United States Senate
Committee on Finance
News Release
May 18, 2009

The options released today are the third and final round of policy options for discussion before the Finance Committee marks up legislation in June. The options for financing health reform follow the release of policy options for reducing costs in the health care delivery system and for expanding quality, affordable health care coverage to all Americans. Three areas of potential funding sources explored in the financing options are: savings achieved from within the health care system from reductions in current levels of spending; reevaluating current health tax subsidies; and changing non-health tax provisions.

Reducing Geographic Variation

Researchers at Dartmouth and elsewhere have found that health care spending varies widely across the United States. Moreover, higher health care spending does not correspond to better quality care of care. The portion of total spending on health care items and services that do not produce better health outcomes is estimated to be as high as 30 percent of Medicare spending. The policy options explore ways to reduce geographic spending variation by reducing Medicare payments in areas where spending is above the national average. Adjustments would be made to reflect differences in input prices and beneficiary health status.

Exclusion for Employer-Provided Health Insurance

Under current law, employer-provided health insurance is not counted as income for tax purposes and the amount of health care benefits that are counted as tax free is unlimited. This tax-free status encourages employers to offer “Cadillac plans,” or overly generous health care plans that promote the overuse of health care services and drive up health care costs. Moreover, the plans are subsidized by taxpayers as a result of being tax free. The policy options explore five changes to make the exclusion more equitable and efficient. These options include capping the exclusion based on the value of health insurance policy or the income level of the employee eligible for the exclusion. A third option would be to cap the exclusion based on both the value of the health insurance policy and income level. Another option would be to convert the employer-provided health insurance exclusion to an individual tax deduction or credit. The options also consider whether to grandfather in existing plans so that benefits provided under existing collective bargaining agreements are not limited.

http://finance.senate.gov/press/Bpress/2009press/prb051809.pdf

Financing Comprehensive Health Care Reform: Proposed Health System Savings
and Revenue Options (41 pages):
http://finance.senate.gov/sitepages/leg/LEG%202009/051809%20Health%20Care%20Description%20of%20Policy%20Options.pdf

The two previous reports:

Transforming the Health Care Delivery System: Proposals to Improve Patient
Care and Reduce Health Care Costs (52 pages):
http://finance.senate.gov/sitepages/leg/LEG%202009/042809%20Health%20Care%20Description%20of%20Policy%20Option.pdf

Expanding Health Care Coverage: Proposals to Provide Affordable Coverage to
All Americans (63 pages):
http://finance.senate.gov/sitepages/leg/LEG%202009/051109%20Health%20Care%20Description%20of%20Policy%20Options.pdf

Comment:

By Don McCanne, MD

Tomorrow the members of the Senate Finance Committee will retreat to a closed-door session, taking this report with them to walk through their options for financing comprehensive health care reform. Sen. Baucus and others have said that the success of the reform effort is dependent on their ability to find ways to pay for it. What are their prospects for success?

Most of the options discussed in this report are merely tweaks to our current system of financing health care and can have very little impact in overall health care spending. Some of the changes would be beneficial and some are problematic, but most would fall far short of the financing needs of the multi-payer model that the committee has selected.

There are two potential sources that involve real money, though one is quite explicit and the other is not much more than an abstraction.

Reducing the 30 percent of spending in Medicare that does not improve outcomes (Dartmouth Atlas) would seem like a logical source of funds to pay for reform, but recapturing those funds would be very difficult. Merely reducing payments in regions where spending is above average is a very blunt instrument that can have serious negative impacts even if there were some reduction in waste. Also, no mention is made in this report of the Medicare underpayment in other regions.

A much more appropriate use of any wasted funds that could be recovered would be to increase payments in regions that are underfunded, and to shift funds to services that would improve the quality and efficiency of the system, especially by expanding primary care. If these changes were made not only in Medicare, but in our entire health care system, that would entail a large shift in spending, but only as a redistribution of funds. It is merely an abstraction to think of this as a new source of additional funds to finance the other components of the reform proposal.

