“It seems that John McCain may have stolen some of the fire that
Democrats traditionally wield on health issues by making cost
control his top priority, rather than universal coverage.” –Rob
Cunningham, “Health Affairs” May/June
2008
Last week, the bold proposal for health care reform that Dr. Ezekiel Emanuel
outlines in Healthcare, Guaranteed drew
high praise from the American Prospect’s
Ezra Klein. As
Klein described it:
Emanuel’s Guaranteed Health Care
Access Plan maps out “a total transformation
of the system. It does not build on the
inefficiencies of the current structure, preserving them in amber for the next
generation.”
dysfunctional system that we have today, Emanuel, who is the director of
bioethics at NIH (and brother to politician Rahm Emanuel), is calling for
structural reform. This is what makes his proposal both brave and fresh.
exciting; it’s practical. As usual, Klein cuts to the heart of the matter: “the big deal, he explains is
cost control. In health care, cost control is everything.”
“At the current rate, health care will grow to
30 percent of GDP by 2030,” he continues. “That’s money — in the trillions —
that can’t be spent on other things, either progressive priorities like
universal pre-k or personal priorities like buying a home and taking a
vacation. And what are we getting for the amount we spend? . . experts estimate that 20 cents to 50 cents of every
dollar spent on care is wasted on unnecessary or ineffective treatments. It’s
a tragically bad deal . . . Arguably nothing more progressive could
happen in our country than for health care to get cheaper, so families and the
government have more money for other priorities. There’s nothing progressive
about wasting 20% to 50% of the dollars spent on health care.”
Peter Orszag recently
pointed out, we’re facing a crisis.
“We need to weed out the
treatments that don’t improve outcomes. Orszag declared. “Health Care is the
least efficient sector of our economy” . . . and one “unexpected effect” is
that the price of health care has been “driving up the cost of tuition at state
universities because state support for Medicaid has been crowding out
state support for higher education.”
must begin talking about the high cost of care, and how
we need to wring the waste out of the system to make truly effective,
high quality care affordable for everyone. Don’t let the conservatives dominate the debate about spending. If they
do, they’ll take the conversation in the wrong direction.
What Emanuel’s
Plan Offers
paragraph, what I wrote last month here and here about
Emanuel’s proposal.
high quality health care to all Americans. No premiums. No deductibles. Low co-pays. Rather than depending on an employer for
health insurance, every American would receive a
government voucher that he could trade in for a health care plan of his choice. Insurers would be tightly
regulated. Every plan would have to offer the same comprehensive benefits –coverage
that is more generous than Medicare’s and more comprehensive than what 85
percent of all employers offer their employees. Since no money would be
changing hands, insurers could not charge customers more if they suffer from
“pre-existing conditions.” (If a company winds up with a disproportionate
number of sick or elderly patients, the government would pay the insurer more
on a risk-adjusted basis.) Ultimately,
insurers would have to compete on quality,
not on price, by providing patients with a network of hospitals and doctors
where outcomes are better, errors are rarer, and patients find what patients
want: competence and kindness.
Access Plan Controls Costs
Emanuel’s plan reins in health care inflation in three ways.
system. “Integration is crucial for cost
control, Klein observes. “Today “800+ private insurers, all operating in
their own little fiefdoms, forge hundreds of different contracts with thousands
of different employers and millions of individuals. You can’t effectively
regulate it because you can’t get your hands around it. Add in Medicare,
Medicaid, S-CHIP, the VA, the IHS, and all the other mop-up plans, and you’re
left with a dizzyingly broken and diffuse system. ”
The administrative costs of such a system are huge:
By removing the employer as middle man, Emanuel shows that his plan could save
roughly $120 billion a year. Moreover, over time, Emanuel would fold Medicare, Medicaid and SCHIP into the Guaranteed
HealthCare Access Plan, further unifying and streamlining the system. (From the
outset, anyone who wanted to leave one of those programs to join the new Plan would
be welcome.)
Insurers also would save because they wouldn’t have
to market their plans to millions of employers. Instead they deal only with 12
Regional Boards that oversee the insurers– and make sure that they are
following the rules. Because insurers would be competing on quality, they would
have an incentive to sink any administrative savings into investments that
reduce errors in their hospital networks. For instance, they might plow some of
the savings into the electronic medical records that they would need in order
to report patient outcomes to the Regional Boards.
- Secondly the Plan sets up an
independent Institute for Technology
and Outcomes Assessment that would compare
the effectiveness of various drugs, devices and procedures. (Earlier this week, I explained how comparative
effectiveness research works.)
Today, because we have so little data comparing different
treatments and interventions, physicians find themselves at the mercy of what manufacturers
choose to tell them about their products. Doctors are “flooded with hundreds of
publications on cancer alone, ” Emanuel and health care economist Victor Fuchs
note in a recent issue of JAMA (Fuchs originally collaborated with Emanuel on creating the voucher approach over a
period of five years. )
But without head-to-head comparisons, they conclude, “it is
extremely difficult for doctors to judiciously incorporate new data into their practices.”
Meanwhile pharmaceutical companies spend more
than $7 billion annually—about $10,000 per physician –on marketing aimed
at doctors. As Emanuel and Fuchs point out:
“Companies can selectively highlight favorable studies from the mass of
research, confident that there are few comparative effectiveness data for
physicians to put the marketers’ desired conclusions into a proper context.”
By contrast, an Institute for Technology Assessment
would give doctors the unbiased information
that they need in the form of “guidelines” (not rules) for best practice,” outlining which
treatments are likely to be most effective for particular patients.
- Third, the Institute would be insulated
from both Congress and the lobbyists who promote the most lucrative products because
the entire Plan would be funded by a dedicated 10 percent
Value-Added Tax that could be used only for healthcare. Because revenue
from the tax would grow with normal inflation in the cost of consumer goods and
services, the Plan would not have to go back to Congress each year for appropriations.
Revenue from the VAT
would be the only funding available to the Guaranteed Health Care Access Plan,
and as a result, Klein points out: the VAT would “act essentially as a global
budget. It is extremely powerful cost control. If people want more
expansive insurance options in the basic plan, they have to elect politicians
who will raise the VAT tax.”
Few politicians would
want to vote for a tax hike. As a result, the VAT will act as an automatic cap
on health care spending.
How the VAT Would
Be Off-Set by Higher Wages and Lower Taxes
But would Americans sit still for a brand new 10%
national sales tax on everything they buy? This “will unsettle a lot of folks,” Klein acknowledges. “This is
particularly true because people believe, wrongly, that their employers pay for their
health care. In fact, as research by Emanuel shows, that
money is coming out of their wages. But folks don’t know that, and the
necessary work has not been done to convince them of it.”
In truth, benefits are part of what employers
call “total compensation.” When they pay more for health care benefits, they
pay lower wages. This helps explain why wages have stagnated
over the past three decades.
As Emanuel and Fuchs
observed not long ago in the Chicago
Tribune:
“This cost-wage trade-off is usually well
hidden from employers and workers, but many studies show that it is a painful
reality for average Americans. For instance, over the last 30 years,
health-insurance premiums have increased by 300 percent after
adjustment for inflation. During that time, after-tax corporate profits per
employee have increased 200 percent, while workers’ average hourly earnings, adjusted
for inflation, decreased by 4 percent. Rather than coming out of corporate
profits, the increasing cost of health care has resulted in relatively flat
wages for 30 years.”
If employers were no longer expected to pick up
the check for health insurance, many would very gratefully give their employees
raises equal to what they now pay toward premiums. If they didn’t, other employers
surely would—and steal their most valuable employees.
Employers
who offer health care benefits to workers earning more than $60,000 now contribute an average of $9,000 to $13,000 toward the cost of a family
plan. Under Emanuel’s plan, those households could expect to receive a
$9,000 to $13,000 pay hike—which would go a long way toward covering their new
VAT taxes. And they would no longer have to pay anything toward their
premiums.
In addition, because states would no longer be
funding Medicaid and SCHIP, many Americans could look forward to cuts
in state income taxes. Imagine a
household that earns $150,000, spends $140,000 and pays $14,000 in VAT taxes.
That family could reasonably expect a raise of roughly $11,000 and a break on
their state income taxes of $3,000- or more—depending on where they live.
Moreover, under Guaranteed Healthcare Access they could feel secure that they
would never lose their insurance, even if they changed jobs.
Granted, employees on the bottom half of the
income ladder would be less likely to receive raises equal to their benefits.
