Category Archives: Health Care Policy

Health Care Spending: The Basics

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JUST HOW MUCH DO PRIVATE INSURERS ADD TO THE NATION’S HEALTH CARE BILL?

As a nation, we are spending well over $2 trillion a year on health care. This includes: all of the money that you and I pay out-of pocket to cover co-pays, deductibles and drugs; the dollars that you and I (and our employers) fork over for private insurance; the money Medicare, Medicaid and SCHIP lay out to reimburse doctors, hospitals and patients; the billions taxpayers chip in to fund veterans’ health programs, public hospitals, school programs, and health insurance for government employees as well as the money private charities contribute to health care.

What exactly are we paying for? How much of that money is used to pay the CEOs of drug companies salaries that read like telephone numbers? How much do hospitals eat up?  How much is spent on insurance company ads? How much is used to provide healthcare for the poor?

I’ve decided to do a series of posts spelling out exactly where the money goes. Today, I’m going to start with private insurance.

Many people believe that if we just eliminated the private insurance industry, healthcare would become much more affordable. There is a general sense that the “administrative costs” of private insurance are siphoning off a sizable share of our health care dollars.

There is some truth to that: because we  have  multiple insurers—not to mention so many solo practitioners, small hospitals, clinics, and individuals filing for reimbursement—the paperwork is enormous. If we had only one big insurance company that used just one set of forms we could simplify the paperwork greatly. People who want a “single payer” system, with the government paying all of the bills,  point out that the savings would be enormous.

And we could cut costs even more if, instead of having tens of thousands of health care providers filing for separate reimbursements, doctors, hospitals and clinics joined together into, say, eight our ten large organizations like Kaiser Permanente, each with its own back office.  The doctors would be on salary, so rather than filing for payment for each service they performed, they would receive a monthly check for taking care of their patients, just as they do at Kaiser Permanent or the Mayo Clinic (where doctors are on salary).

In other words, it is not only a fragmented multi-payer insurance industry that generates so much paperwork; on the other side of the transaction a fractured network of separate providers adds to a mind-boggling stack of paper. Unlike most other developed countries, we have turned healthcare into a  cottage industry. This gives us lots of choices: we can select from a Chinese menu of insurance plans and proviers. But it also means higher administrative costs. In this post I would like to focus first on just on how much our huge private insurance industry is costing us. (In a later post, we’ll look at the price we pay for a fee-for-service system of independent providers.)

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New CDC Report: The Nail in the Coffin for Health Care Myths

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On Monday the CDC released a landmark, and in many ways devastating, report on health care in the U.S. The report contains a wealth of data that, while not surprising to some, should help silence the dwindling few who insist that America’s health care system is doing just fine. As a public service, I thought it’d be helpful to list some of the myths that the report demolishes (with some help from other sources as needed).

Myth: If people don’t have health insurance or get medical care, it’s because they don’t want it.

Reality: Actually, the big issue with access is cost. According to the CDC report, more than 40 million Americans—almost one in five Americans over the age of 18—have foregone one of the following in the past year because they couldn’t afford it: medical care, prescription medicines, mental health care, dental care, or eyeglasses.

It’s not that uninsured people don’t understand the value of coverage. Last year a study from the Urban Institute found that less than 3 percent of uninsured adults and children have never had insurance or report having no need for insurance. That same report also found that the high cost of coverage alone explained over 50 percent of those cases where people are uninsured 

And even when the uninsured cite job-related difficulties as the reason why they can’t access employer sponsored coverage, the problem isn’t just that they can’t get it through work—it’s also that they can’t afford individual policies. (Individual policies are much more expensive than group policies, and in many states private insurers can charge individuals astronomical premiums if individuals have any “pre-existing conditions.)  According to the Urban Institute, for 79 percent of adults and 74 percent of children who are uninsured because of job-related problems, the high cost of individual insurance is a major problem.

Myth: The American system relies mostly, if not exclusively, on private enterprise to support health care.

