Obama vs. McCain: Their Health Care Plans; An Attempt at Nonpartisan Analysis-- Part 1

Each presidential candidate offers a blueprint for health care reform. Neither can expect to see his plan enacted whole—legislators will leave their fingerprints all over any proposal. And, if truth be told, neither plan is perfect. Each proposal is blinkered in its own way; each ignores just how difficult true reform will be. I very much doubt that national health insurance will become a reality in the next year.

That said, I believe that we can take steps toward reform in 2009 if we begin thinking clearly—and honestly—about exactly what it is that we want and what it will cost. To that end, I believe that in-depth analysis of each candidate’s proposal can help underline the core ideological differences between conservatives, libertarians and progressives, and highlight the economic realities that any reform plan will have to face.

Recently, opponents of each plan have offered their critiques in Health Affairs (here and here) and supporters have defended their favorites  here  and here. Inevitably, many readers found the critiques too partisan. At the same time, they complained that rebuttals from the home team “read more like a stump speech with details glossed over and facts overlooked.”   

Readers are still looking for an unbiased, in-depth report on the two plans that clarifies the details and the differences. Earlier this week, the Urban Institute, a nonpartisan economic and social policy research organization, published an assessment of the two proposals that sets out to do just that. Overall, the Institute’s report seemed to me remarkably fair—and certainly worth discussion. 

The Strengths of the Obama Plan 

First, the Institute notes, rightly, that Obama’s plan would “substantially increase access to affordable and adequate coverage for those with the highest health care needs, including those with chronic illnesses” by:

• prohibiting insurance companies from using health status to determine price or deny coverage.  Insurers would have to offer policies to everyone in a given community at the same price. This means that many sick Americans who are now priced out of the insurance market—or denied coverage altogether—would be included in the plan;
  
  
• expanding Medicaid and SCHIP for low-income children;
• requiring large and medium-sized employers to automatically enroll all employees in health insurance plans, and make a “meaningful” contribution toward the cost of those plans. Employees who don’t want to pay their share of the insurance could opt out. Employers who don’t offer coverage to their own workers would pay a payroll tax as a contribution toward subsidizing insurance for families of “modest” means.  Small businesses would be exempt from these requirements. If they chose to offer insurance to their employees they would be eligible for tax credits equaling as much as half the cost of the insurance;
• providing income-related subsides so that individuals  without access to Medicaid, SCHIP, or employer-sponsored insurance could afford coverage under the National Health Insurance Exchange. NHIE would offer a number of private plans as well as a new public plan option. Private insurers would have to offer plans that were at least as generous as the public option.

Secondly, Obama’s proposal would lift the quality of care by:

• investing $50 billion over several years to speed the adoption of electronic medical records. Eventually, use of these records should reduce hospital errors and provide a database for comparing the effectiveness of various treatments;
• investing in public health and preventive medicine, expanding chronic care management, and supporting an independent institute to conduct comparative effectiveness analyses on technologies and treatment. As I have written in other posts, the “comparative effectiveness institute” is key. Unbiased medical research could help us eliminate the ineffective, unproven and often over-priced treatments that now put patients at risk while simultaneously stoking health care inflation.

But if the Institute is going to lift the quality of care, its recommendations regarding the most effective treatment for patients who meet a particular profile must steer decisions about what Medicare covers. If Medicare refuses to cover drugs, devices and procedures that are no better than the less expensive products that they are trying to replace, other insurers will follow suit. (Note this is not “one-size-fits-all medicine”: in some cases the Institute might well determine that a particular drug provides the greatest benefits for one set of patients, while another drug is more effective for a second group suffering from the same disease.) 

I would add that doctors and hospitals should not be forced to abide by the Institute’s recommendations. Every human body is unique and physicians need leeway to follow their best judgment in individual cases. But over time, as information about what is and isn’t effective spreads, more and more doctors would be likely to adopt the Institute’s recommendations for “best practice.”

Obama’s plan also would contain costs:

• by repealing two very expensive planks in President Bush’s Medicare Modernization Act:  a) the ban which prohibits Medicare from using its size to negotiate for lower price on  prescription drugs and b) the windfall bonus for private insurers who offer Medicare Advantage;

• by introducing a public sector plan into the marketplace that would have the clout to  insist on value for its healthcare  dollars. The Urban Institute’s analysts note: “if the public plan…offered is an attractive product and can contain costs because of its bargaining power with providers, other insurers would have to compete more aggressively than they do today. We believe this is an essential part of this plan.” The analysts add that “the lack of true competition in a large number of U.S. health care markets” is the “result of extensive provider consolidation. This consolidation, particularly among hospitals, has resulted in serious constraints on the ability to contain costs. As we have written elsewhere, we do not believe a public plan would dominate the market and drive out private competition, but we do believe it could have a great influence on this market.


  
  “The public plan is unlikely to use all of its market power,” the Institute adds,  “because of political pressures and caution regarding the ability to maintain access to a high-quality health care system. But a public plan and the competition it would engender could certainly lead to savings relative to the current system. In our view, today, insurers are either unable or unwilling to use market power to constrain rates of payment to dominant hospital or physician systems. The public plan would provide the countervailing power the market needs”

I agree that, today, many insurers simply pay whatever providers ask—and pass the costs along in the form of higher premiums. I would add that the public plan could spur competition that leads to higher quality care  at lower prices—but only if regulators insist that insurers must offer benefits that are at least as  generous as the public sector plan (as Obama proposes) and if they are not allowed to  sell inexpensive “high deductible” plans that many customers then cannot afford to use.

Not long ago, Consumer Reports told the story of a low-income woman who had a plan that required that she pay down a $5,000 deductible before using it. When she had a miscarriage, she could not afford to seek medical help. “I just laid in bed for three days,” she reported, “and tried not to move around too much.” 

Private sector insurers must be tightly regulated so that they are forced to compete with a public sector plan on a level playing field.         

• by using comparative effectiveness information,  preventive care and chronic care management to reduce waste and provide timely care before patients become seriously ill. We now spend just $1 out of every $25 healthcare dollars on preventive care.

The plan’s architects believe that, all told, they could trim health care spending by 8 percent. The Urban Institute’s analysts comment: “We agree that cost containment must be pursued on multiple fronts, and, if pursued aggressively, they would eventually achieve savings of the magnitude they envision.”