In many cases, their employer probably doesn’t offer benefits. Or if he does,
he makes a modest contribution to a skimpy plan that that doesn’t really
protect the employee or his family.
But under
the Guaranteed HealthCare Access Plan, a middle-class or lower-income family
is assured comprehensive coverage at a very low price. Imagine a median income
household that earns $50,000; assume that the family spends the entire $50,000,
and pays
$5,000 in VAT taxes. In return, they receive a insurance package worth roughly
$13,000 (the average cost of employer-based family plan). This is why the VAT in Emanuel’s plan in not
regressive—all of the revenues are re-distributed in the form of health benefits worth far more
than the VAT taxes a low-income family would ever pay.
“ Don’t Talk About
Costs—You’re Helping the Conservatives”
As Klein points out, the
necessary work has not been done to explain to Americans how runaway health care
inflation has been hurting them by capping wages while draining state
coffers of the dollars that states could be spending on social goods like
higher education.
Why haven’t
progressives done that work? Because too often, liberals reformers shy away from talking about the sky-high cost of healthcare in the U.S.—or how we’ll need to
eliminate ineffective, sometimes harmful treatments in order to afford universal care.
I cannot tell you how many times I
have heard intelligent, progressive reformers say: “We shouldn’t talk about costs and cost
control. If you do that, you’re handing ammunition to the conservatives.” This
is one reason why some don’t like Emanuel’s plan; it’s too candid about the
fact that while millions of Americans receive too little healthcare, others
receive too much in the form of
sometimes unproven procedures , and exorbitantly priced drugs and devices that
are no better than their less expensive rivals.
The argument goes like this: “The conservatives will say that when
liberals talk about ‘cost control’ what they are really talking about is
RATIONING—government denying Americans the care they need. Don’t talk about ‘putting a brake on health
care inflation,’” they counsel. “We’re a rich country. No one wants to hear
that.”
about cutting costs, while progressives emphasize covering everyone.
Certainly that’s how the Los Angeles Times framed the debate last
week, in an editorial which stated that the candidates are “giving
voters a stark choice”: Obama "is
calling for government to do more to address the nation’s ills," while “McCain
is embracing the traditional GOP faith in free-market solutions’ . . .
children, expand federal subsidies for the uninsured and impose new funding
requirements on employers.” This sounds
generous, but one can’t help but wonder: won’t it be expensive?
hand, “shuns that infusion of government money and authority" and
"instead would rely on market competition to drive down costs."
wants to “drive down costs.” But
most Americans are not uninsured. Their biggest worry is the price of care. They are very concerned that, as premiums
continue to spiral, insurance will soon
become unaffordable, both for them and for their employer. They want to hear
about how healthcare reform will lower costs.
The conservatives know exactly what they’re doing: “It seems that John McCain may have stolen some of the fire that
Democrats traditionally wield on health issues by making cost
control his top priority, rather than universal coverage,” Health
Affairs deputy editor Rob Cunningham observed last month. Indeed, “McCain
spokesman Doug Holtz-Eakin appeared to relish his role as a champion of fiscal
discipline in a panel discussion with representatives of the Democratic
candidates. “
In truth, Obama, like Emanuel, realizes that
we cannot let healthcare spending continue to spiral. And he says so on his webpage, “BARACK OBAMA’S PLAN FOR A HEALTHY AMERICA.”
Obama
pulls no punches, acknowledging that “Though Americans
almost twice as much per person as citizens of other industrialized countries,
health status is no better and by many measures actually worse . . .
growing body of research points to substantial opportunities to improve quality
while reducing the costs of care,” Obama adds. “Some researchers estimate that
as much as 30 percent of health care is not contributing materially to patient
outcomes. Health care systems in
many parts of the country deliver high quality care to the
populations they serve at half of the costs of other equally renowned academic
medical centers in other parts of the country.”
makes it clear that spending more does not guarantee better care, and that we must
address geographic variations in health care spending which have nothing to do
with better health. There is no reason for Medicare to spend twice as much on a
patient in a Boston hospital as it spends on a very similar patient at the Mayo
Clinic in Rochester, Minnesota.
like Emanuel, he explicitly calls for “Comparative Effectiveness Reviews and
Research,: pointing out that while “The U.S. provides some of
best health care and most sophisticated medical technologies in
the world, “ it does so at a cost that is making the effort to
expand access to care ever more difficult.
to be able to provide health care coverage for all,” Obama declares,
lower cost. This is possible because there is considerable waste in our
health care system . . . . One of the
to eliminating waste and missed opportunities is to increase our investment
comparative effectiveness reviews and research. Comparative effectiveness
provide crucial information about which drugs, devices and procedures are the
best diagnostic
and treatment options for individual patients. This information is
developed by reviewing existing literature, analyzing electronic health care data,
and conducting simple, real world studies of new technologies.”
pledges to “establish an independent institute to guide reviews and research on
comparative effectiveness, so that Americans and their doctors will have
accurate and objective information to make the best decisions for their health
and well-being.”
Yet some of Obama’s staunchest
supporters insist that progressives shouldn’t call attention to their
candidate’s plans to lower costs by weeding out the waste. They say Americans
don’t want to hear about “Comparative Effectiveness” research.
Already Know
don’t want to hear about head-to-head comparisons, the American public recognizse that in the
institutionalized chaos that we call a healthcare system, everyone seems to be
selling something. And the price tags are
exorbitant. This makes many Americans more than a little wary.
over-medicated. Virtually everyone knows an elderly person who is taking twenty
or thirty pills. We realize that drug-makers, device-makers and some hospitals
are gouging
us, charging fantastic sums for bleeding-edge products and procedures
that are no better than—and often riskier than—the older remedies that they
have replaced.
tales of cutting-edge products being withdrawn from the marketplace—but only
after dozens of deaths prove that they were never fully tested. Then there are
the tales of surgeons taking kickbacks from medical device makers in return for
using their most expensive (but not necessarily best) products.
patients undergo angioplasties
that provide no benefit.
The cover of Business Week asks: ““Do
CholesterolDrugs Do Any Good?"; the story inside warns that up to half
of the patients taking these medications may be exposing themselves to risk
without benefit.
even weeks of unwanted and often unexplained end-of-life treatments?
technology
may not be easy to convince them that “More Care is not necessarily Better Care”—or
that, in fact, higher quality and lower costs go hand in hand.
once thought. Think about it: “Larger Portions,” “Larger Cars,” “Larger Homes” –and Larger Utility Bills.
Not to mention “Jumbo Mortgages.” (See
last Sunday’s New York Times touting “The New Trophy Home, Small and Ecological.”
Raise your hand if you
remember Jerry Brown.
Ezra Klein promised that he would follow up with a post about the cons. A few
days passed, and finally, he posted “The
Case Against.”
In the
very first paragraph, he sums it up: “the case against comes down to basically
one word: Politics.”
Klein continued: “The other day, I said, ‘when
evaluating health plans, a good rule of thumb is this: The closer it is to our
current system, the less it does to control costs. The farther it is, the more
it does.’ [Emanuel’s] voucher plan is pretty far from our current system, and
does a lot to control costs. The flip side of that rule is that the farther a
health care plan is from our system, the more it does to control costs, the
harder it is to pass through the United States Senate.”
Exactly. It’s not the American people who
object to talk about controlling costs. Senators squirm at the very idea—because
they know what the lobbyists would say. Voters might want lower prices, but
lobbyists want higher profits. And Congressmen don’t like to find
themselves caught between a rock and a hard place.
Overall, Klein suggests, Guaranteed HealthCare
Access represents excellent public policy, but politically, it would be a very
hard sell. “If we lived in a sensible
polity, and legislative politics were basically good-faith negotiations between
public-spirited, responsible Democrats and public-spirited, responsible
Republicans, I’d imagine that we’d end up with something a whole lot like this
plan,” Klein acknowledged. “But we don’t
live in that polity. And while this plan makes a lot of policy sense, it’s
harder to fit it into a political system that’s rarely interested in what makes
sense.”
Klein does point to some problems: Americans might
be very reluctant to give up the employer-based system they know for an
unknown. (Though many chafe at the fact that their need for insurance limits
their employment choices.). Klein also notes that “Serious up-front cost
controls mean you’re ripping a lot of profit from the system. Which means a lot
of stakeholder opposition. . . . " This
is “ not to be underestimated,” he adds, “and a clear political strategy has to
exist for overcoming these forces.” Klein also would also like to see a public-sector insurance plan
competing with the private insurers. I agree —this is one of the strongest
parts of Obama’s plan.
