Category Archives: Private Sector Competition

Why Market Competition Will Not Lower the Cost of Health Insurance

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 “Competition drives improvements in efficiency and effectiveness, offering consumers higher quality goods and services at lower cost. It can have the same effect in the health care system, if given the chance to work.”– Mitt Romney

Creating “robust competition” is at the core of Mitt Romney’s approach to Health Care Reform. He would be right–if health care were commodity like any other.  In many industries when more sellers compete for customers, prices come down. Think of thin-screen TVs.  But the healthcare market is not like other markets, as a great many health care economists have explained.

When it comes to medical care, the consumer does not have the leverage that he enjoys in other markets because there is too much uncertainty about a) what he needs, and b) the value of what is, in the end, a very complicated product.

First, consider his needs: Should he purchase an expensive, comprehensive policy with no caps on annual or lifetime payouts? If he has a big family, he knows he needs a big car. But he has no way of knowing whether he, his spouse or one of his children will develop cancer, MS., Alzheimer’s or be in an accident that leaves one of them paralyzed for life. So there is no way that a savvy consumer can bring down insurance prices by shopping for the “least expensive policy that fits his needs.”

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Medicare, Medicaid, Global Warming and Gun Control– Can Liberals and Conservatives Find Middle Ground? Should They? Part 1

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 In a nation divided, “compromise” has become an extraordinarily appealing idea. Weary of the acrimony and endless wrangling, more and more Americans are asking: Why can’t conservative and liberal politicians come together and forge bipartisan solutions to the problems this nation faces?

Keep in mind that it is not only our elected representatives who are having trouble finding common ground. The Pew Research Center’s latest survey of “American Values” reveals that as voters head to the polls this November, their basic beliefs are more polarized than at any point in the past 25 years. In particular, when it comes to the question of government regulation and involvement in our lives, the average Republican has gravitated to the right. In 1987, 62% of Republicans agreed that “the government should take care of people who can’t take care of themselves.” Now just 40% support this proposition. Democrats haven’t changed their views on this issue: most continue to believe “there, but for fortune . . .”

In Congress, where polarization has led to paralysis, some argue that Republican leaders are responsible for creating gridlock by insisting on “party discipline.” But liberals in Washington also are accused of “dividing the nation.” Even President Obama, who set out to unite the country, has been described as “the most polarizing president ever.” During his third year in office, Gallup reports, “an average of 80 percent of Democrats approved of the job he was doing, as compared to 12 percent of Republicans who felt the same way. That’s a 68-point partisan gap, the highest for any president’s third year”–though this may say more about the temper of the times than the man himself. Nevertheless, many commentators believe that progressives, like conservatives, need to cede ground. The debate has become too contentious, too “political,” they say. I disagree. There are times when we cannot “split the difference.” Too much is at stake. We must weigh what would be won against what would be lost.

But reporters who have been taught that they must be “fair” and “balanced” often write as if all points of view are equally true. After all, they don’t want to be accused of “bias.” Thus they fall into the trap of what veteran Supreme Court reporter Linda Greenhouse calls “he said, she said” journalism. To them, the “middle ground” seems a safe place– a fair place– to position a story.

This may help explain why so many bloggers and newspaper reporters are calling for “bi-partisan consensus” as they comment on some of the most important issues of the day.

Global Warming

Writing about global warming, Huffington Post senior writer Tom Zeller Jr. recently declared: “Compromise is the necessary first step to tackling the problem. What ordinary Americans really want is for honest brokers on all sides to detoxify and depoliticize the global warming conversation, and then get on with the business of addressing it. That business will necessarily recognize that we all bring different values and interests to the table; that we perceive risks and rewards, costs and benefits differently; and it will identify solutions through thoughtful discussion and that crazy thing called compromise.” [ my emphasis] (Hat tip to David Roberts (Twitter’s “Dr. Grist”) for calling my attention to this post.)

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How Soon Can We Expect National Health Reform?

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On this blog, we have debated how soon Americans will be ready for national health reform.  Many observers believe that we’ll only get reform when more people are uninsured—specifically when more middle-class and  upper-middle-class families find themselves “going naked.”

The chart below comes from a new Commonwealth Fund Report which shows that while two-thirds of low-income adults (earning less than 200 percent of the federal poverty threshold) were uninsured or underinsured in 2006, just 17 percent of those earning more than 200 percent of the federal poverty level (FPL) were either underinsured or uninsured at some point during the year.

 

Uninsuredandunderinsured_2

“Underinsured” is defined as someone who finds himself spending 10 percent or more of his income on out-of-pocket medical expenses. (For those earning less than 200 percent of FPL, the number is 5 percent.)

The report observes that employers are continuing to back away from offering health benefits:  “Between 2000 and 2005, the proportion of workers receiving employer-provided health insurance declined from 74.2 percent to 70.5 percent,” and again “middle- and lower-wage workers,” suffered most, with “the largest decreases” hitting this group.

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Pilots Use Checklists. Doctors Don’t. Why Not?

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This is a question Dr. Atul Gawande explores in the December 10 issue of The New Yorker. “The Checklist” is a shocking story, it’s an important story—and it’s also very long. I, of course, would be the last person on earth to criticize someone for “writing long” but it occurs to me that many of HealthBeat’s readers may not have the time to peruse the full nine-page story, so I decided to offer a capsule summary here. (To read the story in its entirety, click here).