The Problems With Obama’s Plan

Under Obama’s plan all children must be insured, but adults are not required to buy insurance. While large and medium-sized employers must offer insurance, employees who don’t want to pay their share of the premium can always opt out. As a result, the Urban Institute estimates that about 6 percent of American citizens (or half of all adults who are currently uninsured) will remain uninsured.  Granted, this is a significant step forward; today 17 percent of the population is “going naked.”

But the number is still too large, and as a result, the plan will be more expensive for the rest of us because:

• if those who choose not to buy insurance suddenly become ill or are in an accident, the rest of us will wind up paying for their care. (We’re just not a society that is willing to leave bodies stacked up on the sidewalk outside of a hospital).
   
• those who do enroll will tend to be those with the greatest health care needs, boosting  premiums for everyone in the pool. Meanwhile, young, healthy Americans who are too wealthy to qualify for subsidies will be most likely to opt out. If they were in the pool, their contributions would help spread the cost, lowering premiums for everyone.
• the only way to encourage more young, healthy citizens to buy insurance would be to make the subsidies very generous, and offer other sweeteners such as discounts for younger customers.  Efforts to lure young immortals into the program will add to overall costs.
• we will still need safety nets to cover the 6 percent who remain uninsured as well as the undocumented non-citizens not covered by Obama’s plan.  (Our ER’s and hospitals are required to “stabilize” non-citizens, even if they don’t treat them, and they are expected to provide medical care to mother and child during childbirth.)  As a consequence, the Urban Institute notes “the inefficient and costly safety net system” that we now have “will need to remain in place.”

Not everyone agrees with the Urban Institute about the need for mandates.  Free marketeers, libertarians and others who oppose mandates point out that in states where there are mandates of one kind or another, insurance is more expensive. The Healthcare Blog’s Matthew Holt sums up their claim: “For $90 a month a 30 year old in California can buy the same coverage that costs $500 in New Jersey.”

Holt then destroys the argument: “the difference is not because of mandated benefits, but because plans in California are allowed to underwrite” --or “cherry-pick” patients. This means that they can shun the sick by denying coverage to patients with “pre-existing conditions,” or charging them far more than they can afford to pay.  In other words, a healthy 30–year-old in California can buy that cheap coverage but a sick one can't.  As Holt puts it: “insurance is less expensive if you live in a state where many of the sick can’t get insurance.”  In a state where everyone must buy insurance, healthy 30-year-olds help pay for sick thirty-year-olds, and the wisest are happy to do it, knowing that “there but for fortune…”

Moreover, Obama himself understands that if he is going to insist (as he does) that insurers must offer everyone in a community the same insurance at the same price—regardless of pre-existing conditions—then eventually,  everyone must be enrolled. Otherwise, people will wait until they are sick before purchasing insurance, secure in the knowledge that insurers have to take them and cannot charge them more. In that scenario, only the sick and the elderly will buy coverage—and premiums would sky-rocket.

This is precisely what happened in New Jersey when, as part of the “New Jersey Individual Health Coverage Program,” the state passed legislation which forced insurers to sell policies to anyone who applied at the same price.  After the law was passed in 1993, more and more healthy individuals decided to postpone buying insurance until they became ill. As a result, Princeton economist Uwe Reinhardt observes, enrollment in New Jersey’s Individual Health Coverage Program plummeted. In 1995 186,130 New Jersey citizens had been enrolled in the program; nine years later 84,968 were covered—and since so many were sick, premiums had spiraled two to three-fold.



Obama understands this logic.  One of his chief healthcare advisers, David Cutler, made it clear to me more than a year ago that while Obama hopes everyone will sign up voluntarily,  if they don’t, ultimately we’ll need something like a mandate.

Unfortunately, the argument over “mandates” became the one way that Obama could differentiate his health care proposal from Hillary Clinton’s—and given the fact that his political base skewed toward younger voters,  his rejection of mandates found strong political support.  Thus he became stuck with the pledge to avoid mandates. Politically, it made sense. But as a matter of policy, it doesn’t.

Obama’s Plan Invites Opposition

• from employers. As the Institute notes, Obama’s approach relies on “an employer mandate, which could increase costs to some businesses and engender the same political opposition that has contributed to the defeat of past reform efforts.” 

I would add that by requiring large and medium-sized businesses to either offer insurance to all employees—or pay a payroll tax—Obama would expand employer-based insurance. Yet the benefits of having one’s insurance tied to one’s employment are not at all clear. And the downside is substantial: if you lose your job—or just decide to change jobs—you lose your insurance. As a result some workers find themselves hand-cuffed to a job they don’t like while others find themselves simultaneously out of a job and uninsured.

Rather than asking large and medium-sized employers to go into the healthcare benefits business—a business that they don’t know and, in many cases, don’t want to know—it would be far simpler just to require that they make a contribution to the program through a payroll tax.

• from hospitals, physicians, or pharmaceutical and medical device manufacturers because the plan would succeed only by trimming their revenues. “For example,” the Institute observes, “interoperable electronic medical records partly achieve savings if they reduce duplication of tests and other services, with these reductions lowering provider revenues. The same is true of more efficient management of care of the chronically ill, lower drug prices, and evaluating the cost-effectiveness of new technologies and reimbursing for the most cost effective treatments.  Consequently, aggressive cost-containment initiatives virtually guarantee concentrated resistance on the affected part of the provider community.”

The Institute is right—but this is not a failing of Obama’s plan. We must reduce the waste in the system. At the same time, one man’s ineffective overtreatment is another man’s income stream. The lobbyists will howl—and reformers will have to stand up to them. Voters can help by insisting that legislators put their interests ahead of the lobbyists’ interests.

Finally the plan’s cost estimates are very optimistic because

• “the savings from many of the cost-containment provisions could take a number of years to materialize.” Short-term, the Urban Institute points out, costs will outstrip any savings. For example, a comparative effectiveness institute will require funding; we might not see significant savings for several years.

And while repealing the windfall for Medicare Advantage insurers will lead to immediate savings, that money will go to Medicare (which sorely needs a cash infusion) not to the national program.  Similarly, giving Medicare the power to negotiate for discounts on drugs will only help Medicare—unless the public sector plan follows Medicare’s lead, and private insurers also demand discounts.  This will take time.

Preventive care and better chronic care management do create savings—but down the road, when the woman who went for mammograms doesn’t develop breast cancer and the diabetic who stuck with his program doesn’t require an amputation.

