Commentary on New Health Proposals

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Commentary on New Health Proposals by PNHP Senior Health Policy Fellow Dr. Don McCanne, author “Health Policy Quote of the Day” - archived at www.pnhp.org

• Bush’s Health Plan
• The Healthy Americans Act - Sen. Ron Wyden
• Health Care Coverage for the Uninsured
• America’s Health Insurance Plans
• Massachusetts and California Plans
• Gov. Schwarzenegger’s Health Plan
• Federal Bill to Encourage State Reform

Original Quote of the Day - January 22, 2007

By giving every family with health insurance a $15,000 deduction from their taxable income, the president provides incentives to buy less expensive plans, since the tax benefit is the same for the cheapest plan and every other plan up to a value of $15,000.

Why would the president want to provide tax incentives to encourage individuals to buy cheaper health plans? He claims that insurance causes patients to over-utilize health care, and that health care costs will not be controlled until we end this waste. The fact is that the savings achieved by having the healthy decline services of marginal value is only a minuscule portion of our total health care budget. Most health care is provided to sick or injured individuals who need the care. The cheaper plans that the president is encouraging will increase out-of-pocket costs, often making actual health care unaffordable for precisely those who really do need it.

A further potential impact is that employers who would like to terminate their health benefit programs would have less incentive to continue to provide coverage since the employee now would become eligible for the $15,000 deduction. This further advances the president’s goal of shifting responsibility to the individual through an expansion of the ownership society - wherein you own the right to pay for your medical care.

His proposal also is a regressive method of funding health care. Since every insured individual receives the same deduction, higher-income individuals receive a greater government subsidy because of our graduated tax schedule. Worse, for individuals with modest incomes, the tax subsidy is not enough to make insurance affordable, and they will continue to do without.

At a time when everyone agrees that major reform is essential, the president comes up with this proposal. Doesn’t he care about us?

Original Quote of the Day - December 14, 2006

Sen. Wyden’s proposal is an individual mandate to purchase private health plans. Much has been written about the flaws of such models, and no attempt will be made to address most of those issues here. Rather only one serious fundamental flaw in the application of economic theory will be discussed.

The theory is that in competitive labor markets, total compensation is determined by the market, but the distribution between payroll and other benefits such as health plans and pensions does not influence the total compensation. Thus termination of a health benefit program results in an increase in wages that has the same monetary value.

In Sen. Wyden’s proposal, not only does it assume this theory to be true, it also provides back-up enforcement by requiring that employers increase wages by the same amount of the health benefit that will be terminated under this Act, but only for the first two years. After that, the competition of labor markets resumes, but without the complication of a health benefit program. Employees are on their own for accessing and funding their health plans.

Whether through union efforts or in the open job market, compensation is negotiated, at least theoretically. That includes wages and often health benefits and pensions. It does not include food. It does not include housing. It does not include transportation. It does not include any other basic needs. Those needs fall under the category of personal responsibility - use your wages wisely to meet those needs.

Now health care is shifted away from being considered as part of the compensation package, over into this realm of personal responsibility.

Have wages kept up with the costs of basic needs? There certainly has been a redistribution from wage earners to the wealthy. The minimum wage has not been increased for many years. Consumer debt continues to expand. Personal savings are now a negative. Personal insolvency continues to grow. Yet employers are not providing wage increases that are indexed to food, nor to housing, nor to transportation. Now that they are no longer in charge of health coverage, they will feel no obligation to index wages to health costs either.

The Lewin report contends that price competition between health plans, and greater administrative efficiencies will lower costs significantly. If the consolidated efforts of employers have been unable to control costs and waste, how can individual purchasers ever expect to exert market pressures to achieve these efficiencies?

The last section of the Act list many other potential sources of cost savings. Reading the list, the savings potential for many is simple rhetoric, not supported by fact. Some of them would actually increase costs. The Act excludes more effective cost measures such as those of the single payer model.