Gawande is the author of one of my favorite healthcare books, Complications: A Surgeon’s Notes on an Imperfect Science, and he writes wonderfully well. This piece begins with a riveting tale of a three-year-old who falls into in icy fishpond in a small Austrian town in the Alps. “She is lost beneath the surface for 30 minutes before her parents find her on the bottom of the pond and pull her up.” By then “she has a body temperature of 68 degrees—and no pulse.” A helicopter takes her to a near-by hospital. 
There a surgical team puts her on a heart-lung bypass machine. She now has been lifeless for an hour and a half. Gradually, the machine begins to work. After six hours, her core temperature reaches 98.6 degrees, but she is hardly out of the woods. Her lungs are too badly damaged to function, so the surgeons use a power saw to open her chest down the middle and sew lines to and from an artificial lung system into her aorta and beating heart. “Over the next two days, all of her organs recover except her brain. When a CT scan shows global brain swelling, the team drills a hole into her skull, threads in a probe to monitor cerebral pressure, and adjusts fluids and medications to keep her stable. “

Slowly, over two weeks, she comes back to life. “Her right leg and left arm [are] partially paralyzed.  Her speech [is] thick and slurry.  But by age five, after extensive outpatient therapy, she has recovered her faculties completely. She [is] like any little girl again.” 

“What makes her recovery astounding,” Gawande writes, is “the idea that a group of people in an ordinary hospital could do something so enormously complex. To save this one child, scores of people had to carry out thousands of step correctly; placing the heart-pump tubing into her without letting in air bubbles, maintaining the sterility of her lines, her open chest, the burr hole in her skull; keeping a temperamental battery of machines up and running” all the while “orchestrating each of these steps in the right sequence, with nothing dropped . . .”

This, Gawande says, is what happens in intensive care units, every day of the year, all across the country. “Intensive care medicine has become the art of managing extreme complexity—and a test of whether such complexity can, in fact, be humanly mastered.”

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How the Media Covers Health Care

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Sometimes health care reporters remind me of the financial journalists who helped hype the bull market of the 1980s and 1990s. I began my career as a journalist at Money magazine, and I remember sitting in an editorial meeting where we talked about an upcoming cover story: “The Ten Best Mutual Funds NOW.”  One intrepid reporter asked: “What if there aren’t ten great mutual funds that you really should invest in right now?”

“Let the fact-checker worry about that,” someone else quipped, referring to the person who would be double-checking the details of the story just before it went to press. Almost everyone sitting around the table laughed.

And Money was generally a pretty responsible magazine that tried to warn investors against the risks of the market. Still, “good news” cover stories sold magazines—just as “breakthrough” medical stories on the local evening news keep viewers from changing the channel.

Gary Schwitzer, an associate professor in the School of Journalism and Mass Communication at the University of Minnesota, recently published a provocative piece about how the media covers health care in the American Editor. Schwitzer begins his piece by asking his reader to “Imagine a reporter filing a story from the Detroit Auto Show. She writes about one car maker’s hot new model as if it is the best thing since the ’57 Corvette. But in the excitement over the chrome and style, she doesn’t mention the cost of the new model, doesn’t compare it with other manufacturers’ offerings in the same class, and doesn’t mention anything about performance (fuel efficiency, handling, braking, safety issues, etc.)

“An editor would certainly raise questions about this kind of puffery.

“But over on the health care beat,” Schwitzer observes, “the majority of stories on new products, procedures, treatments and tests are published without including comparable information. Claims that would never be accepted unchallenged from a politician are accepted unquestioningly from physicians and researchers and company spokespersons.”

Schwitzer, who publishes HealthNewsReview.org, a website that grades health care news stories for accuracy, balance, and completeness, has evidence to back up his claim.  Below I’ve re-posted some of his data on some 400 stories from almost 60 major news organizations (available at his website) to demonstrate how many health care stories “provide a kid-in-the-candy-store portrayal of the health care system that leaves readers with the impression that most products or procedures in health care are amazing, harmless and without a price tag”:

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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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HILLARY CLINTON’S NEW PLAN

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   I have written two posts analyzing Hillary Clinton’s healthcare plan. You will find them on www.tpmcafe.com (where I am a contributor). You can comment there.

   

    

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Why Are Earnings at Health Care Companies Growing So Much Faster than the S&P 500?

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Yesterday Bloomberg reported that, according to its data, "earnings at health care  companies will
expand 15 percent this year, compared with estimated profit growth of 8.5
percent for the S&P 500."

If you own healthcare stocks, this is good news. But if you
are a consumer paying for drugs, insurance and the hospital bills that
insurance doesn’t cover, you have to wonder: why are their earnings so high? Is
this what people are talking about when they say that healthcare is overpriced?

On Wall Street, healthcare and tobacco are both considered "defensive investments." Why? Because in a recession they’re less likely to
plummet. If you’re addicted to tobacco, you are going to continue to buy cigarettes, even
if it means giving up something else. As one Wall Street analyst puts it, “You just don’t have much choice.”

The same could be said of healthcare: you just don’t have
much choice. When you are sick, you are not in a position to say “I’ll wait
until prices come down" or "that’s too
expensive; I’ll find something just as good that’s cheaper.” You are not in a position to comparison shop.

This is why market competition doesn’t work to control
healthcare prices: the consumer just doesn’t have the same power that he has in most markets. 

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