Hard Times Ahead: How to Move Toward Healthcare Reform

       Over at Managed Care Matters( http://www.joepaduda.com/), Joe Paduda writes about how we might begin reforming healthcare—despite the economic meltdown. 

   First, he warns: “Comprehensive health reform will not happen in the near future. There is no money. There are lots of other priorities – financial stability, huge and growing deficits, energy, wars in two countries, nuclear proliferation and tax policy. There’s just no money, and not much bandwidth. Yet the Democrats will be highly motivated to do something meaningful, pressured by campaign promises and voter demands.”

      His recommendation: “Congress could pass and the President could sign legislation prohibiting medical underwriting in the individual market, requiring insurers to cover pre-existing conditions, mandating community rating, and establishing a basic benefits plan.

       This would mean that private insurers would be forced to  offer insurance to all customers in a given community at the same price—despite pre-existing conditions. Insurers  no longer would be able to shun the stick, or gouge them by charging exorbitant premiums.  And, if we establish a basic benefit plan insurers would no longer be able to sell “Swiss Cheese” policies filled with holes.

      

Admittedly, this would mean that premiums would be higher for everyone in states where the sick are no longer closed out of the pool.  Today, premiums are significantly lower in California than in New York State because insurers in California are allowed to deny coverage to the ill. Sometimes they simply terminate a customer’s insurance when he or she becomes ill.

   

Younger, healthier customers might well object to Paduda’s proposal. But ask yourself this: how happy are you about paying less because you live in a state where people suffering from cancer cannot get insurance? Keep in mind: next year, it could be you, or your mother or your sister who is closed out of the market.

     As Paduda points out, if the legislation he proposes passed, there would have to be stiff penalties if younger healthier people decided not to sign up for insurance. Otherwise, many might be tempted to put off getting insurance until they became sick—or decided to get pregnant—knowing that when they finally applied insurers would have to take them, and could not charge them more. In the meantime, these “free-riders” would not be paying into the pool.  In an e-mail exchange, Padadua agreed with me that those penalties would have to have “pointed, ugly teeth.”

       But if we’re going to have a penalty for people who don’t sign up, we also would need subsidies for those who truly cannot afford insurance. Alternatively, we could follow Massachusetts’ example and exempt low-income and some lower-middle income Americans from the penalty—which means that many would wind up without insurance. This is something we would need to discuss.

Read Paduda’s full post here:  http://www.joepaduda.com/archives/001326.html

 

                        Just How Bad Will the Coming Recession Be?

        Let me stress that I agree with Paduda. We won’t have the money for wholesale healthcare reform anytime soon. Presidential candidate Barack Obama had indicated that his goal was to reform our health care system by the end of his first term—not next year. And he said that before the economy began to unravel.

      Make no mistake: we’re heading into a long and deep recession. And it will effect everyone.  Both blue collar and white collar unemployment will soar– one reason why Paduda’s recommendation is so important.  (Today, speaking at Harvard, Bill Gates predicted that unemployment will hit 9 percent. Whatever you may think about Gates, he is good with numbers.) Not only will people lose their jobs, they will lose their employer based insurance, and they will need protection in the individual insurance market.

        I’m sorry to be so pessimistic, but as many readers know, this is an area that I have studied. I followed the economy and global markets when I worked for Barron’s from the late 1980s through the late 1990s. Then I wrote Bull! A History of the Boom, 1982-1999. When I finished the book in 2003, I realized that we still had not wrung out the excesses of the 1990s.  When the stock market bubble burst, prices should have reverted to the mean. To do that, history shows that the pendulum has to swing below the mean. The Dow should have gone down to 6,000 perhaps 6,500.  That never happened.       

       So after the bubble burst, the market bounced back—too quickly. The history of financial cycles shows that long steep bull markets are followed by long, deep bear markets. That is how markets correct.  Instead, in recent years prices have spiraled and by the beginning of this year, shares were overpriced, not only in the U.S., but worldwide. Meanwhile, Wall Street was unregulated and a huge pool of money was forming—the worst possible scenario.

    By continuing to cut interest rates Federal Reserve chairman Alan Greenspan had created easy money, and by refusing to regulate the financial markets, Washington invited the crooks in to play in that pool. At the same time the administration encouraged everyone to just keep on shopping and borrowing. Central bankers were printing money, and too much money was chasing too few assets —not just real estate, but stocks and commodities as well.