And while competition from a public sector plan may encourage private insurers to become more innovative, this, too, is a process that will unfold over time.

• Finally, while the Obama plan investing in electronic medical records as a way to contain costs, a conservative critique of his plan published in Health Affairs rightly points out that “The Congressional Budget Office (CBO) has analyzed the likely savings from the adoption of health IT and found that "the adoption of more health IT is generally not sufficient to produce significant cost savings."

Indeed, the experience of medical centers that have installed healthcare IT shows that electronic medical records improve the quality of care long before they save money. As an article in the September/October issue of Health Affairs notes: while Geisinger Health System has had great success in using electronic health records (EHRs),  “only within the past few years has Geisinger begun to leverage key benefits from its electronic infrastructure—after a long period of implementation, adoption and usability comfort was created among users. Much of today’s policy discussions imply that EHRs will rapidly transform care delivery. The Geisinger experience suggests that this is not the case but, rather, that EHR adoption is the beginning of a long care-transformation journey.”

• short-term, the Obama plan is depending on money that already has been spent five times over.  In a New England Journal of Medicine interview published this week, Obama healthcare adviser David Cutler acknowledges that “Senator Obama has proposed a very, very generous set of tax credits for people who are low- and middle-income so that they can afford to have health insurance. That’s expensive. In the short run, it’s going to cost money…But,” he assures his listeners,  “Senator Obama has identified the source of money that he would use for this, the [repeal of the] tax cuts that President Bush enacted for people earning over $250,000 a year.”

Unfortunately, as the Urban Institute points out, “there are many other claims” on the money that will be saved by reversing those tax cuts— for example, rebuilding the military, improving the nation’s infrastructure, addressing the problems with the alternative minimum income tax...” And then, of course, there’s that financial meltdown that we have been hearing about.

Here, the Urban Institute makes a suggestion: “An alternative strategy would be to cap the employer tax exclusion for health insurance contributions.” Today, the amount that an employer pays toward an employee’s health insurance is not counted as part of the employee’s income—and he pays no tax on it. Typically, employers pay as much as $6,000 to $12,000 toward a family plan. (A surprising number of employers pay the full premium for many of their better-paid employees.)  The Institute is not suggesting eliminating the exclusion altogether, but capping it at a certain dollar amount and requiring that employees pay taxes on the value of benefits that exceed that cap. This “would result in substantial revenues,” the Institute suggests, “that could help pay for the coverage expansion.”   This would not be a popular proposition, but it would be fair. Today, those who benefit most from the tax exclusion are upper-income employees who typically receive the rich health benefits.

Finally, the Urban Institute points to the many unknowns in Obama’s plan that make it impossible to estimate the cost. How rich will the subsidies be?  Will middle-income families earning less than $60,000 qualify?  What about families earning less than $70,000?  If employers are required to make a “meaningful” contribution to employee plans, just how much is meaningful?  Alternatively, they will pay a payroll tax—how high will that tax go? Finally, just how generous will the benefits be in the public sector plan? 

Obama has compared the plan he would offer to “the plan available to members of Congress” under the Federal Employees Health Benefits (FEHB) program. But what many don’t realize is that FEHB offers a menu of plans. The most popular, the Blue Cross Blue Shield Standard Option, offers a broad array of medical services with modest cost sharing (including a $600 deductible and $15 co-payments for doctor visits). In 2008, the full monthly premium charged by that plan was $1,027.95 for family coverage. The federal government contributed $713.48, and the enrollee paid the remainder.

But many median-income families would not be able to afford $500 a month—or $6,000 a year—for health insurance. They would need partial subsidies, making Obama’s plan that much more expensive.

Alternatively, the government could offer a cheaper FEHB plan like the “Mail Handler’s value option.” It costs less than half the price of the Blue Cross plan, but it carries a $1,000 deductible plus 20 percent co-pays on hospital and physician’s services. A $1,000 deductible could lead many families to put off preventive care. And a 20% co-pay on a $80,000 hospital bill—plus a string of $400 doctors’ bills--would be out of reach for many middle-class families 

As Obama’s conservative critics observed in a recent Health Affairs article, while “a lower-value plan might be a more feasible standard, it is probably not what the candidate's political base thinks he has promised.”  They are right. And in fact, there is every indication that Obama intends to offer all Americans insurance that is equivalent to the packages that upper-middle income employees now receive from large employers.

But the tab for that insurance—plus subsidies that will make it affordable—not to mention investments in electronic health records, comparative effectiveness research, preventive care, and chronic care management will add up. While Obama’s advisers put the “net cost” of his plan (cost after savings) at  $65 billion the Urban Institute reports that the Tax Policy Center estimates the plan will cost $86 billion in 2009 and $160 billion in 2013 (when the plan is rolling and more Americans have signed up.)

Unlike Obama’s advisers, the Tax Policy Center does not factor in savings from Obama’s cost-containment programs, presumably because they believe those savings will be realized only in the long term.
There is much to like about Obama’s plan. It covers those Americans who most need insurance; it promises to replace waste with value; and it strives to spread the cost.  But it still doesn’t confront the full price of meaningful reform. This, I would suggest, is its Achilles heel.

Here, I would direct readers back to earlier HealthBeat posts on the reform plan that  Dr. Ezekiel Emanuel proposes in his book, Healthcare Guaranteed. (See part I and part II of these posts here and  here).

In many ways, Emanuel’s plan resembles Obama’s. It regulates private insurers, insisting that they offer the same rich package of benefits to all Americans at a single price. It also stresses the need for unbiased research comparing the effectiveness of various healthcare technologies.

But Emanuel also confronts the cost of his plan and acknowledges that it will require fresh funding. (I explain how he finances his plan in Part II of my post.) Moreover, his proposal avoids the problem of requiring Americans to buy insurance. Even better, his scheme for funding the system insulates the health care system from both lobbyists and Congress.

On the other hand, Obama’s plan forces private insurers to compete with a public sector plan, and I agree with the Urban Institute that this will spur insurers find better values in the marketplace.

Over time, I can see elements of each proposal coming together to create a rational, equitable and sustainable national healthcare system. I say “over time” because I don’t think we can expect wholesale healthcare reform in the next two years.  Moreover, I’m becoming convinced that we shouldn’t rush into providing health insurance for everyone until we’re sure that we’re offering Americans health care. Any plan that looks both simple and affordable will not be worth the paper it is written on.

