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.
Maggie,
That was an excellent and fair analysis of Obama’s healthcare plan.
I would be willing to bet a lot of money that it would, as proposed, cost considerably more than he estimates. The cost mitigation strategies, as you say, will cost money in the short term, especially with respect to healthcare IT and comparative effectiveness research.
I remain highly skeptical about the ability of good preventive care to save money for the system, even over the intermediate term, though I am virtually certain that it extends lives. I don’t have to look any further than my own experience. Beginning about a year ago, my diet is vastly improved and is now the best it’s been in my entire life. Starting early in 2008, for the first time in my adult life, I started a formal exercise program with a personal trainer (at substantial expense) to supplement the considerable amount of walking that I’ve always done. The impact on my healthcare costs so far: zero. I will need to take my current medications indefinitely, I get my corporate physical once a year, and I go for stress tests on the schedule that my cardiologist recommends. More broadly, Charlie Baker, CEO of Harvard Pilgrim Healthcare, in describing his company’s wellness program for employees, says that a lot of people have lost a lot of weight so far. However, the number of hospital inpatient days per thousand members has not changed (at least so far). Until prevention can demonstrate the ability to drive down hospital inpatient days per thousand members, meaningful cost reduction will be difficult to achieve even if ER visits and routine PCP visits decline somewhat.
As for disease management, Peter Orzag, in his presentation In Washington earlier this week, said that Medicare’s pilot programs in this area did not save any money net of the cost paid to the companies that ran them. In one case, outcomes were even slightly worse than for the control group. He acknowledged that results might be better for a younger population than for the frail elderly, but my sense is that the potential for cost reduction from both preventive care and disease management strategies are overrated.
Finally, I strongly believe that high deductible health plans should be part of the mix, especially for young, healthy people and for those within the upper half of the income distribution. While I can appreciate the solidarity mentality that wants everyone to contribute to the pool, young people just starting out are, for the most part, not making a lot of money, are generally healthy and are likely to stay that way at least into their 40’s unless they are in a serious accident. Some will get sick but it will be a tiny percentage of that population. High deductible plans carry premiums that are 20%-30% lower than more comprehensive plans which are a meaningful savings for a young person early in his or her career.
In light of the difficulty in finding the money to pay for expanded health insurance coverage, even before the cost of the financial system rescue package, I think we would be better served by attempting to bring a less comprehensive health insurance plan to the uninsured as long as it includes good protection against catastrophic events. If it turns out that we can afford to do more in the future, we can always broaden coverage then. In the meantime, let’s not over promise and (probably) under deliver or deliver nothing at all because the money just isn’t there.
Barry–
Thanks for the kind words.
But I have to disagree on three points:
Preventive Care: Yes, preventive care does prolong lives, and thus, the person who lives to 80
may well absorb more of society’s healthcare dollars than the person who dies of a heart attack or breast cancer at 60.
But the goal of healthcare reform is not simply to contain costs–we also want to improve quality, and quality of life. Preventive care improves quality of life. As a society we don’t want people dying prematurely of treatable diseases.
Chronic Disease Management–we’re just learning how to do this. Most experts say that the Medicare pilot program didn’t go on long enough to be at all definitive. We blew an opportunity to learn something.
This confirms my growing suspicion that we’re making a big mistake by rushing health care reform. It will take time, and thought, to craft a rational, sustainable, high quality health care system. We need to experiment with pilot progarms–adn give them enough time so that we can learn from them.
High-deductible plans–
You say many young people can’t afford comprehensive insurance. But under health care reform, those with low incomes would be subsidized.
So we’re really talking about relatively affluent young people who say: “I can’t afford healthcare insurance: I have my condo payments to make.” (A quote from a young person in Boston.)
I submit that someone who has a condo can afford insurance. And that as a society, we cannot afford to have some members “free-riding”–taking the risk that they will become sick or have an accident, leaving the rest of us to pick up the bill. ( If you look closely at high-deductible policies you will find that most do not provide solid catastrophic insurance. There are all sorts of holes in the policies as well as caps on the amount the policy will pay out.)
The bottom line is that, as a society, we can afford high quality insurance for everyone only if everyone contributes, on a sliding scale, by income, just as we all contribute to Medicare. This is not a matter of the young subsidzing the old. It’s a matter of those who are lucky enough to be healthy and relatively wealthy subsidzing those who are poorer and sicker.