        Sometimes, the market correction that follows a giddy bull market becomes a two-step process. I am afraid this is what we are seeing today: the second shoe is dropping. Today, the market turned up. Tomorrow, the next day, or next week it will turn down. It’s impossible to predict the short-term, but investors have been traumatized. I would expect heavy weather ahead—extreme volatility. It’s too early to talk about how close we are to a bottom.

     .

          Looking Ahead –We Don’t Have to Give Up on Healthcare Reform

      

         In the next few years, most of the taxpayer dollars we invest in domestic projects will have to go into sectors where we can create jobs. Health care reform will not create jobs.

        Instead, we should invest in projects such as infrastructure repair. Those bridges need to be shored up at some point—we can’t just let them continue to crumble when people are driving over them–and this is as good a time as any. We also need to bring our troops home from Iraq. This will be expensive. Finally, when we get them home, we must care for them. The VA needs funding.

         That said, there are steps we can take to pave the way for health care reform that will not cost tens of millions—and in some cases, can save billions. There is no reason not to authorize Medicare to use its clout to negotiate for lower prices for drugs and devices, for instance. As I have said before, we should repeal the bonus that we now pay Medicare Advantage insurers. And we should begin demanding unbiased evidence that new treatments are indeed more effective before we agree to pay for them.

       In the tough economic times ahead, Congress may be willing to stand up to the lobbyists on each of these issues. But voters will need to make it clear that we can no longer afford corporate welfare for the healthcare industry.

       Finally, there is one area where I think we should spend money: we must address the health needs of the youngest and poorest among us by expanding SCHIP and raising the fees that we pay doctors and hospitals who treat Medicaid patients. See Niko’s recent post on how low reimbursements for Medicaid providers doom Medicaid patients to poor access and subpar care. The dollars we save by cancelling the windfall for Advantage insurers and negotiating fairer prices for drugs and medical devices could be used to help fund both SCHIP and Medicaid.

        And we don’t have to stop there. We’re entering a new period of belt-tightening. But austerity also could lead to some clear thinking.

      

      

 

                       

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27 thoughts on “Hard Times Ahead: How to Move Toward Healthcare Reform

  1. I don’t understand the “we can’t afford it” statements. Firstly, if we eliminated the inefficiencies from the existing system there would be enough money remaining to cover the uninsured and under insured.
    Second, if we can “afford” a trillion dollars to help Paulson keep his $100 million in Goldman stock intact we can “afford” anything we want to.
    Third, we could cut back on other areas, such as the $10 billion per month being directed to moving sand around in the Middle East.
    It’s all a matter of priorities. I’m not even sure that better coverage wouldn’t mean more employment. As is mentioned here frequently there is a severe shortage of health workers in many parts of the country. Perhaps a few of the pencil pushers at the claims denial companies could be retrained to be PA’s or EMT’s or the like.
    Never get suckered into the argument that we can’t “afford” some government program – we are not Zimbabwe.

  2. “legislation prohibiting medical underwriting in the individual market, requiring insurers to cover pre-existing conditions, mandating community rating, and establishing a basic benefits plan.”
    ———–
    Yup, I think this is key, but the system has to also find a way of forcing everyone into the system at the same time. Otherwise, too many will just go without insurance until sick, and then they will buy it. That is unfair to the majority and to insurers as well!

  3. In a related story to this, I found this on the following website:
    http://www.physiciansnews.com/wpe/newsbriefs.html
    ———-
    Findings from a survey of individual insurance shoppers show that 15 percent of people looking for insurance online were deemed “uninsurable” for standard coverage by most insurance carriers. The survey, conducted by Norvax, an online service for health insurance, analyzed data from 446,500 online insurance shoppers who either requested a quote or to be contacted by an insurance broker this summer. The people deemed uninsurable either had a pre-existing medical condition or provided height and weight information that produced a body mass index of 39 or higher, indicating serious obesity, reported the Wall Street Journal. The findings don’t necessarily mean the uninsurable will never get health insurance, but if they do, it would be extremely expensive and probably wouldn’t cover the pre-existing condition at issue, the Journal added. (Wall Street Journal, October 9, 2008)