Klein does leave a window open: “If
Emanuel and Fuchs were able to convince a Senator to offer it as legislation,
and then it turned out to get a lot of cosponsors and hit a nerve, that would
be different. But until that happens, it’s just a very sensible plan that
clarifies exactly how far we are from a very sensible political system.”
I’d add that, with the right political backing
from the right Senators, elements of Emanuel’s proposal could be blended with Obama’s
plan. I’m not suggesting that
Congress should rubber-stamp an Emanuel-Fuchs-Obama plan in the first six months of the next administration.
I am suggesting that progressive reformers should take a close look at Guaranteed
Healthcare Access and see what elements they might use. Begin with the
vouchers—which insure equality—and the VAT tax, which could insulate health
care reform from Congress and Lobbyists. Think about the high administrative
costs that accompany employer-based insurance.
Finally, talk about cost control. As I’ve said
before, runaway health care inflation is the elephant in the middle of the
room. Try to ignore it and we’ll wind up with an unaffordable, unsustainable
system that pleases no one—except, perhaps, those who feed at the healthcare
trough.
Apart from financing (VAT vs employer?) is it different from the Wyden-Bennett bill?
VAT has been kicked around in the US for years but it hasn’t never gone anywhere.
Ginber B–
Great question.
The answer is that the Wyden-Bennett bill does not regulate private insurers.
It hands the keys of the kingdom to them. (Keep in mind that Wyden, a Democrat, voted for the Bush administaton’s Medicare Bill that pays private insurers a huge bonus to offer Medicare under Medicare Advantage-and doesn’t regulate them. As a result insurers have been shifting costs to the sickest patients.
Also the Wyden bill does not insure that everyone gets a comprehensive package of benefits. Instead, it lets insurers offer menu of insurance plans–ranging from good protection to Swiss cheese policies filled with holes.
Maggie,
I would like to offer a few thoughts on this.
First, it’s very helpful to make it clear that the employee pays for employer provided health insurance in the form of lower wages than would otherwise be paid. I wish all employers routinely included the employer contribution toward health insurance (and other benefits for which the employer pays cash) on each pay stub and on the W-2 forms mailed to employees after the end of each year. A little education could go a long way on this subject.
Second, I have a number of concerns regarding cost control. The fact, as you well know, is that most healthcare decisions are driven by doctors – admitting patients to the hospital, ordering tests, prescribing drugs, referring to specialists, consulting with patients and doing procedures themselves. CMS will tell you that Medicare’s current reimbursement approach (DRG’s for hospitals and RBRVS for doctors) rewards resource utilization and not value. Moreover, as the population gradually ages and needs more healthcare while advances in medical technology – new drugs, devices, surgical procedures, etc. make more healthcare possible, it is likely that total costs will continue to increase faster than nominal dollar GDP.
Third, what happens, as a practical matter, if revenue raised by the VAT proves inadequate? If the voucher does not increase in value from year to year to allow insurers, whether for profit or not for profit, to cover their costs and earn a reasonable profit, they will go out of business. We cannot force them to accept vouchers that do not cover their costs, at least not for very long. With no obvious mechanism to drive down costs in the short run (other than rationing, perhaps), I think the political process would wind up either contributing some general revenues to supplement the VAT revenue, authorizing a premium to be paid by adult beneficiaries like the Dutch do, or allow insurers to raise the deductible, introduce co-pays, or scale back the benefit package or some combination of those.
Fourth, I’m told that the risk adjustment mechanism is not nearly as robust as it needs to be. What happens, for example, if all insurers conclude that the risk adjustment for cancer patients is clearly too low? The incentive would be to avoid cancer patients, and one way to do that would be to deliberately not contract with the best cancer Centers of Excellence.
Fifth, the debate in Congress this week related to introducing competitive bidding for durable medical equipment, oxygen, and some other standard medical products was discouraging. Medicare is paying far more than necessary for these products, and competitive bidding could save $1 billion per year for CMS and $200 million in co-pays for beneficiaries, but the affected suppliers rebelled and it looks like the effort will be delayed for another couple of years.
Sixth, as you point out, most people who have employer provided health insurance are satisfied with it. The anxiety about what happens in the event of job loss could be largely addressed if everyone were eligible for a Medicare like public alternative for an income based premium, which for a middle class person might be capped at 10%-12% of income. Nobody would pay more than the full actuarial value while the poorest would pay nothing and the near poor would pay on a sliding scale. If the administrative complexities of the current system mean that it’s 5% more expensive than a more streamlined (but unknown quantity) approach might be, I think most people probably feel that’s a relatively small price to pay for the devil they know.
To follow up, there were three ideas from Emanuel’s book that I think could be pursued independently if the larger reform can’t make it through the political process. These are (1) the comparative effectiveness research to be done by an independent, politically insulated group, (2) his proposal for a more sensible approach to medical dispute resolution, and (3) significant federal investment in subsidies for doctors and hospitals to install and implement interoperable electronic medical records.
The electronic records will also be important to further comparative effectiveness research and to develop P4P metrics that reward value rather than just utilization of healthcare resources.
It seems that there is still a desire to keep a layer of private insurance in this. Why?
We have a long history of the government assuming an insurance function when private industry sees that there may actually be some risk involved. Private firms only provide insurance when they risks are well understood and limited. Then they can set their premiums so that they always make a profit.
Several examples.
Flood insurance. After a series of big losses the casualty firms dropped out of the market and such policies are now provided by the government. I’ve heard no complaints.
Hurricane insurance. After the repeated disasters in Florida and along the Gulf Coast, the states have had to step in to provide insurance.
FDIC. The premiums are paid by the member banks, but if losses exceed the reserve the government steps in. Think of the S&L mess as an example.
Nuclear power plants. The federal government provides accident insurance since no private firm would accept the high level of potential claims for an accident. Without this subsidy no plants would have ever been built.
So why the need for private health insurance? What service do they provide that can’t be handled by the government? Paperwork shuffling? The government already subcontracts clerical tasks in some cases.
The only possible reason for an insurance layer is because some pressure groups see a risk free permanent gravy train.
Robert, I have the same question re: private insurance, why are they still painted in the healthcare reform picture? Because they spend a lot of money influencing politicians to make sure their dog still gets a bone? Or am I not understanding why we need them?
Regular blog readers may recall my local news recently that one of our hospitals partnered with a (non-profit) patient safety research foundation to start measuring and improving their care delivery. Bless them for trying, anyway, this new partnership was barely off the ground, look what happened:
http://www.chron.com/disp/story.mpl/health/5851859.html
This plan is excellent in conception but a few points need closer examination:
1. Do the revenues match the benefits? This will be a constant fight between a) providers and insurers on payment levels and b)insurers and the govt on whether there is enough money for the level of benefits the govt. requires. The govt has a big incentive to raise benefit levels (because of patient & provider lobbying)and not raise taxes to match them. This will lead to de facto rationing with insurers either exiting the market or playing the same games they do now to avoid payment. There’s no good mechanism to get this right.
2)Assuming that employers pass on their savings on health care to employees in higher salaries – these increases will be taxable. This could turn out to be an advantage politically if the VAT was accompanied by an income tax cut. There’s also the issue that employer health care payments vary greatly among employees because of dependent coverage. Employers can’t explicitly pay one employee more than another because he has a larger family – under the current system this is hidden. So there will be winners and losers – the losers being people with more dependents who were more heavily subsidized by their employers as well as those whose employers got an especially good deal on their health insurance.
“This will lead to de facto rationing with insurers either exiting the market or playing the same games they do now to avoid payment. There’s no good mechanism to get this right.”
First off, decide the benefit package based on effectiveness so efficiency is raised. Then the question becomes is there access to the defined package for all or not.
Remember, the system does not need to pay on a fee for service basis, but however it pays, the providers are either there for all or not. If not and if there is no changing that, then the question becomes do you ration by ability to pay or by a queue mechanism based on something else?? Will America accept a fair, non-monetary based queue mechanism if one was established??
Marc, Robert, Barry, Lisa
Thank you all for your comments.
Marc — It’s not a question of whether the revenues match the benefits–they will have to fund the benefits because the plan is explicit: no other revenues can be used for health care.
Congress will not be setting fee schedules, the National Health Board which oversees the 12 regional boards will be doing that. (These boards are funded by the VAT so they are not at the mercy of Congress. As Emanuel describes them they will be nominated by the President and confirmed by the Senate for fixed, long, staggered terms which can be renewed only once.)