Nevertheless, I’m hopeful that in the coming year, a new Congress will enact some pieces of Obama’s proposal. In part II of this post, I’ll take a look at McCain’s consumer-driven plan.

Comments

[dj]

Obama needs to look at Clintons health care plan closer!Cause we need all Americans insured

[charles]

If you really think the Obama McCain health plan is real read this FackCheck on both the Obama AND McCain Health Plans!

http://strategicthought-charles77.blogspot.com/2008/10/obama-mccain-health-care-plans-fact.html

[Maggie Mahar]

Martha--

Great--

Maggie

[Maggie Mahar]

Martha--

Great--

Maggie

[Martha]

Maggie:

Thank you for your offer to help me with educating the members of my union. I will probably take you up on it.

[Maggie Mahar]

Martha--

I also have shopped the individual market--when writing my books, and earlier in my writing career, as a freelance, it was up to me to find my own insurance.

I live in New York State,
where insurers cannot turn you down or gouge you for pre-existing conditions. Even so, as you say, the individual market is
brutal.

Prices are so high.
And if you live in one ofthe 56 states that lets insurers shun the sick, the people who most need insurance just can't get it.

It's interesting that your father and brother are doctors; that gives you
insight that most laymen don't have.

Keep up your good work with your union. It
is terribly important for unions to understand this issue.

In the past, unions have done a good job of fighting or benefits for their members; they uderstand that benefits can be more important than wage hikes..

But they also need to understand that when it comes to healthcare, insurers are not the only--or even the biggest problem.

Before we have true healthcare reform, we need to educate the public on a very complicated subject.
This will take time.

But unions could be hugely helpful in this process.
If I can ever be of help to you, please let me know.

[Maggie Mahar]

Barry--

You write: "It’s doctors and hospitals that account for well over half of all medical spending and closer to 75% of spending by most employer health plans. It’s doctors’ decisions that drive virtually all health spending."

You are absolutely right that doctors' decisions drive spending--when they
write a prescription, or decide that someone should be admitted to the hospital, they are driving drug bills and hospital bills.

But the way you initially phrase it, it almost sounds as if doctors are raking in 75 percent ofour health care dollars.

Which as you know, is not true.

Most of the time, when doctors make a medical decision that "drives health care costs" (prescribing, asking for a test, etc.) they are not profiting .
They are making what they think is the best medical decision for the patient.

That said, many may tend to be extravgant, saying to themselves "what harm can it do?" or "let's run a few tests" or "lets try this medication and see what happens" or "let's go in, see if we can find out what's going on" when a more conservative approach would work just as well, if not better, and entail less risk for the patient.

As you know, the probleml with overtreatment or unnecessary treatment is not such that it's a waste of money--it's dangerous. Every drug, every procedure every test carries a risk of side-effects, infection, etc.

Doctors just haven't been trained to be frugal with our healthcare resources. In med school, they are trained to do everything possible--to use all resources at their disposal.

Doctors are just beginning to realize that that isn't always in the patients' best interest as the whole concept that "more care is not necessarily better care" begins to spread.

As for what kind of reform doctors want-- the poll questions are usually phrased: "Do you think our health care system needs a major overhaul with significant government invovlement"--or words to that effect. More than 50% say they want an overhaul, "structural reform" and government involvement. This doesn't
necessarily mean single-payer.

But it definitely does mean a regulated market, and some way of controlling or capping expenditures and prices.

At this point, most doctors think (rightly) that many drugs and devices are grossly overpriced.

And while not many would say "my salary should be cut" a great many will say "doctors in my specialty do way too many procedures--whether it's
angioplasties or Cesarians. . ."

So they are aware of the excess--and that it includes the medical profession.

Finally, young doctors are, by and large, very happy with the idea of working on salary rather than fee-for-service. They won't earn as much as if they worked really hard, and really fast, fee-for-service--but they don't want to work really fast.

And they don't want to have the anxiety of running a business. This is a big change.

Thirty years from now, I predict that the vast majority of docs will be on salary working for a hospital or a large multi-specialty practice like Kaiser or Mayo.

As a business model, the small practice just doesn't work economically any more.
And it's safer for patients if a group (even a relativey small group) of docs are working together, looking over each others shoulders . .

[Martha]

Barry and Maggie:

I see what you are saying, Maggie about the current state of the economy compared to 1992. I hope it is enough to knock some sense into more people. What I am trying to argue with my collegues at the union is that this is not a matter of just shutting down the "bad guy" insurance companies. Our predicament as you point out in your book has many threads -- getting out is going to take a complex solution.

As for which physicians are for reform -- Barry it probably depends on which physicians you are talking about. I come from a family with two doctors, both are general practice, my father is retired and my brother is in practice. My brother's type of practice, family primary care, has become so unsustainable in terms of the reimbursements rates of the main insurer in his area, plus Medicaid and Medicare, that he has to hire himself out every weekend to do 24 and 48 hour emergency room coverage just to break even. In other words, that makes more money than the practice. They have had to jettisan many of the basic services of a family practice such as x-rays. I have never had a chance to really talk with my brother about how he feels about reform. He normally votes straight ticket Republican. That may be about other issues. My father, on the other hand, has watched the practice which he used to be in sink lower and lower. In the 70's he was dead set against what he called "socialized medicine." He has now done a 180 and thinks we have to go with single payer. I believe he may be a member of PNHP, although I have not asked him. He votes straight Democratic and has as long as I can remember except for the rare local candidate.

I do agree, Barry with what you say about sacrifices on all parts. I don't know what the PNHP has stated they are willing to give up. Clearly we cannot sustain this notion that whatever is ordered by a doctor is sacred, and there are plenty of doctors who are driven by profit motive. There was a NY Times article recently about CT scanners. The machines cost $1 million. If a cardiologist buys one of those things you can bet he/she will make sure it is busy. At the same time, the scans are often not conclusive, requiring further testing. A huge waste.

I am the only member of my family with sporadic health coverage. It depends on how much work I do under union contract. If I am out for a while (like now, while I recover from major surgery), I am likely to fall off because of not working for a period of time.