The real money is in the tax subsidy we provide by making employer-sponsored insurance a tax deductible benefit. That amounts to about $137 billion. A table in the report lists many other tax subsidies for a total of $194 billion, plus another $93 billion for reduced payroll taxes to make a grand total of $287 billion. It is really the $137 billion that is important since the other numbers are primarily accounting issues. For instance, the $93 billion in reduced payroll taxes must be offset by payroll taxes on the balance of income and/or by other taxes if the Medicare and Social Security programs are to remain solvent.

Can we simply eliminate the tax deductibility of employer-sponsored plans and shift that $137 billion to the reform proposals? No. Since premiums for employer-sponsored plans are paid by employees in the form of forgone wage increases, workers could not collectively afford to pay the additional 137 billion in premium costs. If the deductibility is eliminated, that $137 billion would have to be returned to the workers in the form of tax credits,vouchers, or personal tax deductions. Poof! There goes the real money that the committee is counting on finding somewhere.

The report suggests that since the tax deductibility of employer-sponsored coverage represents a regressive tax policy (the wealthy have more of their premium subsidized with taxes than do lower-income individuals) some of the $137 billion could be recovered from higher-income individuals, even if it would result in more administrative complexities. But then how much are you recovering to pay for reform? Maybe $20 billion? That doesn’t help much with our $2.5 trillion health care budget.

The tragedy is that the report that they are taking into closed session gives them very little to work with. At the hearing leading up to this report, they had arrested the individuals who would explain that we very easily could free up maybe $400 billion in pure waste merely by replacing our dysfunctional multi-payer system with a single payer national health program. Even for those who contend that the amount would not be that great, it would still be far, far more than any other proposal on the table.

To keep single payer off the table, to exclude it from their report, and to slam the door on it as they retreat to their secret sessions constitutes legislative malpractice. We should sue them for triple damages. $1,200 billion would certainly pay for a lot of health care. We can pretend that they can come up with $1,200 billion just as they are pretending that they can come up with the funds to pay for the most expensive model of health care reform ever devised, and, at that, one that falls far short on equity, efficiency and universality.

Taming Runaway Health Care Costs

Letters
The New York Times
May 16, 2009
To the Editor:
David Leonhardt, in his May 13 column (“Health Care, a Lesson in Pain,” Economic Scene), is quite right that “the only way to have a sustainable universal health care system is to control costs.” But in analyzing the experts’ testimony before the Senate Finance Committee on how to pay for health care, he did not mention a solution that neither the experts nor the committee wants to consider: major reform of the system.
Runaway costs are due largely to high overhead expenses throughout the system, and to the excessive use of expensive technology. Both of these result from a health care system that is organized like a profit-seeking industry instead of a social service.
If we want health care to be a universal entitlement, it cannot be controlled by market forces and the financial interests of insurers and providers (and the investors who own such a large part of the system).
Some kind of government-regulated single-payer insurance plan and a reorganized nonprofit medical care delivery system may be “off the table” for policy makers right now, but we will never achieve affordable universal coverage without major reform that deals with the real causes of medical inflation.
We don’t need more money; we need a new system.
Arnold S. Relman
Marcia Angell
Cambridge, Mass.
The writers, medical doctors, are former editors in chief of The New England Journal of Medicine.
http://www.nytimes.com/2009/05/16/opinion/l16health.html

Although single payer advocates were not allowed to testify at the Senate Finance Committee roundtable on reform, the New York Times seems to agree that the concept of comprehensive reform is worthy of their Letters page.
When will the opinion editors decide that the concept is worthy of a guest op-ed? More importantly, when will the news editors decide that the the suffering, financial hardship, and death is worthy of a news report on the political suppression of policies that would greatly improve the health and financial outcomes of those who face significant medical problems? Shouldn’t that be an above-the-fold front page story?
Addendum: Today “single payer health care” was discussed on The Diane Rehm Show by guests Dr. David Himmelstein, Sen. Bernie Saunders, Roger Hickey, and Susan Dentzer. The program is archived at:
http://wamu.org/programs/dr/09/05/18.php#26151

Letters
The New York Times
May 16, 2009

To the Editor:

David Leonhardt, in his May 13 column (“Health Care, a Lesson in Pain,” Economic Scene), is quite right that “the only way to have a sustainable universal health care system is to control costs.” But in analyzing the experts’ testimony before the Senate Finance Committee on how to pay for health care, he did not mention a solution that neither the experts nor the committee wants to consider: major reform of the system.