Reality: Yes and no. While the U.S. does have the biggest private sector share of health expenditures in the world, making up 55 percent of our funding, personal health care expenditures (i.e. spending on actual patient care) is mostly public. The CDC reports that in 2005 the federal government and state and local governments combined paid 45 percent of personal health care expenditures; private insurers only paid 36 percent, with 15 percent coming from out-of-pocket payments. So much for the libertarian utopia.

There’s also a bigger public sector coverage presence than many would like to admit. Though two-thirds of insurance policyholders have private coverage, a Census bureau report from earlier this year noted that more than one quarter of Americans (about 27 percent) are covered by government insurance. The American model is much more of a private-public mix than some pundits—and candidates—are willing to admit.

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Obama Says No One Should Be Forced to Sign up For Insurance; Edwards Says If You Don’t, He’ll Garnish Your Wages—Who is Right?

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John Edwards’ declaration that under his health reform proposal anyone who refuses to sign up for health insurance will be subject to having their wages garnished has led to a blogstorm of often confusing debates.  Under national health reform, should everyone be required to enroll? The Edwards and Clinton plans have mandates insisting that all Americans purchase insurance; the Obama plan has a mandate for children, but not for adults

New York Times columnist Paul Krugman stirred controversy Friday by defending Edwards, and criticizing Barack Obama: “Under Obama’s health care plan, healthy people could choose not to buy insurance—then sign up for it if they developed health problems later,” Krugman observed. “As a result, people who did the right thing and bought insurance when they were healthy would end up subsidizing those who didn’t sign up for insurance until or unless they needed medical care.”

On Sunday former FCC Commissioner Reed Hundt called Krugman out on TPM Cafe in a post headlined “Ease up, Dr. Krugman.” According to Hundt: “The very idea of government mandates directed to individuals evokes a command-and-control model that disturbs citizens who want to enjoy certain freedoms in choosing health care.” As of yesterday, Hundt’s post had drawn some 60 comments—some on point, others muddying the waters.

Meanwhile, at TNR Jonathan Cohn weighs in with a long discussion of just how many people Obama’s plan might leave uncovered—and suggests that one of Obama’s advisers has information showing that under Edwards’ plan, even more Americans would be left “going naked.”

Because the conversation in the blogosphere has become such a mix of good information, misinformation and false assumptions, I’ve decided to try to spell out, as clearly as possible, why we need a mandate. Very simply, it addresses a serious defect in our health care system:  under existing rules, you don’t have to buy insurance, but you can be priced out of the insurance system if you are sick.

After examining that problem–and looking at how requiring insurance solves it– I’d like to answer a sensible question that observers like the Washington Monthly’s Kevin Drum have raised: Why force people to buy insurance? Why not just tax everyone, put the money in a pool similar to the Medicare Trust Fund, and use it to buy universal insurance?

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Is State-Level Health Care Reform Doomed?

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It’s a waste of breath to say that health reform is a big issue in the states. But is it also the case that health reform in the states is a waste of time?

With health reform experimentation popping up across the nation, conventional wisdom has become, as Massachusetts State Senator Richard T. Moore put it in a blog post for the Commonwealth Fund, that states are “critical laboratories for quality and innovation.”

Yet while Moore is right to say that “common elements of success will serve as a useful learning experience for other states and national leaders in considering more comprehensive health care reform,” there’s another side of the issue to consider: there may be some states that can’t sustain universal coverage without more comprehensive federal reform—no matter how insurance programs are designed. There’s also a danger that failure at the state level could be used to argue that comprehensive health reform is simply an impossible goal.

Among the biggest problems with universal coverage is cost: how can we afford to insure everybody? One answer is to require that everyone buy coverage.  By mandating insurance, a state can spread the cost across a larger pool of people that includes low-risk individuals who can help share the burden of insuring high-risk individuals.

Without a mandate, no one would buy insurance until they were sick or elderly; the pool would be made up of people who are expensive to insure, and soon coverage would become unaffordable. The only alternative would be to pass laws saying that if you don’t sign up before you become sick, insurers have the right to refuse to cover you –or to charge you five times what they would charge a healthy person. This is what happens in many states today, which is why one serious illness can send a family into bankruptcy. If we want to say that insurers can’t leave anyone out in the cold—even if they are very sick –then we also have to say that everyone must participate in the system.