  4. NG and Robert —
    Thanks for your comments.
    NG–
    You wrote “But the system has to also find a way of forcing everyone into the system at the same time. Otherwise, too many will just go without insurance until sick, and then they will buy it. That is unfair to the majority and to insurers as well!”
    Yes– that’s why Joe and I agree that we need penalties with “ugly teeth” to force everyone to sign up. (Please see the post where I talk about this. I know I write long posts, but . . . )
    Robert–
    We’re not spending real dollars for the bailout. We’re simply (!) guaranteeing these securiites of unknown value,and taking an equity stake in banks of unknown value. This is all happenig on paper.
    Funding healthcare for everyone would require spending real dollars–to pay doctors, hospitals, etc.– i.e. raising taxes to get the green stuff.
    In theory, we are the wealthiest nation in the world. In fact, we (the government and taxpayers) are the biggest debtor in the world.
    If we borrow more money (increase deficit spending for healthcare) we can be sure that other countires, that own more than half of our debt (U.S. Treasury bonds) will simply begin selling our Treasuries. This would drive the value of the dollar down –making the nation as a whole poorer, and less able to help the poor.
    Nationwide, our standard of living would drop,
    Finally–and this is important– healthcare is a recurring expense–year after year.
    The bailout is a one-time expense. Even Iraq is a one-time expense over a period of some years.
    Healthcare is $2.4 trillion a year, and rising, roughly 8 percent a year– year after year after year–forever.
    Where is the money that we would need to finance universal care?
    The government doesn’t have it. Wealth in this country is consolidated in the hands of the upper class the and upper-middle class famlies (those earning over roughly $110,000 to $150,000, joint income, depending on where you live .)
    To bring our taxes in line with Europe’s–and raise the money we need to meet all of today’s urgent priorities (getting out of Iraq, taking care of the Vets, unemployment , creating jobs and extending unemployment insurance, poverty, developing alternative sources of energy, global warming, the environment, education, and health care reform– . . .
    we would need to raise taxes on the upper-middle class by perhaps 10 percent or 15 percent. We would need to raise taxes on the upper class by much more. And qlwo raise inheritance taxes to,say, 50%–, perhaps 90% after $2.5 milion.
    These number are all back of the envelope estimates, but they’re not far from what it would take to bring us in line with taxes in other developed countries that do provide a “safety net” for their citizens.
    Such tax hikes would give us the real money needed to do what you feel
    (rightly) that the richest country in the world should be able to do for its citizens.
    But politically, realistically, this just isn’t going to happen. Perhaps, over time (ten years or more) our tax policy might change, and we might move back toward being a largely middle-class country, as we were in the 1950s. But that is not going to happen next year.

  5. Sorry Maggie, you mixed two arguments together. I argued that we can “afford” health care if we remove the inefficiencies out of the system.
    Let’s say that 10% of the population is uninsured. Then to cover them we need only to remove 10% out of the overhead. Now you like to claim that this only about 4%, but you ignore the arbitrary pricing for various services and products. These can also be dealt with.
    There may be a lack of political will or even political power, but that has nothing to do with finding the money to pay for full coverage.
    I also dispute your claim that the government bailout is only engaged in book entries, but that’s for another discussion.
    You also ignored the priorities that we have made in where we spend our existing funds. This is also a political decision. No one is invading Germany, so it seems to do alright without spending $700 billion on militarism each year.
    The way to make political progress is to ask for Mars and settle for the Moon. Not to ask for Newark because the other is politically difficult.
    If not now, when? This will be the administration where the stars are aligned for the first time since early LBJ. Progressives need to be bold.

  6. Robert–
    I’m sorry, you’re right, I didn’t address the second (important) strand of your argument: “we can ‘afford’ health care if we remove the inefficiencies out of the system.”
    This is very true. But those savings won’t come in the first year of reform, We’ll have to wrestle the inefficiencies out of the system– these will be long-term gains; they won’t come immediately.
    Short-term, we might do the things Joe and I I suggest–that will be tough enough.
    I think it’s especially important that we take much better care of the poor (those on Medcaid and children who should be eligible for SCHIPl)
    Forcing insurers to ignore pre-existing conditions would help the most needy (the sickest) among the middle-class.
    These seem to me the most pressing problems.
    And while I do thnk that healthcare is very, very important, I don’t think that it is more important than ending the war in Iraq, taking care of the Vets, unemployment, Poverty, public school education, global warming,
    the environment. . .
    For years we have been taught to believe that, in the U.S., resources are limitless. This is why we have piled up such a heap of debt.
    The truth is that our resources are finite. And the rest of the world is becoming less and less willing to finance our debt. (See the price of gold. Money that no longer has faith in the dollar is flowing into gold.)