I have shopped the individual market for an individual policy. It is an ugly business. The premiums are unaffordable and the coverage is sketchy. If we are going to tax employer-provided benefits we need to protect people from that at the same time. Plus we need to find a way to protect people from being shut out by pre-existing condidtions. Otherwise you are just punishing the people who are already challenged. I have friends whose daughter was born with a profound brain defect. They cannot find coverage for her.

[Barry Carol]

“Today, roughly half favor serious reform with government intervention.”

What reform do they favor? I know the PNHP wants a single payer system. Do doctors and hospitals favor any reforms that are likely to cost them money in the short term in exchange for a more sustainable, lower cost healthcare system in the long term? I’m not aware of any.

Proposals like eliminating the Medicare Advantage extra payments vs. FFS Medicare and negotiating with drug companies for lower prices probably look like “low hanging fruit” that would be easy for doctors and hospitals to support. Drug price negotiation, however, won’t work unless CMS is prepared to enforce either a much more restrictive formulary or tiered copays. Seniors may not react well to the former, though forcing them to pay more for more expensive “me too” drugs would be a good thing, in my opinion, if more cost-effective medications are available.

While it’s easy to bash insurers and drug and device manufacturers, it’s doctors and hospitals that are responsible for huge regional differences in practice patterns that they still expect to be paid for. It’s doctors and hospitals that practice defensive medicine. It’s doctors and hospitals (and nursing homes) that engage in upcoding and fraudulent billing practices. It’s doctors and hospitals that account for well over half of all medical spending and closer to 75% of spending by most employer health plans. It’s doctors’ decisions that drive virtually all health spending.

Where are doctors and hospitals when it comes to the following reforms that might actually save money? (1) more robust price and quality transparency, (2) bundled payments for expensive surgical procedures, (3) shared decision making, (4) reorganizing into larger multi-specialty group practices, (5) closing excess hospital capacity in many of our cities. When doctors and hospitals start to embrace reforms that might pinch them financially in the short term, I’ll be much more optimistic.

In the meantime, comparative effectiveness research is a good idea, but it will cost money up front and take quite some time, perhaps years, to begin to bear fruit. Electronic records could eliminate a lot of duplicate testing and adverse drug interactions, but it will cost a lot of money to put in place as well as time and effort by doctors to learn how to use. As a patient, I’m more than willing to do my part by giving up or at least sharply curtailing the tax preference for employer provided healthcare. When are doctors and hospitals going to step up and offer some constructive ideas that affect them?

[Maggie Mahar]

Martha-

I don't know how bad it will have to get.

But one important difference between 1992 and today is this: in '92, the recession ended in less than a year, and the
upturn in the economy weakened the appetite for
change. This recession is not going to end in 9 months.

Also, in '92 the vast majority of doctors were against reform. Today, roughly half favor serious reform with government intervention. And each year the number rises: women doctors and younger doctors are more likely to favor reform.

[Martha]

Maggie:

You are probably right. As we head deeper into recession/depression more people will lose benefits and be interested in reform. It is disheartening though. When I first got involved in the health fund at my union in 1992, the local wisdom was, we will have a national plan soon. We all know how well that worked out. So here we are again. It makes me wonder just how bad it will have to get. Will 30% of the people have to be without insurance? 100 million?

[Maggie Mahar]

Bill--
Thanks for your comment.

You are right that, ultimately, the employee pays for health insurance (in the form of lower wages) not the employer.

But if we mandated that employers must provide insurance tomorrow would they all cut their employees' pay? Depends on how valuable those employees are. Are they easily replaced? Or are they doing highly skilled work? How long would it take an employer to train a replacement?

Imagine a doctor training a new assistant--teaching him or her how his office works, his electronic medical record system (if he has one), who all of his patients are; who his insurers are, the trap doors in the reimbursement forms, etc. etc.

It could be a year before she is as good as a person who has worked for him for 8 or 10 years . .

So no, all employers would not automatically cut wages by the cost of the benefits.

But, over time, employers who have to pay out benefits will not give employees the raises they would have given them.

So eventually, the employees will wind up paying for their benefits, as you suggest.

[Maggie Mahar]

Martha & Barry--

Martha you wrote:
"I have to agree that if we funded catasrophic coverage for everyone, it might be more affordable but would not necessarily lead to better health outcomes."
Yes and in the long run it would not be more affordable because people who deferred care would get sicker, and we as a society would have to pay for that.

MOre imporantly, the goal of healthcare is Better Health and Better Outcomes--not figuring out how to save money.

The fact is that if we refuse to waste money, by spending so much on ineffective risky treatments, we will have better outcomes and lower costs. All of the research shows the lower spending and higher quality go hand in hand.

Martha-- You also wrote " The point you make about 85% of people having coverage they feel is adequate is one of the reasons I despair of anything really happening. We need a much larger, clearer mandate to do anything because of all the thorny problems involved, including deciding how much health care is enough. I think that the electorate showed us just how important it is to them by nominating
lightweights on this issue."

I agree -- the 85% who are insured are not, by and large, interested in reform--especially wealthier Americans who tend to have better insurance.

But, as we move into a recession/depression (and I think it is going to be deep and long) more and more employers are going to drop benefits or raise the employee's share of the premium to a point that more and more employees won't be able to afford the insurance.

Also,in this recession/ depression, more and more upper-middle class and middle-class people will find themselves out of a job, along with lower-income people.

Already, law firms are dissolving and young associates are losing their jobs--and benefits.

So eventually, more people
will be interested in reform.

Finally, I agree that for Obama health care reform is not a top priority. It's not his issue. As for McCain-- his plan is simply to shift responsibilty to the individual to take care of himself. . .

Barry--
As Martha points out, high-deductible plans lead to worse outcomes. That's all we care about.

It doesn't matter how the math works out. The sole top priority of a health care system is (or should be) better health.

[Bill]

As the Institute notes, Obama’s approach relies on “an employer mandate, which could increase costs to some businesses and engender the same political opposition that has contributed to the defeat of past reform efforts.”

Wrong; an employer mandate would reduce workers' take home pay,not "increase costs to some businesses". This erroneous claim that is unquestioningly repeated has encouraged businesses, particularly smaller businesses, to oppose all forms of health reform. The employer health insurance benefit, like wages, is part of an employees' total compensation package. Increase one and you have to decrease the other, or increase total compensation. As Uwe Reinhart has noted, in the end it is the worker who pays for health care, directly or indirectly.

