear more costs (when they already bear half the costs of Medicare) will only result in greater financial barriers to health care access for the very large segment with only modest incomes. How can such an important public official support such cruel health policies and then glibly pass it off with a joke about dog food insurance? Ways and Means Chairman Bill Thomas should seriously consider replacing his staff director with someone who has at least a modicum of sensitivity for the needs of Medicare beneficiaries.

And please forgive me for being off topic by including the comment on the planning of the large scale U.S. military attack against Iraq. Personally, I’m in mourning for the soul of our nation. (I know that I will receive several requests to be removed from this list, but I had to speak up anyway.)

Don McCanne

Prof. Donald W. Light, on CalPERS and the Wennberg paper:

“This CalPERS announcement about its inability to hold down skyrocketing costs and the Wennberg paper on continued large disparities in funding reflect a systemic problem that the comments on Wennberg’s article do not address. Every other industrialized nation has been able and is largely able to manage overall expenditures and to reduce the large disparities that most of them inherited because they have one or another kind of universal health coverage and management system. Some of them have competition, or contestability, within their overall frameworks; but a voluntary, market-based system is unable to address issues of inequality, overpricing, or overutilization.”

California Employer Health Benefits Survey, 2001
February 2002

“…two-thirds (66%) of large employers (200 or more workers) and one-third (35%) of small businesses (fewer than 200 employees) say they are likely to increase what employees pay for health insurance in the next year.”

http://www.kff.org/content/2002/3205/CAEHBIChartpack.pdf

Comment: California has been a leader in innovative models of health care coverage. Now there is discussion of the trend to shifting more health care costs to individuals. This isn’t a trend; it’s a tectonic shift.

California health insurance premiums increased 9.9% in 2001, more than double the inflation rate of 4.2%. Our current market oriented system of controlling health care costs has failed. Employers are finding the increases in costs to be intolerable. They are looking for relief.

Ironically, the one model of health care reform that would work is being excluded from almost all current discussions of reform. A single payer system would use global budgeting to freeze health care expenditures at the current level as a percentage of the GDP (or a comparable index that adjusts only for inflation). Businesses would no longer have to be concerned about increasing health care costs, not to mention being relieved of the administrative task of contracting for or managing health benefit programs.

As businesses look at their options, they should place on the table the single payer proposal. It will shine brightly sitting next to the other options.

The Sacramento Bee
February 21, 2002
By Lisa Rapaport

The California Public Employees’ Retirement System is exploring a radical overhaul of its health benefits program, admitting it can no longer use the market power of its 1.2 million members to hold down skyrocketing health care costs.

As HMO pullouts have forced members to enroll in CalPERS’ two self-insured PPO plans, PERS Care and PERS Choice, those plans have seen their reserves dip to dangerously low levels. Members in those plans, meanwhile, have seen their rates increase much faster than their counterparts in the HMO plans.

Allen Feezor, CalPERS health benefits administrator:

“HMOs are aggressively managing their risk at the expense of PERS enrollees. If the situation is not addressed, it will jeopardize our statutory requirement to provide affordable health care coverage to all, regardless of age or location,”

Barbara Adachi, a regional managing director for Deloitte & Touche:

“CalPERS needs to act now to avoid further deterioration in its plans. There’s an understanding that it will take time, but we already know that the market will not be able to solve the problems CalPERS faces.”

http://www.sacbee.com/content/business/story/1653915p-1729331c.html

Comment: CalPERS is the nation’s second largest provider of health benefit plans, surpassed only by the Federal Employees Health Benefits Program. And now there is general agreement that the market will not be able to solve the problems CalPERS faces. Why? The reasons are complex, but one important fact is that private health plans in the marketplace are mandated, based on “good” business practices, to avoid risk, shifting it elsewhere. Concentrating high-cost beneficiaries into CalPERS’ self-insured plans demonstrates that size alone will not contain costs when the market is able to siphon off low-cost beneficiaries.

Haven’t we had enough of these attempts to use the magic of the marketplace to control costs and provide comprehensive coverage for everyone. It is not as if we need to continue more real-life studies on the dynamics of the health care marketplace. The experiment has been completed with seemingly endless extensions that serve no other purpose than to prolong the life and profits of these failed marketplace health plans. It is time to end policies that prolong the viability of these parasitic middleman plans, and to enact policies that prolong the viability of patients!

A single, publicly administered, universal program of health insurance is precisely what we need. Let’s go for it!