The point is that costs will continue to increase and wage earners will have to face those costs alone. Employers will have divorced themselves from the problem and will not make an exception for health care anymore than they already do for food, housing and transportation.

Wyden’s plan falls apart since it depends on price competition of health plans, which in turn depends on shifting more unaffordable costs directly to those who need care.

Original Quote of the Day - January 18, 2007

Signatory organizations:
AARP, America’s Health Insurance Plans, American Academy of Family Physicians, American Hospital Association, American Medical Association, American Public Health Association , BlueCross BlueShield Association, Catholic Health Association, Families USA, Federation of American Hospitals, Healthcare Leadership Council, Johnson & Johnson, Kaiser Permanente, Pfizer, UnitedHealth Group, U.S. Chamber of Commerce

A diverse group of 16 major national organizations with an abiding interest in accessibility to quality health care have reached a consensus on policy approaches to expand health coverage to as many people as possible as soon as possible.

Phase I: The “Kids First” Initiative and State Experimentation

Public Program Enrollment

…improve enrollment of children who are uninsured but currently eligible for SCHIP (State Children’s Health Insurance Program) and Medicaid.

Family Tax Credit

…creates a new family tax credit for the purchase of children’s health coverage…

State Demonstration Program

…establishes a state demonstration program giving states flexibility to experiment with new approaches that expand health coverage. Competitive grants would be provided to the states…

Phase II: Longer-Term Policy Recommendations

Public-Sector Proposals

…allow states to eliminate family status as an eligibility requirement and determine eligibility for Medicaid coverage based exclusively on financial need.

Private-Sector Proposals

Make… tax credits available for individuals and families with incomes between 100 and 300 percent of the federal poverty level for the purchase of health coverage. …graduated on a sliding scale based on income.

Provide federal grants to states in order to provide health coverage for high-risk populations.

Comment:

By Don McCanne, MD

What a tragedy. Health care coverage, affordability and access are rapidly deteriorating at an accelerated pace, and this is the best that this coalition of influential organizations can come up with.

They propose moving reform forward a couple of inches when we are sliding thousands of miles backwards.

You can cross this group off your list.

Original Quote of the Day - November 17, 2006

AHIP, representing the nation’s private insurers, is currently being lauded for taking a leadership role in promoting policies encouraging universal access to affordable health care coverage. Are the accolades warranted?

The proposals do seem to meet what many consider to be the political common ground for reform. The expansion of coverage is incremental, beginning with children. The goal is universal coverage that is affordable for everyone.

The process builds on the current system rather than replacing it with a single, government-run program. Though politically expedient, is this the common ground where we really want to be?

AHIP’s primary mission is to protect the interests of the private insurers. They want to continue to market affordable plans to healthy populations that have a source to pay for the insurers’ products. Most employed individuals and their families are healthy and have, through their employment, the resources to purchase insurance. The insurance industry wants to retain that market. Many of the uninsured are also employed and healthy, but lack the resources to pay for coverage. The insurance industry also would like to have this market, and so they have proposed government subsidies to help pay for that coverage. They also propose subsidies for the higher-income uninsured in order to entice them as well to buy their products.

Individuals living in poverty have poor employment records and have a high incidence of chronic problems, especially socio-economic difficulties. The insurance industry does not want to cover this market since there is very little profit incentive in including these less fortunate individuals. Thus AHIP recommends turning these individuals over to a government welfare program, Medicaid, thereby sparing the industry of this burden.

What a great program for the insurers. They cover the healthy with well funded plans, and turn the problem sectors over to the government and the taxpayers.

Besides being extremely self-serving, there are serious deficiencies in their proposals. They are supporting affordable coverage, but not affordable health care. Reading the specifics of their proposals, it is clear that they have no mechanism for slowing health care inflation. Instead, they support proposals that shift more costs to individuals, making access less affordable. Rather than reducing the profound administrative waste in our system, they increase administrative inefficiencies, further adding to health care costs. They have no proposal to pay for the increased government spending, knowing that a massive tax increase, without an offset in reduced private spending, would blow a crater in a common ground on reform. Also, their program cannot possibly achieve 100 percent coverage since much of it requires voluntary participation.

