HILLARY CLINTON'S NEW PLAN

   I have written two posts analyzing Hillary Clinton's healthcare plan. You will find them on www.tpmcafe.com (where I am a contributor). You can comment there.

   

    

Why Are Earnings at Health Care Companies Growing So Much Faster than the S&P 500?

Yesterday Bloomberg reported that, according to its data, "earnings at health care  companies will expand 15 percent this year, compared with estimated profit growth of 8.5 percent for the S&P 500."

If you own healthcare stocks, this is good news. But if you are a consumer paying for drugs, insurance and the hospital bills that insurance doesn’t cover, you have to wonder: why are their earnings so high? Is this what people are talking about when they say that healthcare is overpriced?

On Wall Street, healthcare and tobacco are both considered "defensive investments." Why? Because in a recession they’re less likely to plummet. If you’re addicted to tobacco, you are going to continue to buy cigarettes, even if it means giving up something else. As one Wall Street analyst puts it, “You just don’t have much choice.”

The same could be said of healthcare: you just don’t have much choice. When you are sick, you are not in a position to say “I’ll wait until prices come down" or "that’s too expensive; I’ll find something just as good that’s cheaper.” You are not in a position to comparison shop.

This is why market competition doesn’t work to control healthcare prices: the consumer just doesn’t have the same power that he has in most markets. 

Commenting on “Do We Really Have to Cut Back on Healthcare Spending?”

This is a great overview of the facts and clearly demonstrates the urgent need for evidence-based medicine.  No matter what form health care reform takes in the future, the issue of cost has to be addressed.  However, I believe that a significant key to solving the puzzle of spiraling cost is an active and educated consumer of health care. 

To begin the process of developing such a consumer, there must be financial “skin in the game.”  How often does a consumer of non-health care goods purchase a car, home or a computer without asking the price of the item?   All would demand a Rolls Royce if someone else paid the vast majority of the bill.  Admittedly, when it comes to health care, the information needed for efficient purchasing is not sufficiently available and is more complex than that necessary for purchasing simple consumer goods.  However, this is not an excuse for lack of consumer participation and decision-making in the economic process of health care.

Have you noticed that most discussions of health care reform are supply-side and payer driven?   This is yet another indication of the passive role that consumers take in our health care system……..like children with parents who know better who make the major decisions for us.

-Barbara E. Rodin, Ph.D

Commenting on “If We Mandate Insurance, Should Twenty-Somethings Pay Less?”

I can see the community rating argument (same rate for all vs. lower rate for young people) both ways.  The important thing to understand, I believe, is how much the premium would have to be in order to charge a uniform rate for the under 65 adult population.  Data that I've seen suggest that the premium for adults would have to be about $4,000-$4,500 per year while children (under 18) would have to pay $1,000-$1,500 based on what Medicaid current spends on the children covered by its program.  The current average premium for a family of four is about $12,000.  As an aside, we think community rating is a fair way to price health insurance, but we don't have any problem charging young people more for car insurance because they have more accidents than older drivers.  Go figure.

I prefer payroll tax financing for two reasons.  First, it's a flat rate (not regressive) scaled to income, so low income people pay less and higher income people pay more, but I think there should be a cap on the wages to which the payroll tax applies so you don't have very high income people paying 10 or 20 times what the insurance benefit is worth.  The more important reason, however, is transparency.  I think it is extremely important for people to fully understand just how much their health insurance costs whether the payroll tax is paid by the employee or by the employer.  If we are ever going to get to the point politically where we can start to make some of the tough tradeoffs needed to better control medical cost growth, transparency of health insurance costs at the individual level and the taxes required to finance them will be extremely helpful, in my opinion.

The Social Security payroll tax is also a flat rate tax with a wage cap. Since the infrastructure is already in place to withhold FICA taxes from wages, it would be easy to use the same infrastructure to withhold a healthcare payroll tax.  If we also had a flat rate income tax of 28% that applied to all income (including capital gains and dividends) above the federal poverty level but gave a dollar for dollar credit for all FICA and health insurance taxes paid by the employee but not the employer), we would have a more progressive income tax structure than we have now. 

Example: Assume one person earns $100,000, all of it from wages.  He or she pays about $7,500 in FICA taxes and a similar amount under my approach in health insurance taxes (assuming the same 50-50 employee / employer split that we have for FICA).  The standard deduction is $10,000 and taxable income is $90,000.  The gross income tax liability is $25,200 ($90,000 taxable income x 28%) less a credit for employee's share of FICA and health insurance taxes paid of $15,000.  Net income tax liability:  $10,200.  A second person earns the same $100,000, all from capital gains and dividends.  That person pays nothing in either FICA or health insurance taxes but pays $25,200 in income tax. 