As in other countries that have global budgets, the boards and the insuers will have to figure out how to make the money available cover the mandated benefits.
The major way to do that is to refuse to overpay (negotiating discounts with drug-makers, and device-makers for instance); refuse to cover products and procedures that are more expensive but no better; refuse to pay for Avoidable hospital errors (which Medicare is now planning to do); refuse to pay for more days in the hospital in some parts of the country (where there are more beds and supply is driving use, but outcomes are no better) than in others and ceasing to pay “fee-for-service.”
Emanuel expects that different insurers will experiment with various ways of paying health care providers that reward efficiency–better outcomes at a lower cost.
Places like the Mayo Clinic in Rochester Minn. (where costs are lower and outcomes excellent) will be used as benchmarks.
The boards will determine payments to health care providers in different regions based on regional differences in cost of living. They will probably cut how much they pay specialists providing services of marginal value (based on medical evidence) while raising incomes of doctors who provide primary care, palliative care, chronic disease management, etc.
Other countries work within global budgets. Ours will be 2.4 times larger (per capita) than the budgets in other countries. This should be sufficient to cover all of our medical needs.
On average, employers now pay about 3/4 of the $13,000 family plan premium for employees in households earning over $60,000 and a little under 2/3 for workers in mid-income and lower-mid income households.
They also pay 100% of the premium for 15% of better-paid households.
Overall, winners and losers will balance out quite fairly. People with the highest incomes, who are likely to spend most and pay the highest VAT taxes, are also likely to get the biggest raises and the biggest breaks in state tax cuts. They will continue to have high-quality insurance, and the security of knowing they can’t lose it.
Lower-and-middle income famlies who spend less and pay lower VAT taxes will be less likely to receive big raises, but they will no longer have to pay high
deductibles or a stiff portion of their premiums. And they will be receiving health care benefits worth far more than they can possibly pay in VAT taxes (because their total spending is limited by their income.)
Lisa & Robert-
First, let me say that I definitely would like to see a public-sector plan competing with the private insurers on a level playing field (as in Obama’s plan.) There’s no reason that couldn’t be part of Emanuel’s plan.
That said, there are several reasons to have private insurers in the system.
First–so that they can share the blame. Many Americans will be very unhappy when told that that insurance will no longer pay for ineffective or wasteful treatments that they have seen advertised on TV-or that their brother-in-law had two years ago.
If we went directly to a single-payer system, they would blame “govt. and “socialized medicine” for denying them the care they “need.”
And believe me, drug-makers, device-makers and some others in the for-profit industry would pour fuel on the flames. . There would be much talk about how we are capitulating to European-style socialism, how Big Government is trying to deny Americans their right to the health care they want, etc. etc.
The plan would probably blow up and be repealed in about two years.
If, on the other hand, private insurers are saying “no, we can’t cover that–there’s no medical evidence”– and private insurers are competing with each other in a free market –it will be much harder to blame creeping Socialism.
Secondly: the very best insurers can help make healthcare more efficient. Here I am thinking of outfits like Kaiser Permanente in Northern California which is already using electronic medical records and has a drug formulary based on medical evidence (rather than which drugs are cheapest.)
Emanuel assumes that under his plan, many private insurers will drop out. They know how to make money by cherry-picking; they don’t know how to make money by providing better quality care.
Probably some not-for-profit insurers that have had a hard time competing with the most rapacious for-profits will expand.
The best private insurers will help in figuring out ways to provide higher quality care on a budget. Government beaurocracies are not always as good at experimenting, trying new things, and learning to be more efficient than some of the smarter players in the private sector.
(This is not always the case–the VA did an excellent job of transforming itself, but this was at a time when one man had extraordinary power to turn the VA upside down. Government does not always move that quickly.
So the best insurers may bring some very good ideas to the game.
But they won’t be able to win the competition by cheating their customers. Every insurer will have to give its regional board “outcomes data” showing that it is providing quality care. Insurers that are outliers will be expelled from the system.
Finally, you really can’t simply do away with an enormous industry with a single stroke of the pen. Think how upset people get when you close just one military base.
We’re talking about zillions of jobs, huge displacements. Any Congressmen representing state with even a small pieces of the insurance industry would never vote for it.
Then you have shareholders. Suddenly, they own shares in a company that has no business. How do you compensate them: 75 cents on the dollar? 50 cents on the dollar?
Under Emanuel’s plan–or Obama’s–if insurers are tightly regulated many will eventually drop out. (And re-training their employees, helping them find jobs in a re-organized company will be their problem.) Large parts of the for-profit health insurance industry eventually will wither away.
Some companies will move into the business of selling supplemental insurance to cover things that are not medically necessary.
This is how industries die–over time. My point is that government can’t just do away with an industry. The only time it tried it was during prohibition–and as you may remember, that didn’t work out very well.
Barry– Medical spending will NOT BE ABLE TO GROW FASTER THAN GDP because the national plan will have to work with whatever revenues the VAT raises. And I can guarantee no one will want to raise the VAT.
See my comments to Robert and Lisa.
The Boards will decide what to cover and how much to pay based on medical evidence gathered by the Institute. Congress will have nothing to do with this.
The Boards will regularly adjust what they cover as more effective techologies come along (replacing less effective technologies), but the health care industry will find it harder and harder to gouge us by inventing new products and tripling the price.
Unlike individual patients and many individual doctors, the Comparative Effectiveness Institute will not be wowed by razzle-dazzle advertising claiming a “break-through.” They’ll insist on unbiased, independent head to head comparisons.
Very likely drug-makers and device-makers will focus more on developing affordable, effective treatments, and less on “Sputnik” medicine.
I don’t know who told you the risk adjustment mechanism won’t work. They will have to tinker with it, but it can work, as it does in other countries.
You’re right, the recent debate in Congress was disapponting–but hardly surprising. This is a centrist/conservative Congress.
In a matter of months, we will have a new Congress and a new president. It seems fairly clear that more progressives will be elected to Congress and they are more interested in change.
As you say, most people have employer-based insurance, but emplyoers are shifting more and more costs to employees. And more employees are now underinsured.
I don’t expect to get significant health reform in 2009. By the time Congress is ready to pass legislation, more people will have no insurance or very skimpy insurance. Those who still have pretty good employer-based insurance will be more worried that they are going to lose it.
If the benefits under a new plan are very clearly defined, are the same for everyone, and are better than Medicare and better than 85% of employer-based insurance, I think people may accept the change. Especially because their will be NO PREMIUMS AND NO DEDUCTIBLES.
Getting people to understand a VAT tax, and how in the end, most will be better off will be harder.
It would help if employers began talking about what type of wage hikes they would be able to do under a new system , so that better-paid workers begin to realize that they really would be getting raises. . .
Barry– I completely agree about the three points that you particularly like in Emanuel’s book. I also very much like the voucher concept because it means that everyone gets the same high-quality deal and insurers can’t discriminate.
Maggie:
First an anecdote. I once had a music teacher who was old enough that he played in the band in a silent movie picture theater. When talkies came in about 20,000 musicians (mostly piano players) were out of work. Most of them didn’t even stay musicians, but went into some other line of work.
We live in a “capitalist” country. It is not up to the government to ensure that buggy whip makers or silent film musicians stay employed. If eliminating, what by your own admission, are useless jobs in the insurance industry is necessary then the firms can just take their lumps.
There are already programs to help displaced workers when their sector vanishes. This can be expanded if necessary as part of a transition.
There is no politically viable way that non-profit or government-administered firms will be allowed into the same market as the existing insurance companies. Pretending that the best man will win and the inefficient firms will just be out competed is unrealistic. Look at all the special pleading they are doing now.
How does it make their stockholders any happier if the firms get squeezed out over a few years than if they are eliminated all at once?
All these firms have huge piles of capital, they can go into some other line of business if they wish. Look up the history of the Penn Central Railroad to see how a corporate shell can move into something else when their main business is nationalized. That their investments failed was not for a lack of money, but brains.
I don’t buy the blame game either. Private firms will say yes to claims, but then just not pay, finding excuses just as they do now. Fraud will be standard operating procedure, especially misrepresenting coverage details.
We just need to cut the Gordian knot. Too bad we don’t have any Alexander the Greats on the political horizon. More like a bunch of timid followers.
Maggie,
I’m glad to see you’ve warmed up to the Emanuel & Fuchs proposal. When I suggested this to you several months ago, you quickly dismissed it as a poor solution without much analysis.