Maggie,
First, I need to make a correction from my first comment. It was Kerry Weems, Acting CMS Administrator, who made the comment about Medicare’s disease management pilot projects, not Peter Orzag, the Director of the Congressional Budget Office.
On preventive care, I agree that longer lives and more years of good health and high quality life are good things and worthwhile goals that we should encourage. My issue is that if, at the end of the day, good preventive care means higher average lifetime healthcare costs per person, policymakers should not try to sell prevention as a healthcare system cost saver because it probably isn’t over the long term.
I also agree that everyone, including young people, should contribute to the system instead of free riding. I just think that the relatively affluent segment of that population for whom high deductible plans would best suit their needs should be able to buy them instead of being forced to buy a more expensive comprehensive policy that they probably don’t need and don’t want. There is no reason why a high deductible plan can’t cover everything that a more comprehensive plan covers with the only difference being the deductible, maybe the co-pay amount, and the out of pocket maximum. Some of these plans even offer certain preventive services on a first dollar coverage basis, and they are still 20%-30% cheaper than comprehensive low deductible policies.
Barry–
I can understand how a good high-deductible plan and health savings account could serve a wealthy person well– The Health Savings Account is a tax shelter like no other, especially if you have enough money that you don’t need to tap it for health expenses. You can just let it compound forever, and leave it to your children. A great way for the Bush family and others to compound their wealth (if you think it’s a good idea for 75 families to own most of America.)
But seriously, the fact is that we need the wealthy to pay the full cost of a policy in order to finance high quality health care for everyone.
Otherwise, you divide the system, the way we have divided our k-12 educational system into public and private schools.
Since so many people choose private schools for their kids, they really don’t care about the public schools. So they grudgingly pay the minimum in taxes to support the schools–and do their best to keep property taxes down.
Of course property taxes aren’t a good way to finance public schools in the first place.
But my point is that if we want a good health care system, everyone has to be committed to it. It needs the sort of support that Medicare has, and that happens only if everyone is involved. Solidarity really is key.
Think how much better our public schools would be if everyone sent their children to them–and they were truly integrated, with kids from very poor neighborhoods bussed out of those neighborhoods to go to schools in suburbs.
Parents in the ghetto would like to see their kids, “out of the neighborhood” for a good portion of the day. They know that most of teh neighborhood schools are terrible.
Meanwhile, studies show that if you put 3 or 4 very poor kids in a middle-class/upper-middle/class classroom, they begin modeling their behavior on the middle-class kids. Kids don’t like to be different, and if the rest of the class doesn’t talk when the teacher is talking, you don’t talk either. . . .
The poor kids make real progress, and the more affluent kids don’t suffer
academically.
Socially, the more affluent kids benefit from getting to know people who are not nearly as lucky, materially, as they are.
Maggie:
Thank you so much for this comprehensive critique of the Obama plan. I intend to send a lot of people this way – I have gotten a lot of blank stares from people when I bring up some of these points.
I stand with you in disagreeing with Barry about the high-deductible plans for young and healthy people. Insurance is supposed to spread risk. Whether we like it or not, it is a system in which many pay in so that many can get some care and a few get a lot of care. Luckily there are more well people in most pools than sick people. If you don’t have well people in the pool you get adverse selection; only the sick sign up and the risk is inadequately spread. I am a living example: I lived for 12 years without insurance. When did I buy it? When I planned to get pregnant, of course.
I read your excellent book “Money Driven Medicine.” I am interested in exploring the actual costs of care as a share of total health care costs. In the book is a pie chart with the percentage of administrative costs of private plans plus their profits adding up only to 4.5% of the total national expenditure. It was eye-opening. I know that the information in the chart came from the Centers for Medicare and Medicaid Services in 2005. Do you know where I can find updated numbers?
Maggie,
First, on high deductible health insurance plans, I think you might be overestimating how much revenue is at stake here. Data I’ve seen show that approximately 175 million people (including family members) currently get their health insurance through an employer and another 25 million or so buy insurance in the non-group (individual) market. If we assume that only half of that group would be suitable candidates for high deductible plans, that’s 100 million people. I doubt that the uptake rate would ever exceed 20% of that group or maybe 25% at most. If 20 million people opted for high deductible plans at an average savings of $1,000 per person (about 25% of the average employer’s cost for premiums today), that would take $20 billion out of the premium pool compared to everyone buying the most comprehensive coverage. Though $1,000 per person savings is probably significant to many or even most of the people who choose and HDHP, it would be barely noticeable within the context of our $2.2 trillion healthcare system or even the $800 billion or so of private insurance premiums. I think we can well afford to let high deductible plans be part of the mix and focus instead on removing waste from the delivery system including practice pattern variations, defensive medicine driven by our overly litigious medical dispute resolution system, and incentives to overtreat created by our fee for service payment system.