  7. Robert–
    I’m sorry, you’re right, I didn’t address the second (important) strand of your argument: “we can ‘afford’ health care if we remove the inefficiencies out of the system.”
    This is very true. But those savings won’t come in the first year of reform, We’ll have to wrestle the inefficiencies out of the system– these will be long-term gains; they won’t come immediately.
    Short-term, we might do the things Joe and I I suggest–that will be tough enough.
    I think it’s especially important that we take much better care of the poor (those on Medcaid and children who should be eligible for SCHIPl)
    Forcing insurers to ignore pre-existing conditions would help the most needy (the sickest) among the middle-class.
    These seem to me the most pressing problems.
    And while I do thnk that healthcare is very, very important, I don’t think that it is more important than ending the war in Iraq, taking care of the Vets, unemployment, Poverty, public school education, global warming,
    the environment. . .
    For years we have been taught to believe that, in the U.S., resources are limitless. This is why we have piled up such a heap of debt.
    The truth is that our resources are finite. And the rest of the world is becoming less and less willing to finance our debt. (See the price of gold. Money that no longer has faith in the dollar is flowing into gold.)

  8. “legislation prohibiting medical underwriting in the individual market, requiring insurers to cover pre-existing conditions, mandating community rating, and establishing a basic benefits plan.”

    As has been mentioned here, unless everyone is required to participate, adverse selection will make this very unaffordable.
    Any mandate on insurers with respect to pre-existing conditions would have to ensure universal participation, including those who are younger and healthier. Without that mandate it’s simply unworkable.

  9. Maggie-
    Are you kidding? If we abandon medical underwriting for individual health insurance and require companies to community rate, why would anyone buy insurance any other way? And why call it insurance at all, since most people would just wait until they are sick to buy it? See above comment about requiring everyone to buy in on day one. We would have to do something like under the Mass. plan, where there is an incentive to buy in. For now (during these tough times) I would start by creating a pool that recently unemployed people could buy into as an alternative to Cobra, which is hideously expensive and hurts the employer as well.

  10. Tim:
    You are correct about adverse selection.
    Even with underwriting, however, wouldn’t you agree that much of its benefits wear off after 2 years?
    Why not have as an option, a defined-contribution type plan, in which benefits build for 2 years, and start in year 3?
    Don Levit

  11. Robert–
    I’m sorry, you’re right, I didn’t address the second (important) strand of your argument: “we can ‘afford’ health care if we remove the inefficiencies out of the system.”
    This is very true. But those savings won’t come in the first year of reform, We’ll have to wrestle the inefficiencies out of the system– these will be long-term gains; they won’t come immediately.
    Short-term, we might do the things Joe and I I suggest–that will be tough enough.
    I think it’s especially important that we take much better care of the poor (those on Medcaid and children who should be eligible for SCHIPl)
    Forcing insurers to ignore pre-existing conditions would help the most needy (the sickest) among the middle-class.
    These seem to me the most pressing problems.
    And while I do thnk that healthcare is very, very important, I don’t think that it is more important than ending the war in Iraq, taking care of the Vets, unemployment, Poverty, public school education, global warming,
    the environment. . .
    For years we have been taught to believe that, in the U.S., resources are limitless. This is why we have piled up such a heap of debt.
    The truth is that our resources are finite. And the rest of the world is becoming less and less willing to finance our debt. (See the price of gold. Money that no longer has faith in the dollar is flowing into gold.)

  12. Lupi & Tim–
    Thanks very much for you comments.
    But I have to admit, I’m a bit frustrated. I’m
    wondering if you read the whole post. .
    In it, I wrote:
    “As Paduda points out, if the legislation he proposes passed, there would have to be stiff penalties if younger healthier people decided not to sign up for insurance. Otherwise, many might be tempted to put off getting insurance until they became sick—or decided to get pregnant—knowing that when they finally applied insurers would have to take them, and could not charge them more. In the meantime, these “free-riders” would not be paying into the pool. In an e-mail exchange, Padadua agreed with me that those penalties would have to have “pointed, ugly teeth”
    It may be that I just wasn’t clear. But I meant to say that penalites with “pointed, ugly teeth” woudl be equivalent to an individual mandate that requires everyone to buy insurance.
    Btw–Lupi, are you by any chance an old, very good friend who everyone called “Lupi” years ago??