The question remains:  will mandates work at the state level?

Consider Maine. In 2005, Maine launched the nation’s first experiment
in universal health coverage through the “Dirigo Health Act,” named
after Maine’s state motto, “Dirigo,” Latin for “I lead.” Dirigo is
entirely voluntary, and as a result only 18,800 people (most of which
already had private sector insurance) have signed up for DirigoChoice,
the main arm of the program devoted to small businesses and
individuals. Meanwhile, some 130,000 Maine residents remain uninsured.

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The Unhappy Legacy of Medicaid

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In September, the non-profit organization Public Citizen (PC) issued a report comparing Medicaid and Medicare payments to doctors in 10 states and Washington D.C. The results underline the fact that Medicaid has been designed, from day one, to give states an easy  cop-out when it comes to health care for the poor.

The study highlights cases where the disparities between what different states pay a doctor to care for a Medicaid patient are greatest: “In New York, doctors are paid $20 for an hour-long consultation with a Medicaid patient, while in higher-paying states, doctors receive an average of $157.92 for the same service – a difference of greater than sevenfold. The difference within a state between what Medicaid pays [a physician to treat a patient who is poor enough to qualify for Medicaid] and what Medicare [pays a doctor to care for an elderly patient] is just as dramatic. For this hour-long consultation, a physician in New York could earn $196.47 from Medicare, almost 10 times more than from Medicaid.”

Last month the AMA posted a chart of these and other disparities on its medical news website, and seen side-by-side, the comparisons are startling: a physician in New Jersey or Pennsylvania gets, on average, about one quarter as much for seeing a Medicaid patient as a Medicare patient; in New York and Rhode Island, less than a third; and in the nation’s capital less than half as much. Other states lie at the other end of the spectrum. Alaska, Wyoming, Delaware, and North Carolina all pay more for Medicaid than Medicare.

Is there any rhyme or reason to how states reimburse Medicaid care? Looking at Alaska (which pays more for Medicaid, relative to Medicare, than any other state) and New Jersey (which pays the least) it initially seems that poverty rates may factor into disparities. Alaska’s poverty rate is the 7th highest in the nation, so it would make sense that it would want to encourage health care for the poor. New Jersey, on the other hand, is almost last in the nation when it comes to poverty rates (no. 47 on the list) so the state may not feel as strongly about the need to ensure care for the poor.

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The New York Times “Gets Cracking” on Rising Health Care Costs

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On Sunday the New York Times published an editorial that set out to analyze “The High Cost of Health Care.” The result might best be described as “muddled.”

What is exasperating is that about 85 percent of the facts in the editorial are true. But a good 15 percent are simply wrong.  And the Times’ editors managed to weave truth and error together in such a way that it would take a knitting needle to separate the two. As Matthew Holt put it on The Health Care Blog: “the piece looks entirely as though it was written by a committee that couldn’t agree with itself.”

As you read the editorial, you can almost see the editors sitting around a table, negotiating. “Okay,  we’ll let that sentence about the value we’re getting for our dollars stand—as long as well keep this sentence about  ‘skin in the game.’”  The result, a mix of propaganda and analysis, is far more dangerous than outright lies because the many true facts make the whole thing sound credible.   

Because I hate to see our paper of record disseminate disinformation, I am going to try to separate the wheat from the chaff. Begin with the truth: Near the top of the story, under a sub-head that reads “Varied and Deep-Rooted,”  the Times provides a nice summary of the main reasons why we lay out roughly twice as much as the average developed nation, without getting care that is twice as good:

“we pay hospitals and doctors more than most other countries do. We rely more on costly specialists, who overuse advanced technologies, like CT scans and M.R.I. machines, and who resort to costly surgical or medical procedures a lot more than doctors in other countries do. Perverse insurance incentives entice doctors and patients to use expensive medical services more than is warranted. And our fragmented array of insurers and providers eats up a lot of money in administrative costs, marketing expenses and profits that do not afflict government-run systems abroad.”