The greatest flaw of all is that their plans are made affordable by increasing financially burdensome cost sharing, by reduction in benefits covered, and by excluding those with health care needs. If these patterns were reversed, then coverage would not be affordable. The private insurance model is an anachronism.

The political common ground for reform should be on policies that ensure that everyone has affordable access to comprehensive health care, rather than on policies that increase wasteful spending through a government program designed for the welfare of private plans. It’s time for taxpayer/patients, providers, and politicians to join together on a common ground to fix our system. But we do need to acknowledge that AHIP and the private insurers have disqualified themselves from being legitimate participants in that process.

By Don McCanne
January 16, 2007
USA Today

Americans need more than affordable insurance; they need affordable health care. California Gov. Arnold Schwarzenegger plans to copy the Massachusetts reform in shrinking the numbers of uninsured people by forcing them to buy stripped down, bare-bones policies.

With premiums for family coverage now averaging $10,000 a year, the only way that states can make premiums affordable is to strip down the plans, which then forces policyholders to pay out of pocket when they get sick. High deductibles, co-payments and benefit reductions are destroying the financial protection that insurance should provide.

Half of U.S. bankruptcies are a result, in part, of medical illness or medical bills. Three-quarters of Americans who are forced into medical bankruptcy had health insurance at the onset of the illness that bankrupted them. Worse, suffering and death can occur when patients cannot afford the care that their private insurance does not cover.

The big winners in the Schwarzenegger and Massachusetts health plans are private health insurance firms. The new insurance mandates will hand them billions in wasteful administrative fees that do not occur in government insurance programs such as Medicare. Private insurers will continue their cream-skimming, enrolling primarily the low cost, healthy workforce and their families, while leaving the costs of the unprofitable sick and elderly to the taxpayers.

State health programs are interdependent on federal programs such as Medicare, Medicaid and the Veterans Affairs’ system, and are regulated by federal laws. The states alone cannot enact the structural changes that would be required to cover everyone and control costs. They are limited to building on the existing system by tweaking it to nominally expand coverage to the uninsured.

Money is not the problem. We already are spending enough on health care to provide high-quality, comprehensive services for everyone. But our inefficient, private-sector insurance bureaucracies have failed and need to be replaced with single-payer national health insurance. Every other developed nation has covered its citizens through some form of non-profit national health insurance.

Don McCanne, M.D., is a senior health policy fellow of Physicians for a National Health Program.

Original Quote of the Day - January 9, 2007

Gov. Schwarzenegger’s ten page proposal cannot be fully addressed here, but a brief discussion of the general concepts can give us a perspective as to whether this would achieve his stated goals of affordable health care for everyone. I’ll discuss the first and third building blocks first, and then his plan for coverage.

For prevention, health promotion and wellness, he recommends preventing diabetes and obesity, as if we really knew how to do that, and continuing our successful program to reduce the use of tobacco. He also recommends incentives/rewards to promote prevention, wellness, and healthy lifestyles. Although certainly we all agree that healthy lifestyles are important, as a public policy initiative, this building block will not add much to the foundation of a more effective and efficient health care system.

Affordability and cost containment are crucial to reform. But what does the governor offer? He would require that insurers and hospitals limit their administrative costs and profits to 15% of premiums paid. The current administrative waste is due to our fragmented system of financing health care, and he would do nothing to bring about the structural reform required. It will be very difficult to reduce the 31% spent on administration without an efficient system such as single payer. He recommends health savings accounts, which, if they do reduce spending, would do so by making beneficial health services unaffordable for many individuals with unfunded or depleted accounts. He states that health information technology will improve affordability, when there is already evidence that it will more likely increase costs. He suggests that pay-for-performance and reporting health plan performance will improve efficiency, though there is no real evidence for that. He maintains silence on important cost drivers such as lack of an adequate primary care infrastructure, an excess of non-beneficial high-tech services, and the highest prices of all nations. Without structural reform, this building block will not add much to our health care foundation.