[Martha]

Barry:

I'm not sure I am understanding what you are saying about the first $5,000 in claims paid out for a given individual being a third of total claims outlay in a large group plan. What confuses me is your addition of "including those with very high costs." $5,000 per person is $5,000, it seems to me when you get over $5,000 you are in the next two thirds no matter who it is. However, if what you say is true then you can see why insurance companies are dodgy when it comes to adverse selection. Imagine covering a group of people who all might exceed $5,000.

Regarding the government covering catastrophic coverage for all: again, we need to define catastrophic. My first individual policy that I bought in 1992 had a $5,000 deductible. You cannot even buy that plan anymore in my state because $5,000 is not considered a high deductible anymore on the individual market.

[Martha]

Maggie:

I have to agree that if we funded catasrophic coverage for everyone, it might be more affordable but would not necessarily lead to better health outcomes.

The point you make about 85% of people having coverage they feel is adequate is one of the reasons I despair of anything really happening. We need a much larger, clearer mandate to do anything because of all the thorny problems involved, including deciding how much health care is enough. I think that the electorate showed us just how important it is to them by nominating two lightweights when it comes to this issue. My opinion.

I will continue this argument with the official at my union. I am trying to get the rank and file to understand this issue better. If we need to wake people up, maybe I can start with the small population that I know and who seem to listen to what I say. For me the better argument for single payer instead of saving money on administrative costs is the argument that points out that we already pay for half of the health care with our taxes now, so we are essentially paying twice.

[Barry Carol]

Martha and Maggie,

While I can’t remember the exact source, a benefits consultant told me a couple of years ago that for a large self-funded employer health insurance plan, the first $5,000 of claims payments for a given individual, including those with very high costs, account for about one-third of total claims paid in a typical year.

I wonder how policymakers would react if it turned out that we could afford to have taxpayers fund a catastrophic health insurance plan for everyone that paid all costs above $5,000 for a given person plus, perhaps, certain preventive procedures that are clearly cost-effective. At the same time, suppose we could NOT afford to fund comprehensive, low deductible insurance for everyone. Would it be better to do nothing? I would say no. Employers could still offer insurance to cover much of the first $5,000 either on their own or as part of collective bargaining agreements with unions, though the actuarial value of the insurance would be taxed as ordinary income. We could even mandate that individuals buy it with subsidies for low income people. I note that many employers offer their employees the chance to buy auto, homeowners, life, and long term care insurance, etc. at favorable group rates but without any tax preference.

I would prefer the tax that would fund health insurance to be a payroll tax because it provides transparency, and I think it is important for everyone to clearly understand how much health insurance costs because it would likely create more political pressure to bring healthcare costs under control. At the same time, we would need some companion tax policy to make sure that those who earn most of their income from non-wage sources including capital gains, dividends, interest, rent, oil and gas royalties, etc. pay their fair share as well. It would be fairly easy to do that conceptually, but I won’t cover it here.

[Maggie Mahar]

Martha--
CMS defines the insurance companies
administrative expenses as just that-- the money the insurers keep to cover their administrative costs and profits.

Basically, insurers pay out roughly 83% to 85% of the premiums that we send them in reimubrsements to hospitals, doctors and patients.

They keep roughly 15-17% of the premiums they receive from you and I to cover advertising, marketing, udderwriing, lobbying, taxes, salaries etc. as well sa profits for their shareholders.

If you add up the 15-17% of premiums that all of the private insurers in the country keep, it turns out to equal 4.5% of the 2.2 trillion that we spend on healthcare.

Even if we had a single-payer government- run system, all of the doctors and hospitals would have to file all of that paperwork to get reimbursed. (Though if there was no menu of insurance choices and we all had the same insurance, there would be only one form, which would make things simpler and less expensive.)

And as long as employers are involved, they are going to spend money on human resource people and consultants to figure out what insurance to buy for their employees.

All of this has nothing to do with insurers per se--even if the private insruance industry disappeared tomorrow these costs would remain. .

There are many good things to be said about single-payer-- the government wouldn't cherry pick and presumably it wouldn't sell deceptive, Swiss cheese policies.

But in terms of savings on administrative costs, that's not the big deal.

The reason we're not likely to have single-payer anytime soon is that 85% of Americans have insurance through their employers (with their employer paying a large share of the premium), and they don't want to suddenly have to give that up and go into an unknown govt-run single-payer system.

If we had single-payer, everyone WOULD have to go into the single-payer systen. If single payer only enrolled the people who don't now have employer-sponosred insurance, the govt would be enrolling the poorest people in the nation. (Lower-income workers and the unemployed.) They are also the sickest, so this would be a very expensive pool with few healthy, wealthy people to help share the risk.

Finally, regarding the idea in your responseto Barry about having everyone buy catastrophic insurace . . .the problem is that all of the research shows that if people have to pay for routine preventive ccare and tests (mammograms etc)
out of pocket, they just don't go for care.

This isn't sensible-but that's the way people are.

In countries where there is no charge for routine care (it's all paid for through taxes) people are healthier in part becuase everyone goes for Pap Smears, Mammograms, etc.

When people don't go for routine maintenance, they get sicker in the long run, and we all wind up paying more (in higher insurance premiums and Medicare taxes) pay for their breast cancer, lung cancer (because they never saw a primary care doctor who tried to help them stop smoking) etc.

If having everyone buy catastrophic insurance worked, some smart country (Switzerland, Taiwan, Singapore, Japan? ) would have done it by now.

Since World War II, countries have been experimenting with how to deliver health care. We spend twice as much as the average developed county--and our health and outcomes are worse.

As Churchill once said: "The Americans always do the right thing--after they try everything else."

[Martha]

Maggie:

Thanks for your response and the info about PNHC. So if they define administrative costs as you say they do how does CMMS define them?

[Martha]

Barry:

Interesting ideas. As far as employers continuing health coverage if the benefits are taxed, in the end it is probably unknowable. It makes people nervous because they are afraid with good reason to have to buy individual policies for the reasons I stated earlier.

I still don't see where the McCain campaign gets the $4,200 figure, but there is no need to beat a dead horse.

As far as evening out the risk if people can choose a high deductible plan, your scheme reminds me of the policy that Medicare has of charging a higher premium for Part B if an eligible person delays enrollment without being covered by a group plan. It might work. However, when I talk about a high deductible plan I'm not talking about a deductible of $2,000 or $2,500 with out-of-pocket capped at $10,000. I'm talking about deductibles of $10,000 to $25,000. They do exist. I have to wonder how much difference in the premium there would be between a plan with a $1,000 deductible and a $2,500 deductible.