  13. Maggie writes:
    “But I have to admit, I’m a bit frustrated. I’m
    wondering if you read the whole post.”
    ———–
    I think folks are trying to emphasize how important this aspect of any changes IS! The heinous nature of the current system, which is shown to have no health mission but only a money making mission for insurance companies, is implemented through these perverse underwriting tools (from a health mission aspect). One cannot stress tooo much (IMO) have bad and perverse these system tools are, and how badly a coherent system change is needed to stop this crap!

  14. Maggie,
    NG is correct — this point simply needs to be underlined, boldfaced and italicized.
    I don’t think a “penalty” for not doing it is enough. If something like this is enacted, there needs to be a mechanism to make sure that not purchasing insurance isn’t even an option at all.

  15. Tim & NG–
    I completely agree that underwriting is pernicious.
    (And btw, I was really addressing Lupi regarding reading the whole post.)
    And I tend to agree that what we need is an individual mandate, requiring everyone to have insurance, rather than simply a penalty if people try to become “free riders.”
    However, politically a mandate is difficult. Obama came out against it early in his campaign (in order to differentiate himself from Clinton, and to please his base which contained many young, affluent voters who didn’t feel they should be forced to buy insurance.)
    These people –plus many libertarians– continue to be violently opposed to a mandate. And, for reasons I can’t quite understand, they can’t seem to grasp that if you insist that insurers cover everyone, regardless of pre-conditions, without charging vastly more if the customer has had cancer, then everyone must sign up, or the system won’t work.
    I don’t know how to break the political impasse. Stiff penalties might be one way to do it, with the hope that, over time, people will sign up.
    The other alternative might be to do what NYS does: there isn’t specific requirement that everyone buy insurance, but you cannot purchase it in the individual market unless you can show that you have been continuously insured. (If I recall, you can’t let your insurance lapse for more than 30 days.)
    The result is, in effect, an individual mandate, but it isn’t called that. Maybe this would be easier to sell to the public . . .

  16. Tim & NG–
    I completely agree that underwriting is pernicious.
    (And btw, I was really addressing Lupi regarding reading the whole post.)
    And I tend to agree that what we need is an individual mandate, requiring everyone to have insurance, rather than simply a penalty if people try to become “free riders.”
    However, politically a mandate is difficult. Obama came out against it early in his campaign (in order to differentiate himself from Clinton, and to please his base which contained many young, affluent voters who didn’t feel they should be forced to buy insurance.)
    These people –plus many libertarians– continue to be violently opposed to a mandate. And, for reasons I can’t quite understand, they can’t seem to grasp that if you insist that insurers cover everyone, regardless of pre-conditions, without charging vastly more if the customer has had cancer, then everyone must sign up, or the system won’t work.
    I don’t know how to break the political impasse. Stiff penalties might be one way to do it, with the hope that, over time, people will sign up.
    The other alternative might be to do what NYS does: there isn’t specific requirement that everyone buy insurance, but you cannot purchase it in the individual market unless you can show that you have been continuously insured. (If I recall, you can’t let your insurance lapse for more than 30 days.)
    The result is, in effect, an individual mandate, but it isn’t called that. Maybe this would be easier to sell to the public . . .

  17. Maggie,
    Your last comment highlights a serious problem – a general lack of understanding of how insurance and risk pooling work. Clearly, if one of the goals is to insure the currently “uninsurable,” the pool needs to be broad and diverse. Plus, if we’re serious about prevention, it needs to be stable and long-term, as well.

  18. Sheldon–
    I’m afraid I don’t understand your comment.
    Of course the insurance pool needs to be broad, diverse, stable and long-term. . . .
    This is why everyone needs to be in the pool–which is what I was saying.
    I do, btw, understand “how insurance works”–work a number of cover stories about the insurance industry while I was at Barron’s, and covered insurance in my book “Money Driven Medicine.”