The most important building block is his proposal to provide coverage for all Californians. He does this by expanding eligibility for Medi-Cal (Medicaid) and Healthy Families (SCHIP) for low-income individuals with means-tested premiums, providing subsidies for lower-income working uninsured to purchase coverage through a state pool, and enforcing an individual mandate for all others to purchase coverage. Specific proposals to cover the undocumented are also included.

Unfortunately, this block crumbles when you look at the mandated coverage. “The minimum health insurance benefit that must be maintained will be a $5,000 deductible plan with maximum out-of-pocket limits of $7,500 per person and $10,000 per family. For the majority of uninsured individuals, such coverage can be purchased today for $100 or less per month for an individual and $200 or less for two persons.” Considering that this proposal requires guaranteed issue and community rating, the premiums likely will be at least five or six times that much. And maximum-out-of-pocket limits are a fiction since they ignore non-covered and out-of-network services - often unavoidable. The total costs to individuals or families with significant health care needs can be in the tens of thousands of dollars. An insurance product that does not protect average-income Americans cannot serve as the foundation of an affordable, efficient health care system for all. This alone destroys the credibility of Gov. Schwarzenegger’s model.

There are a couple of other issues that should be mentioned. The 4% payroll tax for employers will likely result in crowd out - employers dropping their current plans because this payroll tax is much lower than the premiums paid for employer-sponsored plans. That tax will not be able to support adequate plans in the state-administered pool. Thus his budget-neutral funding breaks down.

Also the plan promises to significantly increase payment to Medi-Cal providers, at a cost to the state of $2.2 billion. The expanded eligibility under Medi-Cal will cost the state another $1.3 billion. With the mandate of budget neutrality, how do they intend to fund this $3.5 billion expansion? They are going to tax the gross revenues of hospitals at 4% and physicians at 2%, for a total of $3.5 billion. What is the net affect of this? Not only is the Medi-Cal rate increase confiscated by the state, but also the entire compensation for the new enrollees is confiscated. The fact that Schwarzenegger’s administration used a budget gimmick to require physicians and hospitals to provide free care to the expanded Medi-Cal population demonstrates the dishonesty that permeates this entire proposal.

Original Quote of the Day - November 27, 2006

Is covering everyone an idea that is only half right? Is funding health care equitably so that it is affordable for each individual an idea that is only half right? Is improving efficiency by reducing administrative waste an idea that is only half right? If the right solution means that we fix the financing of health care so that it works for everyone, then we really do understand how to do that.

Apparently the Next Big Thing in health care reform is for Congress to grant the states the opportunity to achieve universal coverage. It is not as if the states haven’t been actively involved in this process. In fact, the federal government already has been giving states budget-neutral permission slips to experiment with various reforms.

Of the fifty states, after a half century of efforts, how many of them have achieved universal, affordable health care coverage? None, of course. They are busy struggling with funding issues, high-risk pools, Medicaid, regulatory oversight of private insurers, and many other policy issues that inevitably fall short on reform goals. When we already know how to fix the system, why would we insist on continuing with fifty different state laboratories to experiment further with well understood health policy science?

This is simply a process designed to further fragment our public and private insurance systems, and prevent us from ever having a universal program of social insurance such as Medicare for All. It is not a process designed to establish trust so we can work together. Rather it is a process designed to deceive. It is a decoy set up by the conservative/libertarian faction that has lured the centrists and the progressive/liberal factions.

As long as those in the center and on the left, with a false sense of compromise, sing the praises of those on the right who would constrain and limit government at the cost of a modicum of egalitarianism, we will be unable to prove wrong Uwe Reinhardt’s prophecy.