Maggie,
I’m disappointed to learn that the Federal Health Board would be charged with setting rates. From a provider perspective, this looks like the worst of both worlds – their rates are dictated by a single payer while they still have to deal with multiple insurers.
I assume the premise here is that the buying power of a single payer can drive rates (and costs) as low as possible. However, with the ICD-9 system that hospitals use by itself having over 20,000 codes, it defies common sense to expect a single payer Federal Health Board to get all of these prices right so that supply and demand are in rough balance. By the way, I’m told that when ICD-10 comes out in another year or two, it will have 200,000 codes! Will the Health Board be able to pay higher rates to surgeons with better outcomes or to PCP’s that drive less utilization than others while still keeping their patients healthy? Even within the same office, it is reasonable to pay a brand new doc just out of training less than a senior doctor who has been practicing for 15 or 20 years just as we expect to pay first and second year law firm associates a lower hourly rate than senior partners command. I think this approach will inevitably lead to overpaying for some services while underpaying (and creating shortages) for others. I think it would be better to let insurers negotiate rates and experiment with different payment approaches like hospital and physician tiering based on cost and quality and bundled pricing for expensive surgical procedures that lend themselves to the concept.
At the same time, I’m all for a Federal Health Board making determinations not to pay for certain drugs, devices, surgical procedures, imaging and blood tests, etc. based on comparative effectiveness research or existing evidence because they are deemed too expensive vs. alternatives or on a QALY basis. Anything that is not paid for could be made available in a supplemental insurance policy that people can buy with their own money if they can afford to or they can self pay on an as needed basis, again, if they can afford to.
Barry:
With all of these proposals we must beware the tyranny of the “fairness doctrine” so ingrained in the progressive mindset. It is most definitely not a done deal that individuals would have the right to purchase either insurance (pre-paid service contracts?) or to buy out of pocket services that are not covered by the proposed coverage plans.
For example we can look to the U.K. where a woman was forced to choose between continuing with her approved cancer program under the national health care plan WITHOUT the right to buy additional treatment, or to purchase the additional cancer treatment out of pocket but forfeit all of the other health care coverage under the national plan (I believe it was breast cancer, and essentially every blog devoted to health care economics had some comment).
The second example would be premium cataract implants that allow a cataract patient to have good vision for both distance and reading vision without wearing glasses (presbyopia treatment). These lenses and the associated additional care necessary for their use is considered “not medically necessary” since the alternative is to simply wear glasses (not an unreasonable determination). Initially, since there is SOME KIND of implant that is approved and covered ALL implants were to be considered the same and medicare patients were prohibited from purchasing this “premium” product and service and implant out of pocket. Changing this required 2 or 3 years of work/lobbying to get CMS to allow patients to spend their own money (NB, there is no additional charge or expense to medicare for this product/service).
We must beware the tyranny of the “fairness doctrine”…
Robert, jms, Barry, Bingo
Thanks for your comments.
jms– I’m very sorry if I seemed dismissive when you brought up the Emanuel/Fuch pljan in February.
But in fairness, here’s all that you told me about the plan at the time:
“doesn’t a mandate to get insurance infringe upon our right to personal freedom? Universal healthcare could be funded in other ways, without resorting to mandates, such as the value-added tax proposal along with the issuance of vouchers (as proposed by Ezekiel Emanuel and Victor Fuchs.”
There just wasn’t enough detail for me to undertand how the plan might solve the problem. You didn’t tell me about how the voucher entitles people to comprehensive and equal benefits, or why a VAT wouldn’t be regressive (as it usually is). You didn’t talk about the Institute to Compare OUtcomes and Technology–which is vital–or how private insurers would be regulated (also vital).
The book wasn’t out yet, so I hadn’t read it.
But, in retrospect, you’re right, the VAT financing means you don’t need a mandate: no one is forced to buy insurance, everyone is given a voucher for insurance.
And that is a great way to get around the whole “mandate” issue which seems to get many people very upset.
Though the truth is that instead of being “mandated” to buy insurance, you’re manadated to pay a 10% tax on everything you purchase.
So you’re “forced” to fund health insurance for everyone, whether or not you think you need it.
This seems to me fine, and I can see how psychologically, people might feel better about the VAT. They are accustomed to being told they must pay taxes, they’re not accustomed to being told what they must buy.
Robert–We’re not talking about 20,000 pianists.
We’re talking about 444,000 health insurance industry employees. And the tens of thousands of others who work for companies that service insurance companies.
Do you know how much money we would have to raise just to pay them unemployment insurance?
Can you imagine what would happen to the economy of a city like Hartford, Ct. (already a distressed economy with many poor people.)
I’m very sympathetic to your feeling that most insurers don’t add much if any value and some are destroying value in our health care system.
But some (like Kaiser) have done things that govt (Medicare) has failed to do–like refusing to cover medications that offer no benefit and are very risky.)
Kaiser pays attention to the medical research and acts on it. Medicare doesn’t.
If insurers were regulated, forced to take anyone who enrolls at a set price and to compete on quality many would drop out. Kaiser wouldn’t. It would know that it would do better than it does now while competing with for-profit insurers that cheat by cherry-picking.
Buggies were replaced by cars over a long period of time. This gave people–and the economy–time to adjust. There were losers (people who continued to invest in and buy buggies) but it wasn’t a catastrophe.
Shareholders already know that private health insurers are in trouble. They realize that the next Congress will probably either cut or eliminate the bonus that insurers are getting from Medicare to offer Medicare advantage. They know that as employers stop offering benefits, insurers are losing business.
Some shareholders are selling shares–are not buying more.
But that’s different from panic selling. Panic selling creates a financial disaster that affects many people. (Think Enron–then multiply it by many large corporations.)
If a Senate committee began to seriously discuss doing away with the health insurance industry, you would have a run on the stocks that would create huge losses for state pension funds, teacher’s pension funds, corporate pension funds, etc.
These stocks are not just owned by wealthy individuals–most of the ownership is “insitutional” i.e. they are owned by pension funds, universities, mutual funds. . . . If you have an IRA or a 401k with any mutual funds in it, chances are you own insurance companies.
Pension funds are already in trouble–the impact on retirees would be terrible.
In an economy things are hooked together in very complicated ways. You can’t just yank one part out and think that only the greedy, rich insurance companies and their exectuives will be hurt.
And the govt does not have the money to compensate everyone who would suffer. (Just as it didn’t compensate the many Enron employees who lost everything.)
Finally, you need to ask yourself: why do the vast majority of European countries use private sector insurers to deliver health care?
And how is it that they are able to deliver better quality health care than we do at half the price?
Because the insurers are regulated. There are laws.
They can’t just “not pay.”
The regional Board would throw them out of the system.
Because there would be many, many fewer insurers, monitoring them would not be that hard.
Think of utilities like Con Edison. They can’t raaise rates without permission from legilslators. They have to deliver the electricity you are paying for. (If their systemn breaks down, it’s a huge scandal, TV reporters all over teh place, Con Ed’s CEO on tv apologizing to the Mayor, their crews working 24 hours to get things up and running, etc. etc.
Finally, there is no way that you are going to get 60 senators to vote to eliminate the insurance industry.
Even if single payer is the best idea in the world, talking about something that isn’t politically or economically possible just doesn’t help us.
Talking about having a public sector alternative competing with tightly regulated private insurers on a level playing field is useful because it could happen. It’s happening now in Germany and in many other countries.
And in Germany the public-sector plan is doing very well– more than-half of very affluent Germans pick it over the more expensive private sector plans which offer more amentiies (private rooms in hospitals, no waits) but no better care.
The Swiss also have a system where private-sector plans which are regulated by the govt. deliver care. I wrote about it here http://64.233.169.104/search?q=cache:z4k5NfYnDXEJ:www.healthbeatblog.org/2007/11/herzlingers-mem.html+Switzerland+and+Regina&hl=en&ct=clnk&cd=1&gl=us.
Barry–
I think I created confusion by saying that the board would be regulating fees. First of all, Emanuel assumes that we’ll move away from fee-for-service.
Secondly, he suggests that the board will divvy up the money from the VAT tax to
the 12 regions with an eye to cost-of-living in various regions. In other words hospital employees and doctors in Manhattan need to be paid more than hospital employees and doctors in Nebraska.
But hospitals in Manhattan don’t need to be paid more to over-treat patients (as they are today.) He would get rid of unwarranted variations in how much we spend in different regions of the country, insofar as those variations are driven, not by patients’ medical needs, but by supply (more beds and more specialists.)