Spot on. If only this section of the editorial had not begun with a casual half-truth: “Contrary to popular beliefs, this is not a problem driven mainly by the aging of the baby boom generation, or the high cost of prescription drugs, or medical malpractice litigation that spawns defensive medicine.”

They first part of the sentence is correct: the aging of the boomers is not a major cause of health care inflation.  The last clause of the sentence is debatable, though probably true.
What’s troubling is the middle clause:  Why does the Times feel obliged to declare that the “high cost of prescription drugs” is not an important factor behind soaring medical bills?

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Health Care Reform: What Do Americans Want? (Or Think They Want?)

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On the surface, it seems that American voters have made their will clear.  Poll after poll shows that they are calling for a major overhaul of our health care system.

But when you look closer, their responses bristle with contradictions, contradictions that I think the reform-minded presidential candidates will have to consider when deciding how to approach health care reform. 

In a poll reported in Health Affairs at the end of last year, sixty-nine percent of respondents rated the US system as “fair” or “poor.” Yet in the same survey, when asked about their own experience with receiving medical services or with their own physician, 80 percent who had received care in the last year ranked their care as “excellent” or ”good.”

Other polls reveal the same pattern.

According to a survey released by Greenberg Quinlan Rosner in July, voters express doubts about the quality of the American health care system (with 49 percent dissatisfied), while 74 percent were dissatisfied with the cost.   Yet, “at another, more personal level,” the pollsters note, “a slightly different picture emerges. Fully eight in ten (82 percent) describe themselves as satisfied with the quality of the health care they receive personally. This number jumps to 90 percent among seniors (64 percent very satisfied), but includes impressive majorities of nearly all groups…”

Nevertheless, when the pollsters asked the same group about health care reform, three-quarters called for “major changes” or “completely rebuilding” the system. 

If they are satisfied with the care they are receiving, why would they want radical change? Because they don’t feel secure that they will be able to keep what they have:  “There’s a precariousness to Americans’ contentment with their own health insurance coverage,” the Kaiser Family Foundation reported after looking at a number of polls at the end of last year.  “Among the insured, six in ten are at least somewhat worried about being able to afford the cost of their health insurance over the next few years, and nearly as many (56 percent) said they worry that by losing a job, they or their family might be left without coverage.”

This, then, is why so many Americans want universal health care: it would guarantee that they and their families would always be covered.

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Conditional Cash Transfers: An Interim Model for Health Care Reform?

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This past September, New York City’s Mayor Bloomberg welcomed 5,000 families into the pilot program of Opportunity NYC– the nation’s first conditional cash transfer (CCT) program. Based on a Mexican program called Oportunidades, CCT programs like Opportunity NYC (ONYC) provide financial incentives for poor households to “meet specific targets” in three areas: education, employment/training, and health.

I recently spoke with Héctor Salazar-Salame, Advisor to the Center for Economic Opportunity, which operates ONYC, about the health components of the program. I wanted to get an idea of the aims and strategy behind ONYC—and also to learn more about CCT as a potential model for thinking strategically about health care reform. 

According to the city’s press release, ONYC’s health incentives will be offered “to maintain adequate health coverage for all children and adults in participant households as well as age-appropriate medical and dental visits for each family member.” In terms of coverage, families can earn “$20 or $50 per adult per month for maintaining health insurance and $20 or $50 for maintaining health insurance for all the children in the family.”

The point is to encourage low-income families to enroll in health insurance plans. “Many families work for employers that offer insurance,” Salazar-Salame explains, but “many times the necessary employee contribution is quite high for low-income families. We’re providing an incentive for families to opt into their work-based, private health plan—and hoping that the incentives will help them offset the cost of the employee contribution.”

If parents are unemployed—or work for employers that don’t offer coverage—the family can still be eligible for health incentive rewards that keep them enrolled in Medicaid. “We know that to recertify for Medicaid can be a challenging yearly process that takes a lot of time,” says Salazar-Salame. (It’s worth keeping in mind that roughly 30 percent of parents who don’t manage to enroll or re-enroll their children in Medicaid have less than a high school education).  “We’re hoping the incentive will help them maintain the insurance that they’re eligible for,” Salazar-Salame explains.