I wish some actuaries would do a study on a national plan that would involve everyone being enrolled automatically in a catastrophic plan at birth but free to buy more insurance on the market. The catastrophic coverage would kick in after some level of out of pocket or coverage by another plan. If the private plans knew their risk was capped in every instance the policies might be cheaper. It's just an idea.

Re: the 30% figure that PNHC use, I suspect that you are right, that it is 30% of the costs on the individual private market.

[Maggie Mahar]

Martha--

Yes, everyone is pretty well agreed that, under the McCain plan, many employers will stop providing insurance benefits for employees, knowing that they are getting a tax credit to buy their own insurance.
In fact, that is part of McCain's goal. He wants individual consumers to make their own choices about what they buy rather than having employers choose for them.

"Individual responsibility" and all of that.

Of course the $5,000 tax credit is less than half of what it will cost a family to buy comprehensive insurance (now around $13,000), so middle-class and low-income families will be stuck with poor insurance. Some just won't buy insurance. Net/ net,
the Urban Institue calculates that under McCain's plan just as many people will be uninsured as are unisnured today.

McCain's response: that's their choice.

I'll write about all of this when I review McCain's plan.

Barry's right: when PNHP calcualtes administrative costs, they are including what it costs tens of thousands of employers to choose health care plans, and what it costs tens of thousands of small practices and hospitals to fill out the paperwork for reimbursements.

In countries where administrative costs are very low, you don't have a lot of solo-practioiners or small practices. All of the doctors work for the government or for very, very large multi-specialty practices and hospitals--so there is much less paper work. And employers are not involved. Also, you don't have such a huge menu of insurance "choices"-- and so you don't have hundrds of different reimbursement forms with different rules.

Putting Medicare on a budget is not a bad idea (Medicaid is terribly underfunded--and as a result people on Medicaid get too little care, too late.)

But just picking a number and telling Medicare that's your budget is a crude solution. If you do that, the most powerful lobbyists will continue to take a very large slice of the pie (Big Pharma, Device Makers and the medical specialities wtih the biggest clout, which is to say the speicalists where doctors receive the highest pay and so they have the most money to contribute to compaigns.

It's interesting--if you look at the specialties, you find that in the highest paid, most doctors are conservative Republicans. Go into the Doctor's lounge at the hostpial, and they're listening to Fox News.

It's only when you get down to pediatricians, psychologists, family doctors, palliative care specialists, primary care docs that you find large numbers of Democrats. Unfortuantely, they don't have as much money, so don't have as much clout in Congress.

This is why we need unbiased boards of doctors, medical ethicists and health care economists
deciding what Medicare will pay for and what it won't pay for--based on medical evidence and medical ethics--not based on which lobbyists have the most money.

[Maggie Mahar]

Martha--

Yes, everyone is pretty well agreed that, under the McCain plan, many employers will stop providing insurance benefits for employees, knowing that they are getting a tax credit to buy their own insurance.
In fact, that is part of McCain's goal. He wants individual consumers to make their own choices about what they buy rather than having employers choose for them.

"Individual responsibility" and all of that.

Of course the $5,000 tax credit is less than half of what it will cost a family to buy comprehensive insurance (now around $13,000), so middle-class and low-income families will be stuck with poor insurance. Some just won't buy insurance. Net/ net,
the Urban Institue calculates that under McCain's plan just as many people will be uninsured as are unisnured today.

McCain's response: that's their choice.

I'll write about all of this when I review McCain's plan.

Barry's right: when PNHP calcualtes administrative costs, they are including what it costs tens of thousands of employers to choose health care plans, and what it costs tens of thousands of small practices and hospitals to fill out the paperwork for reimbursements.

In countries where administrative costs are very low, you don't have a lot of solo-practioners or small practices. All of the doctors work for the government or for very, very large multi-specialty practices and hospitals--so there is much less paper work. And employers are not involved. Also, you don't have such a huge menu of insurance "choices"-- and so you don't have hundrds of different reimbursement forms with different rules.

We're the only country that has turned medicine into a cottage industry - totally fragmented, with hig administrative costs as a result.

Putting Medicare on a budget is not a bad idea (Medicaid is terribly underfunded--and as a result people on Medicaid get too little care, too late. Medicaid needs more funding. In particular, we need to pay doctors who care for Medicaid patients as much as we pay doctors who care for Medicare patients. Today they are paid far less because when the law was passed in 1965, Southern Congressmen did not want doctors who cared for hte poor (African Americans) to make as much as doctors who card for seniors (mainly white--relatively few African Americans lived past 65 at the time.)

But just picking a number and telling Medicare that's your budget is a crude solution. If you do that, the most powerful lobbyists will continue to take a very large slice of the pie (Big Pharma, Device Makers and the medical specialities with the biggest clout, which is to say the speicalties where doctors receive the highest pay and so have the most money to contribute to compaigns.

It's interesting--if you look at the specialties, you find that in the highest paid, most doctors are conservative Republicans. Go into the Doctor's lounge at the hostpial, and they're listening to Fox News.

It's only when you get down to pediatricians, psychologists, family doctors, palliative care specialists , primary care docs that you find large numbers of progressive Democrats. Unfortuantely, they don't have as much money, so don't have as much clout in Congress.

This is why we need unbiased boards of doctors, medical ethicists and health care economists
deciding what Medicare will pay for and what it won't pay for--based on medical evidence and medical ethics--not based on which lobbyists have the most money.

[Barry Carol]

Martha,

Thanks for your detailed response. I’ll just cover a few points.

First, on McCain’s proposal of a $5,000 tax credit for family coverage, most large employers would be likely to continue to provide health insurance as they do now. The value of employer plans would be taxed as income to the employee but the employee would receive a tax credit of $5,000 as an offset. I think their estimate of $4,200 being the value of the current favorable tax treatment for employer provided health insurance is based on what the tax would be for an average or median income family. McCain would also index the value of the credit to the Consumer Price Index, not healthcare inflation which is higher as you point out. It is also not clear whether or not taxing health benefits as income would also make them subject to FICA payroll taxes. That issue was not addressed in the comments by the person speaking for McCain (Grace Marie Turner) at the conference I attended last week.