Insurers in a particular region would have to figure out how to use the money they received from the VAT (through the vouchers) to deliver all of the guaranteed benefits.
Bottom line–the amount of money from the VAT tax that the Manhattan region (very likely metro NYC/Long Island, New Jersey surbubs /Westchester/ might be one region)
would be significantly less that the amount now spent on healthcare in that region (Because today, we know that there is a lot of unncessary, supply-driven treatment in that region.)
This automatically puts a cap on how much money insurers would have to pay for services–and in that way the Board “regulates” prices–by capping the budget. And the Institute for Technology Assessment also would be determining which services are worth paying for.
But it would then be up to insurers to experiment,as you say, with different payment systems in order to achieve higher quality care at a lower cost.
Emanuel knows that we need to pay primary care physicians more–and some specialists less. We don’t have enouogh primary care physicians beause their pay is too low.
(I believe that the the regional boards would help the insurers try to figure out how to adjust payments to get higher qualtiy for less. )
What’s important is that insurers –and health care providers–would be competing on quality. Insurers would be required to send electronic medical records to the regional Board to show outcomes, and how much it cost to achieve those outcomes.
The insurers’ goal would be to attract the best physicians and hospitals to their network–not the most popular (as rated by NY Magazine or U.S. News) but those that achieved very high outcomes at a low price. The Mayo Clniic–not Sloane-Kettering.
Today, the medical centers that many of us think of as the most prestigious are simply ones that spend a lot on marketing (radio ads ec.) and hotel-like-amenitiies.
The rooms are nice. The parking is convenient.
But typically, these hopsitals are not providing the best outcomes at the lowest price. That is something you are more likely to find in the NorthWest and in parts of the West where doctors work, on salary, at medical centers. More collaboration, no fee-for-service, less waste.
Most of NYC’s private hospitals would have to change the way they do business. Today, they overtreat and are extravagnat. They put money into cath labs (to attract more business so that they can then do more unncessary angioplasties) rather than into palliative care (which would raise the quality of care.)
Since the Regional Board would be evaluating the electronic medical records and outcomes, they would implicity be setting the priorities as to what insurers should reward with higher payments–and what they shouldn’t reward.
The regional board would not be impressed by marketing or the hotel-like amentities.
And since all patients would have vouchers of the same value, hospitals would no longer be competing for well-heeled white patients and the doctors who treat them. All patients woudl be of equal value to the hospital.
This could go a long way toward ending medical apartheid in this country.
As for getting hospital payments “right”–that isn’t possible.
As a hospital COO explained to me a few years ago, a hospital’s costs are completely unpredictable. A hospital never knows how many empty beds it will have, how many patients will require more care than the average patient suffering from that disease, how many complications will ensue, etc. That means that a hospital can never project its annual budget accurately.
This is why hospitals are over-paid some years and under-paid other years as
Medicare shifts back and forth trying to balance things out. A hospital’s costs (what it costs the hospital to care for a particular patient) and what it charges for that patient will always be different.
Finally, when it comes to wealthier people paying for extras out of pocket– we don’t want drug-makers and device-makers putting things on the market that haven’t been proven and then marketing them to he wealthy .
Part of health care reform means protecting the public from being scammed. This is what the FDA is supposed to do. Hopefully, beginning in 2009, it will go back to trying to protect patient safety.
The FDA should approve some experimental drugs for clinical trials–and the Federal Board would agree to cover the cost of those drugs for patients in the trials.
But the patients should be selected, based on how likely it is that they would benefit and produce “clean” results (you don’t want the results clouded by patients who are suffering from 3 different chronic diseaes.)
How much money a patient hass should play no role in his access to experimental drugs.
Bingo–
You should read the book. Then you would realize that patients would be able to purchase supplementary insurance as they do in many European countries to cover things that are not medically necessary.
Secondly, as explained in the book, the Technology Assessment Institute would approve specific treatments for patients who fit a specific profile–no one-size-fits-all.
Regarding the premium cataract implants–from what you say, CMS has solved the problem, so that creates a good model going forward.
If the Federal Board is as good as MedPac (no reason why it shouldn’t be) it would make smarter decisions than CMS does.
What CMS hasn’t solved–and what better regulation could solve–is the amount of totally unncessary cataract surgery in this country.
I remember you were interested in the story I told about my friend who was told that he needed cataract surgery in both eyes. .
When he went to a second doctor, he discovered that he had 20/20 vision in one eye, and 20/40 in the other eye. No need for surgery.
I followed up and talked to the second doctor. It turns out that he did all of the appropriate tests to see if there was any way in which my friend’s vision was impaired by catarcts–“glare” test etc. There was no impairment. My friend had no complaints about his vision. There was no reason for the surgery.
He indicated that there is a lot of unncessary cataract surgery with doctors telling the patient he needs surgery–when the patient has never complained about his vision. “I do operations only when patients come to me and say–I’m having trouble with my vision,” he told me. “I never tell them-you need an operation”
He told me my friend could report the doctor, and that would cause the doctor some hassle, but probably he would lie about what he had told the patient and change his (paper) records.
This second doctor uses electronic medical records, and shows you what is on them as well as images of your optic nerve, etc. He’s meticulous, and shares all of the information with the patient. I’m now going to him too.
I have glaucoma as well as dry acute macular degeneration and I’ve never had anyone do such a thorough job of examining me and setting up a baseline so that we can see how the disease is progressing.
He also told me that I didn’t need a new prescriptoin for my glasses. The very, very expensive doctor who I used to go to (who didn’t take insurance) had an optician in his office who worked for him. He was always urging me to change my prescription on an annual basis.
I’ll put the book on my list!
I believe doctor #2 sells his colleagues short. Although there are relatively few who presently have an EMR (which we do…whew!), the overwhelming majority of doctor #2’s colleagues (pick a number–98, 99, 99.5,6,7%) have identical criteria for cataract surgery. Premature cataract surgery is so counter to the majority’s sensibility that any is too much, and any seems like a lot, and any amount over zero is too much, but I’m afraid that the numbers just don’t support that “there is a lot of unnecessary cataract surgery.”
The premium IOL model is scalable and is, indeed, a useful model for this proposal.
Maggie:
I’m not trying to be heartless, but insurance companies claim to believe in the capitalist system. Why should their line of business be specially protected?
If the goal is cut the cost of health care then one needs to go after all parts that contribute. Fifth wheel claims processing functions are just one. It is perfectly possible to run a deliberately inefficient system to give marginal producers employment, Japan does it with small rice growers. Society just has to agree that accepting higher costs for rice (or health care) is worth it because of other social benefits.
As to throwing lots of people out of work, the firms have no trouble doing it themselves when their bottom line is involved. From NY Times this week:
“So far, banks and brokerages have announced the dismissals of more than 83,000 employees worldwide – with a large chunk coming from firms based in the New York area. And more layoffs are expected to come in the next few months.”
If the Blues could be privatized over the past decade then why not investigate reversing this and turning them back into non-profits. The settlement with US Sugar in Florida shows that private enterprises can be eliminated when it serves a greater public good – all it takes is money.
It’s time to stop assuming that it is impossible to eliminate a private sector, and start to look at what it would take.
Maggie,
Thanks for the clarification on how rates would be set.
After reading through your last response, one other question that came to mind is this: Under the current system, there is a lot of demand, especially among employees of large companies and the public sector, for large, open networks that provide maximum choice of doctors and hospitals. HMO plans with more limited provider networks cost less but are not as desirable to many which, by the way, are a key drawback for Kaiser. Suppose the value of the voucher is enough to provide the legislated benefits package but only within a tight HMO network. Would insurers be able to offer the PPO product for a higher price with members paying the difference out of pocket?
The more help an independent entity like the Federal Health Board can provide in identifying tests, procedures, drugs, devices, etc. that are either cost ineffective or not medically necessary, the better. People are more likely to accept the Health Board’s judgment on such matters and insurers could use the political cover. Under the current system, Harvard Pilgrim CEO, Charlie Baker, recently commented in response to one of my posts that Medicare drives payment policy in the U.S. and it is very hard for private insurers to veer too far from what Medicare does except at the margins. The FHB could help to legitimize moving away from Medicare practices where appropriate including paying more for PCP’s and palliative care specialists to cite just two examples.