Runaway costs are due largely to high overhead expenses throughout the system, and to the excessive use of expensive technology. Both of these result from a health care system that is organized like a profit-seeking industry instead of a social service.

If we want health care to be a universal entitlement, it cannot be controlled by market forces and the financial interests of insurers and providers (and the investors who own such a large part of the system).

Some kind of government-regulated single-payer insurance plan and a reorganized nonprofit medical care delivery system may be “off the table” for policy makers right now, but we will never achieve affordable universal coverage without major reform that deals with the real causes of medical inflation.

We don’t need more money; we need a new system.

Arnold S. Relman
Marcia Angell
Cambridge, Mass.

The writers, medical doctors, are former editors in chief of The New England Journal of Medicine.

http://www.nytimes.com/2009/05/16/opinion/l16health.html

Comment:

By Don McCanne, MD

Although single payer advocates were not allowed to testify at the Senate Finance Committee roundtable on reform, the New York Times seems to agree that the concept of comprehensive reform is worthy of their Letters page.

When will the opinion editors decide that the concept is worthy of a guest op-ed? More importantly, when will the news editors decide that the the suffering, financial hardship, and death is worthy of a news report on the political suppression of policies that would greatly improve the health and financial outcomes of those who face significant medical problems? Shouldn’t that be an above-the-fold front page story?

Addendum: Today “single payer health care” was discussed on The Diane Rehm Show by guests Dr. David Himmelstein, Sen. Bernie Saunders, Roger Hickey, and Susan Dentzer. The program is archived at:
http://wamu.org/programs/dr/09/05/18.php#26151

Meeting Enrollees’ Needs: How Do Medicare And Employer Coverage Stack Up?

By Karen Davis, Stuart Guterman, Michelle M. Doty, Kristof M. Stremikis
Health Affairs
May 12, 2009
One key issue in health reform concerns the relative roles of coverage offered through private insurance and public programs. This paper compares the experiences of aged Medicare beneficiaries with those of people under age sixty-five who have private employer coverage. Compared with the employer-coverage group, people in the Medicare group report fewer problems obtaining medical care, less financial hardship due to medical bills, and higher overall satisfaction with their coverage. Although access and bill payment problems increased across the board from 2001 to 2007, the gap between Medicare and private employer coverage widened.
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.4.w521v1

Very few individuals, especially those already covered by Medicare, will be surprised by this study. It demonstrates that, compared to people under 65 with private employer-sponsored coverage, Medicare beneficiaries over 65 have fewer problems with access to care, have less financial hardship due to medical bills, and have higher overall satisfaction with their coverage.
The private insurance industry has been taking quite a beating lately, and appropriately so. Much of the criticism has been targeted to the individual and small group insurance market, especially since these more innovative plans have been quite ineffective in preventing financial hardship for those who need care.
In contrast, policy makers and legislators in Washington are claiming that the employer-sponsored segment of the private insurance market is working quite well for us, and reform should include policies to expand this market. But this study isolated the employer-sponsored segment and compared it specifically with Medicare. No contest. Medicare is clearly superior to employer-sponsored plans.
This study will be cited by those who support a Medicare-like option within a market of private plans. But what is the implication for the taxpayers?
An employer-sponsored plan is no longer affordable for average-income workers, and already is subsidized through the tax system. It is absolutely inevitable that additional taxpayer subsidies would be required to pay for private plans, whether through tax credits, tax deductions or vouchers. It is morally wrong to require taxpayers to subsidize inferior private health plans when they could be replaced with a superior, more efficient public insurance program – an expanded and improved Medicare for all.
It’s our tax money. We have a right to demand higher value in health care purchases made by our public stewards – precisely the value that a single payer national health program would bring us.

By Karen Davis, Stuart Guterman, Michelle M. Doty, Kristof M. Stremikis
Health Affairs
May 12, 2009

One key issue in health reform concerns the relative roles of coverage offered through private insurance and public programs. This paper compares the experiences of aged Medicare beneficiaries with those of people under age sixty-five who have private employer coverage. Compared with the employer-coverage group, people in the Medicare group report fewer problems obtaining medical care, less financial hardship due to medical bills, and higher overall satisfaction with their coverage. Although access and bill payment problems increased across the board from 2001 to 2007, the gap between Medicare and private employer coverage widened.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.4.w521v1

Comment:

By Don McCanne, MD

Very few individuals, especially those already covered by Medicare, will be surprised by this study. It demonstrates that, compared to people under 65 with private employer-sponsored coverage, Medicare beneficiaries over 65 have fewer problems with access to care, have less financial hardship due to medical bills, and have higher overall satisfaction with their coverage.