Regarding higher income people opting to buy a high deductible plan and then wanting more comprehensive coverage later if they get sick(er), I think this could be handled by charging a penalty or surcharge amounting to the cumulative difference in premiums if they want to switch during, say, the first five years of their enrollment in a high deductible plan. Just to clarify, the way I look at this is along the following lines: Suppose the default comprehensive plan available to everyone and financed by payroll taxes were something like or close to the Blue Cross plan available to federal employees with a deductible of maybe $500 per person, $1,000 per family, 20% co-pay, full coverage of certain preventive services, and a $2,000 family out of pocket maximum. The high deductible plan would provide the same coverage except with a deductible of $2,000 or $2,500 per individual, similar 20% co-pay and preventive services coverage, and an $8,000 or $10,000 out of pocket maximum. So, even if they got very sick, society would not be picking up their tab though providers would be at risk if the insured could not cover his deductible and co-pay. If it were an event that cost six figures to treat, however, virtually all of it would be covered thanks to the catastrophic protection.

Finally, on administrative costs, Maggie can probably speak to this better than I can, but I think the PNHP figures attempt to quantify administrative costs, very broadly defined, throughout the healthcare system including those incurred by doctors and hospitals. It encompasses everything from billing to health IT to advertising, community relations, scheduling appointments, transcribing records, etc., etc. By far the best paper I’ve seen on administrative costs in healthcare was written in the early 1990’s by an academic from Emory University named Ken Thorpe. It is called “Inside the Black Box of Administrative Costs.” If you know anyone who has access to the Health Affairs archives, it is well worth the read if you have an interest in the subject. I would also point out that administrative costs in the individual (non-group) health insurance market are indeed very high (on the order of 30% or more), but only about 25 million people in the entire country get their health insurance in that market segment. By contrast, 175 million people, including family members, receive health insurance through an employer. Large self-funded plans like the company I work for have administrative costs of 5%-6% at most because we are not paying for medical underwriting, broker commissions, state premium taxes and insurance company advertising.

[Maggie Mahar]

Barry--

In Germany, France and every other developed country in the world there are many fewer poor and working poor than in the U.S.
Do you remember this chart? Go to http://www.healthbeatblog.org/2008/03/obstacles-to--2

and scroll down. It shows that when it comes to income disparities, the U.S. is an outlier. When you compare the incomes of the top 20 percent to the bottom 20 percent in most developed countries, the ratio is less than 6:1 ; in the U.S. the ratio is roughly 9:1.

Other developed countries are mainly middle-class. We are not. Our middle-class shrinks each year while the top 20% becomes wealthier and the bottom 40% becomes poorer.

This is why we need the top 20% to be paying full price for comprehensive insurance. We need their money in the pool

(Our bottom 20 percent is so poor that after paying for food, shelter, heat, light and transportation to work, they have very little discretionary income left to contribute to health insurance and most in the the next quintile workingpoor/lower middle class earning less than about $48,000 joint income per household also will need a subsidy to buy health insurance.

Germany doesn't need all of its wealthy citizens to contribute because it hasn't allowed so many of its citizens to sink into poverty. High taxes create a social safety net that assures: free prenatal care, six months paid maternity leave for the mother (my stepson just had a child in Germany--excellent care through the public system even though neither he nor his wife are German), free, generaly very good education, affordable housing, excellent (and extraorindary clean) public transportation, etc. etc.

We, on the other hand have a large number of very poor and "working poor" citizens--and so we need all of our wealthiest citizens to help subsidize their care. (Assuming that we think healthcare is a right.)

Finally
, we need to have our wealthiest citizens buy the comprehensive insurance so that they are truly invested in what's in that package--and making sure that it's good enough.

[Martha]

Barry:

Re: the union perspective, I can't speak for the union because, as I mentioned before, my union is quite partisan. However, I know that one concern that they have is that if benefits are taxed it might discourage employers from offering benefits, thus forcing more individuals into the open market where it is hard to get a good deal. Group plans generally get much better ratings because individuals raise problems of adverse selection. Also, in many states people can be barred from enrolling in individual policies because of pre-existing conditions. This is not the case in most group plans.

My problem is not so much with the tax as with the tax credit. My understanding is that it goes to people who purchase their own insurance, not people who are enrolled in group plans. I can't see how a credit of $5,000 is going to cover a plan that, on average is approaching $13,000. Also, assuming that the tax credit increases with inflation how will it keep up with health care inflation which is two to three times inflation? It is hard for me to see how we would be better off. I also question the value that the McCain advisors assign to the benefits - I would love to know how they arrived at those numbers.

As far as benefits being ostensibly deferred wages, my co-workers understand that in spades. Recently a new 3-year contract was agreed to which deferred wages in the second year completely in favor if payments into the fund.This was pushed partly to save the fund which was on the brink of bankruptcy, but also to make it possible for more people to qualify for benefits. Because ours is a multi-employer fund, workers qualify for benefits when various payments under various contracts are cobbled together to get to a level of qualification. Some would have rather had the wage increase, others are now qualifying for the benefits and assign greater value to that fact.

I agree that patients (I resist calling them consumers), are too insulated from cost when they are well-insured. Medical providers are also, too insulated. That is why I favor the McCain idea of putting programs of treatment under Medicaid and Medicare on a lump-sum payment, thereby putting them on a budget. It discourages unnecessary and expensive treatment.

I also agree that everyone will need to give something up (including your hypothetical folks who want to pay in on the cheap), if we are to really solve the problem. If I paid $4,000-$5,000 more in taxes a year it would be a wash because that is what I currently pay in premiums now. The only reason I am not paying an excess of $12,000 is because my premiums are subsidized by the fact that I qualified for benefits from my union plan.

Unlike PNHP, I am not a single-payer partisan. I am open to any and all ideas that might comprehensively solve the problem. The first thing we all need to do, however, is decide, first, if access to basic health care should be a human right, second, how much health care is enough, third, how much are we willing to pay for it.

I am also curious as to how PNHP came up with their percentages.

The main problem I have with your hypothetical people buying into the hypothetical pool on the level of a catostrophic plan is that there is always the chance they might get seriously ill and need intervention on the part of the taxpayers to save them. Furthermore, as they age and get to be worse risks, they will probably want to up their level of coverage, leading again, to adverse selection.