  19. Sheldon–
    I’m afraid I don’t understand your comment.
    Of course an insurance pool has to be broad, diverse, stable and long-term.
    This is why I stated, in my comment, that ultimately, everyone needs to be in the pool, and that insurers must not be allowed to cherry-pick.
    As for understanding “how insurance works”–I wrote a number of cover stories about the insurance industry while I was at Barron’s, and covered it in my book, Money-Driven-Medicine. So I do understand it.

  20. I believe a limited reform plan could be implemented. A plan that would reduce cost to employers which would hopefully encoourage more employers to purchase coverage or just in general make it nore affordable.
    I would have the government cover the following:
    1 Preventive care including preventive Rx as allowed under HSA plans.
    2. Pregnancy
    3. Children to age 18
    The last piece would be to outlaw discounting all companies would be required to pay based on 125% of RBRVS. Providers would ahndle patients similar to medicare. They could disclose they will not accept these fees etc.
    There currently is a huge underlying cost for these phony discounts. Why should we pay more for it.
    A plan such as this would give us the best of both worlds. Ecveryone would have access to the the essntial basic care and Rx, and the fear of the rationing that occurs in Canad a and England would not occur.
    I would forsee a 25 to 40% savings for employers and healthier Adults.
    It’s win-win.

  21. Maggie,
    We’re in agreement. My comment wasn’t intended to say that you don’t understand insurance. It was instead, intended, to point out a general lack of understanding that hinders intelligent policymaking (especially at the state level).
    Sorry for the confusion.

  22. Doinald-
    Thanks for your comment.
    But on phony discounts, could you explain what you mean by: “The last piece would be to outlaw discounting all companies would be required to pay based on 125% of RBRVS. Providers would ahndle patients similar to medicare. They could disclose they will not accept these fees etc. ”
    Also, would taxpayers be covering all children under 18 and all pregnancies, or only (as I suspect you mean) in those cases where the chlid or mother had no other insurance?
    In addition, I think we would need to delimit what we meant by “preventive care.” (Some widely-recommended preventive care is not effective. There is, for example, no medical evidence that an annual physical does a patient without specific symptoms any good. And physicals are very expensive. )
    And in the case of care for children, does this mean that they would need to be seen by M.D.s? In some Scandanavian countires, a child is seen by an M.D. in the early months, but once it is established that the baby is healthy, a child is seen by pediatric nurses. He doesn’t see an M.D. again unless he is seriously ill.
    And, of course, their children are healthier, and outcomes better than in the U.S.
    I think we should pay pediatricians more to treat children who are ill. They need more time with these patients.
    But we really don’t need to pay M.D.s to see a child with an ear ache, a sore throat, etc. unless the condition persists for a peculiar length of time. . .

  23. Maggie, By phony discounts. I mean organisations such as PPO’s. PPO’s are unneccesary now. They were needed by indemnity companies to combat HMO’s.
    A great deal of pregnancies now are being covered by the government, why not all. Lets make sure everyone gets good treatment. No fears about being able to afford a Doctor.
    Children’s coveraqe is substantially cheaper than adult, I don’t care who sees the Dr, I just want to make sure that they get the care they need. Get them on healthy habits right away.

  24. Donald-
    There is much to be said for government covering all pregnancies and healthcare for children. (Though I would say much of that care for children could and should be provided by pediatric nurses.)
    But the truth is that, today, in the midst of this economic meltdown,
    the government doesn’t have the money to do this.
    We’re going to have to raise taxes just to get out of Iraq, create jobs for the many people who are going to be unemployed, address our energy problems, make up for lost tax revenues as
    high-paying jobs are lost and as capital gains are replaced by huge capital losses, provide needed services for a growing population of poor and “near poor,” invest in infrastucture repair (which will increase jobs and reduce the chances that a bridge will collapse while you drive over it) etc. etc.
    When it comes to healthcare, we need to protect the poorest and youngest among us by improving SCGHIP and Medicaid.
    But it just isn’t possible to contemplate covering all pregnancies and child health care right now.
    We need to fix what’s broken in our system before expanding it.
    See post above: “Hard Times Ahead–How to Move Toward . .”

  25. Yeah,things have been becoming tough day by day but because of medical healthtourism the medical field is seemed to be stable compared to all the business going on in the market