Maggie,
To cite Charlie Baker, CEO of Harvard Pilgrim Healthcare, one more time, his most recent post is on practice pattern variation. In that post, he mentions that Bellevue Hospital in NYC, which has a large number of salaried doctors and treats a large lower income population, scored in the 60th percentile for utilization during the last two years of life for seriously ill people. At the same time, the Mayo Clinic, which also employs salaried doctors, scored in the 28th percentile. Since Bellevue is likely to be resource constrained as compared to, say, NYU, those constraints push in the direction of less utilization, not more. My takeaway from the comparison between Bellevue and Mayo is that the medical practice culture generally is much more aggressive in NYC than it is in Minnesota. Bellevue may well be one of the best performers in NYC on this metric, but I have no idea how insurers, who are supposed to live within the value of the vouchers, are supposed to figure out how to close the medical practice pattern culture gap between NYC (and Boston, LA, Miami, etc.) and Minnesota, Utah, and the Pacific Northwest. Medicare has been in business for 43 years now, and they haven’t been able to figure it out either. Since you commented in a post awhile back that hospitals like UCLA can’t just fire specialists and close wings because they need the revenue from lots of utilization to service their debt and meet their other expenses, exactly how are insurers supposed to rein in these costs when the spending decisions are driven by doctors who are not their employees?
Robert – Regarding your contention that insurers add no value and we would be better off if the government ran the insurance system by itself, I don’t know whether or not you’ve read Emanuel’s book. If you haven’t, you should give it a read with a particular focus on Chapter 7 – Single Payer Plans: An Outdated Solution To Modern Medicine (pages 153-170). A single payer approach is nowhere near the solution that you seem to think it is.
Barry:
Insurance serves only one purpose – to spread risk. Any other tasks that get handled under this umbrella term are not insurance.
Medicare is insurance – if I get really sick, and I’m covered, it pays. If you are healthy your premiums pay for my care. That’s the spreading of risk, some win, some lose, but on average premiums in equal benefits out.
Now how benefits are to be paid, what is covered, etc. are all tasks that need to be dealt with, but this is apart form the insurance function. If someone wants to setup an agency to figure out this aspect and separate it from the claims processing, fine but that’s just an administrative detail.
Policies are also tailored so that individuals can have more coverage for higher premiums, if they wish. Whether these extra benefits should be available from the government or elsewhere is also a detail.
Medigap is a private version of this, while Medicare itself has the same benefits and charges for everyone. Social Security is also, essentially, fixed, while private pensions and life insurance are not.
If you think there is a role for those not providing the insurance function in the present system, please explain what it is? We don’t need cherry pickers, or sales forces, or multiple negotiators with suppliers, nor coordination of benefits avoiders, nor medical record duplicators.
Barry–
It isn’t that Medicare “hasn’t been able to figure out” how to lower supply-driven utilization.
They know how–and they have talked about doing it–pay less for services in regions where volume of services is very high.
Also, alert voters in Iowa that their Medicare taxes are being used for unncessary treatment in L.A., Manhattan, Florida, Boston, Texas, etc.
(It’s amazing how this story has kept out of the mainstream media. You would think a very good newspaper in one of the low-treatment states would have broken it years ago. People in these states pay the same percentage of their paycheck into paycare, yet Medicare spends half as much on them as it spends on people in Southern California–after correcting for differences in prices, age, race, overall health of the population . . )
The reason Medicare hasn’t cut payments in the states where their is more overtreatment: politics.
Congressmen representing the states where overtreatment is highest tend to be quite powerful. Many of the specialists in those states tend to be quite wealthy and powerful.
On the other hand, as someone pointed out to me recently, most of the members of the Senate Finance Committee come from states where more conservative treatment is the norm–and outcomes are as good or better.
The nice thing about asking private insurers to solve this problem is that they don’t have to worry about the lobbyist. (They are the lobbyists–but for the payors not the providers.) My point is that private insurers are not depedent on contributions from hosptial lobbies and specialists’ lobbies.
Under Emanuel’s plan, all the private insurers really have to worry about is satisfying the Regional Board by providing the benefits they are supposed to provide while workign within the limits of the budget imposed by the vouchers. . .
Of course insurers also have to worry about their customers being mad at them. Some people who are accustomed to having an MRI every time they think they need one (even though they don’t) will be quite put out when someone says, “No, I’m sorry, but you don’t need that.”
On the other hand if all of the private insurers in my hypothetical NYC/Long Island, Jersey Burbs, Westchester area follow the best practice guidelines and refuse to pay for unproven, unnecessary care, none of them will lose more market share than anyone else (though people may do quite a bit of switching around.)
A few insurers might try to make a reputation of providing “more care, more tests, more specialists,” but this would be short-sighted. Over a couple of years, they would find that they were running over budget, losing money, and that their outcomes weren’t as good.
Moroever, in terms of customers being disgruntled, as I’ve said before, most of the overtreatment (in dollars) is big-ticket items like 3 weeks in the ICU before you die; unncessary hospitalizations; unnecessary, ineffective operations, ineffective rounds of chemo–in most cases these are not things that patients ask for, these are things that hospitals and doctors tell them they need.
So this brings us back to the providers. Insurers will have to try to devise papyment schemes that give providers an incentive to do less, do it right (fewer complications and infections that people in the hospital loonger); give the patient a chance to make choices (level with him that we have no proof that any treatment for early-stage prostate cancer saves lives . .. )
etc.
Note this is very different from what private insurers did in the 1990s when they paid providers bonuses for using fewer reseources and providing less care. There was no attempt to look at outcomes and so, too often, doctors were rewarded for (wittingly or unwittingly) holding back on needed care.
Under Emanuel’s plan the regional board would be making sure that providers were being paid for keeping patients well. Quality of care would be the bottom line in teh competition for patienits.
Finally, in areas where there are an excessive number of specialists, if they are doing less (because insurers are covering angioplasties whether or not you fit the profile of patients who will benefit),specialistgs may find that they want to consider re-locating to an area where they would be busier.
This, of course, would be their choice. But if an area like metro NY is on a budget that is based on how many people there are in this area, race, the overall health and age of the popoulation (compared to other regions, using Dartmouth data) and cost-of-lilving in his area the total money available to pay specialists and hospitals in this area would be signficantly less . . .
Maggie,
I’m in basic agreement with what you’re saying. That is, insurers (including Medicare and Medicaid) need to move toward a payment system that rewards value and not resource utilization. Even now, the larger insurers claim to be able to identify the most cost-effective doctors and hospitals, but they feel constrained by Medicare’s practices. For whatever reason, they don’t think they can move to new and different payment approaches (like bundled pricing for surgeries) unless Medicare does it first. Tiering of doctors and hospitals based on quality and cost might be more doable, but, even here, they are moving gingerly. I also think it is clear that widespread implementation of interoperable electronic medical records will be a prerequisite for moving to a payment system that rewards value as measured by outcomes and cost-effectiveness.
I appreciate your point about insurers not having to worry about hospital and physician group lobbyists. On the other hand, they probably fear being demonized as profit hungry, insensitive corporations by consumer groups as soon as they try to start saying no to expensive cancer treatments that only extend life by a few months, for example. They need the Federal Health Board to provide political cover on issues like those.
I think it would also be helpful if more doctors, especially surgeons and anesthesiologists, worked directly for hospitals as salaried employees. This would make it a lot easier to move toward bundled pricing for expensive surgical procedures. Indeed, surgical procedures performed on an inpatient basis on patients with commercial insurance are the most profitable block of business for hospitals generally. Outpatient procedures earn higher profit margins, but the dollars are much smaller.
Robert,
The key to effective risk spreading is to make sure that each insured is part of a large group which is the case for people who work for big companies. The individual insurance market is dysfunctional, and the small group market isn’t much better, especially after your small group has one of its members incur very large bills. Without a taxpayer funded system that automatically provides everyone with insurance or a mandate for individuals to purchase insurance or employers to provide it, we cannot expect insurers to accept all comers. Otherwise, people will just wait until they get sick before applying for insurance, and that is not a viable business model.