Maintaining insurance is harder than it sounds. In October, Maggie wrote about  just how difficult it can be to stay enrolled in Medicaid and SCHIP, pointing to a Health Affairs article titled "Why Millions of Children Eligible for Medicaid and S-Chip Are Uninsured."

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Herzlinger’s Meme on Switzerland and Consumer Driven Medicine

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In today’s Wall Street Journal, Harvard Business School professor Regina Herzlinger offers an upside-down account of what’s right and what’s wrong with Switzerland’s health care system.  A leading advocate of “consumer driven” health care, Herzlinger assumes that because the Swiss pay for so much of their care out of their own pockets, consumer choice drives their system. 

But the truth is that Swiss patients have relatively little say over either the cost or the quality of the care they receive. Prices are regulated by the government, which also tries to make sure that consumers are getting value for their health care dollars by selecting which drugs, devices and tests insurance will cover. In fact, it is the very visible hand of a smart, largely efficient government that accounts for Switzerland’s relative success.

Before explaining how Herzlinger gets so much so wrong, let’s look at what she gets right. “The Swiss have achieved universal coverage,” Herzlinger points out “at a far lower cost than the U.S.”  In 2003 Switzerland spent 12 percent of GDP on health care while we laid out “a staggering 15 percent of GDP” while leaving roughly 14 percent of our population uncovered. Switzerland also has “far better health outcomes than the U.S., even when Switzerland is compared to socio-demographically similar U.S. states such as Connecticut and Massachusetts,” Herzlinger acknowledges. Moreover, while U.S. insurers in most states can shun sick customers, either by refusing to cover them—or by charging them astronomical premiums—in Switzerland you are not penalized for having cancer. The sick “can afford health insurance and pay the same price” as everyone else.

Finally, while the cost of care continues to snowball in both countries, the Swiss seem to have a better handle on health care inflation. From 1996 to 2003 health care spending in Switzerland rose by an average of 2.8 percent a year, Herzlinger says, versus 4.1 percent in the U.S.  Meanwhile “Switzerland boasts substantially more in the way of health-care resources and . . . tops the world in most measures of user satisfaction.”

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Health Beat Hosts Health Wonk Review

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Today, Health Beat is hosting Health Wonk Review, a biweekly compendium of the best of the health policy blogs. More than two dozen health policy, infrastructure, insurance, technology, and managed care bloggers participate by contributing their best recent blog postings to a roving digest, with each issue hosted at a different participant’s blog.

Thanks to all of you for your submissions. I couldn’t do justice to all of them, but here’s a sampling of some of the best posts about health care on the blogosphere:

At Health Care Policy and Marketplace Review Robert Laszewski takes on Mitt Romney’s assertion that there are “pots of money” in the states –enough to allow states to follow Massachusetts’ initiative and fund health care reform without raising taxes. Laszewski demolishes the argument, pointing out that even Massachusetts doesn’t have enough money to follow Massachusetts’s initiative. That’s why the state has had to exempt some citizens from the mandate that everyone buy insurance.

On Health Access California, Anthony Wright offers the clearest explanation I’ve seen of Governor Schwarzenegger’s plan for reforming care in California, and its merits and limitations when compared to both HRC’s proposal and the Romney plan in Massachusetts.

On Physician Executive, Zagreus Ammon’s ambitious post “Defining Universal Health Care” begins by addressing the theory that each of us is responsible  for our own health—i.e. “that people do well because they make good choices and people do poorly because of poor choices.”

Here Ammon is responding to Peter Huber of Manhattan Institute fame and his editorial in IBD (Investors’ Business Daily) arguing that universal healthcare is an idle dream because eventually, the “pocket-book healthy” (read: wealthy) will get tired of paying for the “health-careless people” who don’t “live informed, disciplined lives”(read: less well-educated and poorer.) The righteous would rather see that money funneled into products that would provide them with “better hair, skin and sex,” Stern suggests.  For a more generous synopsis of Huber’s argument, see H.G. Stern’s rave review on Insureblog. 

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