So, two people earning the same income but from different sources pay bear the same federal tax burden.  State and local taxes probably add another 10% or so to the tax burden for both people.  For very high income people ($500,000 and above), my approach would, in effect, subject virtually all of their income to the Alternative Minimum Tax which, under current rules, does not apply (for the most part) to capital gains and dividends. To the extent that employers' health insurance costs go down from what they were previously paying, they could be required to raise salaries by a comparable amount per Senator Wyden's cash out concept.

I have no problem with high tobacco taxes because they drive demand for cigarettes down, not because it raises a lot of money.  I suspect we are already reaching the point of diminishing returns from that revenue source, at least in states like NY, NJ and CT with very high tobacco taxes already. With respect to one set of national rules for Medicaid, I agree with paying the higher Medicare rates even though it will raise costs in the short run. It would simplify life for providers, make them more willing to see Medicaid patients, and it's the right thing to do. Much longer term, serious cost control is likely to require either global budgets (especially for hospitals), explicit rationing or both.  If the public has clear transparency with respect to the actual cost of their health insurance and the associated taxes, it should advance the day when they will not only accept global budgets and/or rationing to better control medical cost growth, they might even demand it. 

-Barry Carol

Responding to Comment on “Should People Who Don’t Take Care of Themselves Pay More?”

Bradley—Thanks for your comment. I’m inclined to agree with you about smoking. Because so many people do quit, it’s clear that it is possible for most people who are addicted to tobacco to give it up. So a financial incentive (or penalty) might have some results. And there is no question but what smoking adds to our national health bill.

When it comes to weight loss, however, I’m convinced by the research that only a small percentage of the truly obese can take the weight off and keep it off. As for adults who are carrying an extra 10 to 20 pounds, this doesn’t seem to me a major health problem. Ideally everyone would be at their perfect weight, but if we begin charging people who are 10 pounds overweight an extra premium I’m afraid we would be feeding our culture’s obsession with being thin.

Responding to Comment on “The FDA Betrays Its Mandate”

Gregory—

Sorry I’ve been so slow in responding; I was traveling last week. I completely agree that doctors should not be making a profit on anemia injections or cancer drugs that they deliver in their offices. They should, of course, be paid for their time and the skill involved in administering the injection or drug. But they should not be making a profit on the product itself—inevitably that creates a potential conflict of interest (even if it is subconscious) when a doctor decides what drug to prescribe.

The real problem is that drugmakers are willing to give doctors discounts which then let doctors bill insurers at the full rate and pocket the “discount.”In the 19^th century we learned about the problems associated with letting doctors become pharmacists—it’s ironic that we have to learn the same lesson all over again.

Conference Blogging: “Employer Innovations in Health Care”

The moderator of this session, Helen Darling, President of the National Business Group on Health, began by suggesting that we can’t just put more people into the system without fixing it. If we try that “we’ll have twice the mess we have now. . . We need to provide universal access and fix the system simultaneously,” she stressed.

In addition, she pointed out “The largest employers in every jurisdiction in this country are public employers. We have to ask, where are they in this picture?” This is a question that is rarely asked.

Darling then introduced the panelists: Francois de Brantes, National Coordinator of Bridges to Excellence and Michael Widmer, President of the Massachusetts Taxpayers Foundation. De Brantes began by saying that when we think of health care reform, we tend to think first, about universal coverage. “Employers I have talked to agree that we need universal coverage. But once you have access, you have to ask: ‘Access to what?’”

If we don’t change the system, de Brantes said, we will be providing “access to mediocrity.”

Conference Blogging: The Business Case for National Health Care Reform

The Business Case for National Health Care Reform

In her opening remarks, moderator Cheryl Matheis, director of health strategies, Office of Social Impact, AARP, declared “It seems to us the business community is ready to engage in health care reform.” She also suggested that states can serve as laboratories, noting that two panelists in this session are from California and can tell us something about what is happening there.

 She then introduced Bruce Bodaken, CEO of Blue Shield of California, and John Arensmeyer, founder and CEO of the Small Business Majority.

Conference Blogging: Second half of first session

Carl Camden, CEO of Kelly Services, began his address by  observing that, ten years ago, too many in the business community were happy to  stay on the sidelines—and many were, in fact, in active opposition to health  care reform.

“It’s different now,” he said. “Health care reform will be  influenced by the 2008 election,” he added, “and I expect little will happen  until 2009. But we need to do the work now so that come 2009 we can put forward  legislation for aggressive reform.”

Conference on Business and National Health Care—September 14, 2007

The conference began with opening remarks by Greg Anrig, vice president, policy, at The Century Foundation, who welcomed the audience and speakers and Karen Davis, president of The Commonwealth Fund.

Karen Davis began by stressing the advantages of employer-based healthcare including:

•  a large company provides a natural risk pool, with a mix of older and  younger,healthier and less healthy people; and

• lack of underwriting—no one is excluded on the basis of age or health status.