Government does not have the capability to actually provide insurance by itself. Yes, it can pay for it, but it can’t handle all the details. Medicare contracts with the private sector for claims processing. If Medicare gets authorization to negotiate with drug companies for lower prices, they don’t have that expertise in house. They would have to hire a Pharmacy Benefits Manager (PBM) to do it for them. Emanuel’s proposal to pay insurers on a risk adjusted basis depending on how sick their population is means that every individual would have to be scored for risk intended to measure not only how sick he or she is now but the degree to which each individual might utilize healthcare resources in the future. The government doesn’t have that capability either. Armies of insurance company underwriters would have to be engaged to do that. Moreover, the risk scores would have to be updated each year to incorporate that year’s experience and reflect the fact that we all get a year older each year. Insurance companies have superior technology and data analytics capability to mitigate fraud. Medicare and Medicaid are weak here because they don’t spend enough money on oversight in order to sustain what looks like low administrative costs as a percentage of outlays. Insurers are also more likely to come up with innovations such as tiered drug formularies. In short, I think insurers add considerable value, and their profit margins are not very high – generally in the range of 3%-6% of premium revenues after taxes with non-profits closer to 3%, and for profits closer to 6%. Remember, though, that the non-profits are not paying taxes while the for profits are. In short, there are a lot of subtleties here that most people don’t appreciate.
Barry–
I agree– I think we’re pretty much on the same page on reimubrsement. And I very much respect the amout of time you have spent laying out positons and asking questions on this blog.
Just one thing– you write:
“For whatever reason,[private insurers] don’t think they can move to new and different payment approaches (like bundled pricing for surgeries) unless Medicare does it first.”
I think the reason is that private insurers don’t want to take the heat. They want to say: “we’re just following what Medicare did.” (See the final quote in my post on comparative effectivess vs.
cost-effectiveness.)
Barry:
Your claim that “government” doesn’t have the expertise to handle some routine clerical and administrative tasks is an article of faith of the “less government” pro-business sector. Government can have whatever expertise it wishes to have, it just sets up an agency to perform the task, same as a private firm would do, and then hires (and trains) the appropriate staff.
Businesses prefer that this work be outsourced because getting this sort of government contract is pure gravy. There is no real competition, at most there might need to be a bit of lobbying and payoffs to get the contract renewed, but otherwise it’s pure profit. This his how “free marketeer” Ross Perot made his fortune, running computers systems for Medicare – apparently his “expertise” and “efficiency” allowed him to amass a fortune at the taxpayer’s expense.
Whether routine tasks should be outsourced is a philosophical issue, motivated by money. Just look at the situation in Iraq, is there any cost savings or benefit from having tasks the army used to do with grunts outsourced to KBR “contractors”?
The IRS outsourced tax collections to private firms because of political pressure, and the efficiency went down, the revenue to the IRS went down and the number of abuses of taxpayers went up. All predictable, but the collection agencies cleaned up.
It’s time to put the canard that government can’t do its job to rest. Government wasn’t the problem as Reagan said, but the GOP has certainly done its best to make it one. Tainted tomatoes anyone?
Robert,
I think we have a philosophical difference of opinion here. I generally trust markets while you don’t. You think government can perform most functions more cheaply and efficiently than the private sector can, in part, because it doesn’t have to make a profit, while I don’t. Markets don’t always work, but I’m willing to try them first in most (but not all) instances. We’re each entitled to our respective opinions.
Barry:
This probably isn’t the forum to get into a discussion about political philosophy, but, while you are entitled to your own opinions, you are not entitled to your own facts.
Off the top of my head I cited several examples where outsourcing has led to worse outcomes then when the jobs were done by the government directly. Since this is a health blog I’ll mention, once again, the difference in overhead costs of Medicare (2%) and private firms (15-30%).
The head of United Health walked away with a package worth $1.3 billion, the head of Medicare is a civil servant, probably making under $200K.
Let’s have some examples where outsourcing has worked better. It is exactly where things are working smoothly that private firms wish to take over, the task is well-defined, the costs are known and the risk is insignificant. It’s a sure thing.
I’m all for situations where government competes with private firms, one could say that the NIH competes with private drug firms when doing research, but the insurance companies will be unwilling to compete with a government-administered program, they know they will lose, and that’s why proposals to have such a mixed model will never get through congress.
Robert and Barry
As you know, I basically agree with Robert that for-profit medicine is more expensive because for-profit companies have to market, advertise, lobby and produce profits for investors.
That’s the theme of my book “Money-Driven Medicine: The Real Reason Health Care Costs So Much.”
For-profit medicine creates a conflict of interest: on the one hand, the company has a primary responsibility to its sharehodlers. Too often, its customers–patients–come second.
That said, government can be bureaucratic and slow to innovate.
This is why I can see NOT-FOR-PROFIT private sector companies contributing to health care reform. Here I think of Kaiser Permanente in Norther California (which is half not-for-profit.)
I guess what I’m saying is that I think that it is imporatnt to distinguish between “private sector” and “not for profit.”
Others would argue that for-profit private sector companies are more efficient because people work harder and are more motivated when there are profits to be made.
But I’ve worked at both not-for-profits (univeristy and the foundation where I am now) and for-profits (NY Times, Dow Jones, etc.) and I’ve never worked harder or felt more motivated at the for-profits.
I think people work hard if they like their work, for its own sake (whether they are in a for-profit or not-for-profit setting. If they are mainly working for money, it’s just not that interesting.
Niko was at a for-profit company before he came to the foundation, and he says, “Ultimately I decided I’d rather be poor than bored.”
Maggie:
For once (?) we are in complete agreement. My wife and I both spent our entire careers working for non-profits and we observed that the mindset of those in management positions is (or at least was until about 10 years ago) completely different than that of for-profit firms. Her university had to fight a court case started by the faculty when the president decided to run the school as a fiefdom along business lines. They won and it is now back to acting like a place of higher education again. (I wish I could say the same of some of the larger educational factories).
I think the history of the Blues illustrates my point, how a bunch of money grubbers ever got into top positions so that even the idea of privatizing them could be considered is amazing. As I’ve said before NY Blue Cross went from 94% payout to around 72% after the transition.
So, I’m perfectly willing to see a plan where insurance is handled by non-profits, as long as the rules are restored so that they aren’t just shams like many such enterprises these days. A good example being the “non-profit” credit counseling firms which are nothing more than shills for their associated finance companies.
I think it would be doable to re-privatize the blues, or to create enabling legislation which would assist in seeing a new generation of such organizations being created. I think this would be a place where philanthropic organizations could play a role.
Imagine if the Gates Foundation, or similar, created a non-profit insurance company by providing seed money and some expertise. The Ford and Rockefeller Foundations have done similar things for the past few decades.
Barry’s comments are useful, because his attitude is one of the most common these days and influences the way the public and the pols approach issues. The fact that there is much misinformation embedded within it just shows how much work by groups such as yours has yet to do.
Robert–
I’m delighted to be in complete agreement–if only occasionally.
Barry and I also are occasionally in complete agreement.
Maybe the three of us could form a very small, but very intelligent, coalition government.
Seriously, I should add that I appreciate Barry’s contribution to this blog because he does represent a different point of view that keeps me on my toes.
But I wouldn’t’ say Barry represents the majority of people who are further right than I am. The majority are not nearly as intelligent, not nearly as interested in evidence and coherent, fair argument. Barry never resorts to ad hominem attack. And he’s never condescending.
I completely agree with you and your wife about not-for-profits. Some are
corrupt. But when they are not . . they can be do excellent work.
You write: “Imagine if the Gates Foundation, or similar, created a non-profit insurance company by providing seed money and some expertise. The Ford and Rockefeller Foundations have done similar things for the past few decades.””
Yes, yes, yes.
A gal at work told me the other day she heard on the news Bill Gates was retiring from MS and putting all his resources into US healthcare reform. I couldn’t find anything on this, you guys hear anything like this? I know the Gates Fdtn is involved in healthcare to the extent of getting basic services and medicines to underdeveloped nations, etc, but shifting his focus right here to home was news to me. Is this true?
A gal at work told me the other day she heard on the news Bill Gates was retiring from MS and putting all his resources into US healthcare reform. I couldn’t find anything on this, you guys hear anything like this? I know the Gates Fdtn is involved in healthcare to the extent of getting basic services and medicines to underdeveloped nations, etc, but shifting his focus right here to home was news to me. Is this true?
Lisa–
Bill Gates is retiring at 52 to focus on philanthropy. But his focus will continue to be on underdeveloped countires. (I applaud his effort–while things are a mess here, it’s not for lack of money. $2.2 trillion is enough to provide high quality care for everyone. It’s just badly distributed and mal-invested. )
Meanwhile, here’s what he said about what he’s doing: “The foundation focuses on poverty, education and global health. In a recent interview with NPR, Gates spoke about the importance of eradicating diseases such as malaria and tuberculosis.
“Once you improve health in a country, it really changes everything,” Gates said. “Parents don’t need to have this many children to be sure that someone will support them in their old age. And so population growth goes down. You can feed, you can educate, you can provide jobs.”
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