On the education system, I don’t really have any expertise. I have opinions and biases but not a lot of knowledge. That said I’ll still make a few comments. First, a book I read back in the 1990’s called “Politics, Markets and America’s Schools” suggested that the two factors most highly correlated to student achievement are the student’s own ability and the socioeconomic background of the family. Second, a lot of people who opt for private school choose Catholic schools, in part, for the religious education. Many of these schools educate students for far lower cost per pupil than the public schools spend. Finally, in NJ, we have 31 special needs school districts called Abbott districts after the landmark court case of Abbott vs. Burke. The court ruled that the state has to provide enough money to allow these schools to spend as much per pupil as the state’s WEALTHIEST districts, not just as much as the average middle class district. One of these districts, Asbury Park, spends $22,000 per pupil which is the 4th highest in the entire country! The results are still abysmal. With all due respect, I don’t think money alone is the answer in education, and I don’t think it’s the answer in healthcare either.
Martha–
Thanks for your kind comments.
You write: “Insurance is supposed to spread risk. Whether we like it or not, it is a system in which many pay in so that many can get some care and a few get a lot of care.”
Exactly. And the lucky ones, of course, are the ones who don’t need a lot of care. In that way, health insurance is a little like fire insurance: if you’re lucky, your house doesn’t burn down, and you never get the money back that you put into the pool . . .
But you can sleep at night becuase you know that if the worst happens, you will be able to replace your home.
Yes, it is suprising to many people that insurer’s administrative costs and profits equal only 4.5 percet of the total that we spend on health care.
This is in part because the government pays for roughly half of our health care through Mediciare, Medicaid, Schip, VA hospitals, health care programs in schools, care for people in the army, etc.
In other words, if private insuers covered all of our health care, their administrative costs and profits would equal 9 percent of the total 2.2 trillion.
Of course the government also has admnistrative costs but they are not as high because govt doesn’t need to market, advertise, lobby, provide profits for shareholders or pay executives multi-million salaries. So while covering about half of our health care costs, govt’s administrative costs equal only about 2.3% of the 2.2 trillion we spend on health care.
That 4.5 percent number hasn’t changed much at all in recent years. Insurance premiums have been going up sharply, but that’s largely because the amount that insurers have been paying out in remimbursements has been risign a little more than 8 percent a year–thanks to the spiralling cost of drugs, devices, hospitals, doctors, etc. Prices are rising and volume is rising–we’re taking more durgs, and they’re more expensive drugs; we’re seeing our doctors more often, etc.
Insurance industry profits haven’t been rising –in fact, the insurers are in trouble. Recently, the only place where they have seen profit growth is through the Medicare Advantage plans where Congress agreed to give them a windfall bonus under Bush’s Medicare Modernization Act. But that
will almost certainly be repealed next year.
Bottom line: the big problem with private insurers is not that their administrative costs and profits take such a large share of our health care dollars–they don’t.
The big problem with the insurers is that in all but 4 state they can (and do) deny people coverage because of pre-existing conditions–or charge them far more than they can afford. Also, insurers sell policies that really shouldn’t be called “insurance”–Swiss cheese policies filled with holes. For example, in some states they can legally sell a policy that covers maternity –but not compllications during pregnancy. . .
Maggie:
Re: The insurance companies selling “swiss cheese” policies, this is why I fear McCain’s plan so much. He would have the policies be sold across state lines, watering down state regulations in a race to the bottom, just like the credit card companies. Have you written a critique of his plan? I look forward to it.
I am a rank-and-file member of a board of trustees on a Taft-Hartley plan. As you can imagine, another thing we hate about McCain’s plan is his wanting to tax employer provided benefits. While I think it is a good idea to uncouple health benefits from employment, just throwing people into the open market is a pretty scary prospect for someone like me. We have struggled for 15 years to keep our plan from going bankrupt, but it feels like we are prolonging the inevitable…
I recently wrote a critique of both plans for my union paper. I was limited to less than 1000 words so it was far less comprehensive than yours. I did rely heavily on your book, plus news articles I have been collecting. I am trying to get the rank and file to understand how complex the problem is. One of the elected officials at my union wanted me to write a Democratic screed, only praising Obama’s plan and slamming McCain’s. I refused. I have been having an argument with this official at my union about insurance company profits and costs. He quotes the Physicians for National Healthcare and says that they claim the percentage is closer to 30%. I know that they have an agenda and that people use statistics all the time to press their agendas. I wonder if the 30% figure is maybe out of a different pie — say total expenditures on individual policies, rather than total US health care spending. What do you think?