The private insurance industry has been taking quite a beating lately, and appropriately so. Much of the criticism has been targeted to the individual and small group insurance market, especially since these more innovative plans have been quite ineffective in preventing financial hardship for those who need care.

In contrast, policy makers and legislators in Washington are claiming that the employer-sponsored segment of the private insurance market is working quite well for us, and reform should include policies to expand this market. But this study isolated the employer-sponsored segment and compared it specifically with Medicare. No contest. Medicare is clearly superior to employer-sponsored plans.

This study will be cited by those who support a Medicare-like option within a market of private plans. But what is the implication for the taxpayers?

An employer-sponsored plan is no longer affordable for average-income workers, and already is subsidized through the tax system. It is absolutely inevitable that additional taxpayer subsidies would be required to pay for private plans, whether through tax credits, tax deductions or vouchers. It is morally wrong to require taxpayers to subsidize inferior private health plans when they could be replaced with a superior, more efficient public insurance program – an expanded and improved Medicare for all.

It’s our tax money. We have a right to demand higher value in health care purchases made by our public stewards – precisely the value that a single payer national health program would bring us.

What Does It Cost Physician Practices To Interact With Health Insurance Plans?

By Lawrence P. Casalino, Sean Nicholson, David N. Gans, Terry Hammons, Dante Morra, Theodore Karrison, Wendy Levinson
Health Affairs
May 14, 2009
Physicians have long expressed dissatisfaction with the time they and their staffs spend interacting with health plans. However, little information exists about the extent of these interactions. We conducted a national survey on this subject of physicians and practice administrators. Physicians reported spending three hours weekly interacting with plans; nursing and clerical staff spent much larger amounts of time. When time is converted to dollars, we estimate that the national time cost to practices of interactions with plans is at least $23 billion to $31 billion each year.
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.4.w533

And…

Peering Into The Black Box: Billing And Insurance Activities In A Medical Group

By Julie Ann Sakowski, Jeffrey M. Newman, James G. Kahn, Richard G. Kronick, Harold S. Luft
Health Affairs
May 14, 2009
Billing and insurance-related functions have been reported to consume 14 percent of medical group revenue, but little is known about the costs associated with performing specific activities. We conducted semistructured interviews, observed work flows, analyzed department budgets, and surveyed clinicians to evaluate these activities at a large multispecialty medical group. We identified 0.67 nonclinical full-time-equivalent (FTE) staff working on billing and insurance functions per FTE physician. In addition, clinicians spent more than thirty-five minutes per day performing these tasks. The cost to medical groups, including clinicians’ time, was at least $85,276 per FTE physician (10 percent of revenue).
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.4.w544

Much has been said about the large amount of premium dollars that are spent on the administrative excesses of the private insurance industry. These two important studies add additional evidence that the excesses of the private plans also increase the administrative burden placed on physicians and their co-workers.
The price paid for continuing to tolerate our dysfunctional, multi-payer system is tallied not only in manpower hours lost, but also in the monetary value of this wasteful burden placed on our health care professionals. Not quantified here is the price paid in loss of job satisfaction and the potential negative impact that could have on the enthusiasm for advocating for the best patient care possible within the resources made available.
Yesterday President Obama, boiling it down to basics, said, “But whatever plans emerge, both from the House and the Senate, I do believe that they’ve got to uphold three basic principles: first, that the rising cost of health care has to be brought down; second, that Americans have to be able to choose their own doctor and their own plan; and third, all Americans have to have quality, affordable health care.”
Americans have to be able to choose their own plan? Instead of having all essential care covered automatically by a single program, we have to choose a plan that limits coverage and limits choice of health care professionals? And for that we have to pay much more to cover the wasteful administrative costs of the insurers and the physicians? Why is that a basic principle?