Martha,
While I normally favor markets where possible, I’m not a fan of McCain’s plan. I would be interested, however, in the union perspective regarding the following points.
First, people in government who score these things peg the current value of the tax exemption afforded to employer provided health insurance at $200-$250 billion per year. That’s a lot of money. At a recent conference, one of McCain’s people claimed that the average value of the exemption is worth about $4,200 in tax savings to a worker receiving family health insurance coverage (and $1,400 for individual coverage) through an employer. McCain would tax the value of the benefit ($12,000 on average for a family plan and $4,000 for individual coverage) but give a $5,000 tax credit ($2,500 for someone with individual coverage) in exchange leaving people like those in your union better off than under the current system.
Second, most economists agree that the value of employer provided health insurance is part of the employee’s compensation and probably would have been paid out in wages instead if the employer did not have to bear the cost of health insurance. Do your coworkers understand this and would they prefer more wages and less health insurance if health insurance benefits were taxed and if they had a choice? Alternatively, suppose health insurance benefits were taxed but income tax rates were lowered and the standard deduction and personal exemptions were raised so the government did not collect any more net revenue from the income tax than it does now. How would that be received?
The current tax treatment of employer provided health insurance is an accident of history related to getting around World War II era wage controls. Since people are insulated from much of the cost of even routine healthcare expenses, we probably consume substantially more healthcare services than we would if health insurance benefits were taxed the same way as wages.
Any sensible health insurance reform is going to require every interest group, including consumers, to give up something. For my part, I would be perfectly willing to give up the employer provided health insurance tax preference even though it would likely cost my family $4,000-$5,000 per year in higher taxes. If everyone insists on solving the problem only at someone else’s expense, we will never get anywhere. PNHP, for its part, just wants a single payer system and thinks lower administrative costs will solve our problem. It won’t as their numbers are just not credible. They are not prepared to give up anything themselves including investing in electronic records, accepting robust price and quality transparency, following evidence based medicine guidelines, or developing pay for performance metrics. Therefore, in my book, their credibility is zero.
Barry–
It’s not just the amount of money that wealthy people would contribute to the pool if they bought comprehensive insurance–their presence in the pool is important because they have so much more power in our political system than most people. They will be much more intersted in insisting on high standards for comprehensive insurance if their own families have
comprehensive insurance.
On education, I think you might be intributed by the work done by Rick Kahlenberg. He works at the Century Foundation (where I am)–and one of the reasons I decided to go there is that when I had an interview/lunch with my current boss he described Rick’s work.
I knew enough about education to realize that what Kahlenberg was doing represented a major breakthrough.
Take a look at these articles– I really think you would find them stimulating: http://www.tcf.org/list.asp?type=NC&pubid=2014
and http://www.tcf.org/list.asp?type=PB&pubid=618.
Maggie,
People who choose a high deductible plan WOULD still be in the risk pool. They would just get a discount of 20%-30% vs. the low deductible plan in exchange for taking on more of the financial risk themselves. Their interest in high standards and accountability should not be affected. Besides, even in Germany, 10% of the people (all higher income) opt out of the public plan in favor of private insurance. Yet, their system still apparently works well for them. They don’t need 100% participation in the public plan. In addition, the Germans finance their system mainly with a payroll tax of, I think, 14% of wages (half nominally paid by the employee and half by the employer). The wages to which the payroll tax applies are capped so very high earners pay a smaller percentage of their income in payroll taxes than middle income and lower middle income workers do. This is similar to the approach we use for Social Security (but not Medicare) payroll taxes. I think the German financing methodology is basically sound and is something we could emulate. A payroll tax rate in the 14%-15% is probably about what it would take to get the job done. The French also use a payroll tax. According to Ezra Klein, their rate is 13%.
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.
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,
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.
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.
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.
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:
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–
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 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:
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:
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.
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–
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–
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:
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?
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.
“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?
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–
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–
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:
Thank you for your offer to help me with educating the members of my union. I will probably take you up on it.
Martha–
Great–
Maggie
Martha–
Great–
Maggie
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
Obama needs to look at Clintons health care plan closer!Cause we need all Americans insured