In Search of Real Healthcare Reform

 

Politicians and the public may want the government to provide more benefits.  However, the government has already promised more in health benefits than it can realistically afford to deliver given current projections.  In addition, it is important to remember that transferring costs to the federal government does not make those costs disappear. State of the Union’s Finances: A Citizen’s Guide, Peterson Foundation, March 2009

 

There is general agreement that the U.S. healthcare system is in serious trouble, although the level of services available is perhaps the best in the world.  The problem is soaring costs, which if allowed to continue will make healthcare unaffordable for everyone except the wealthy – and also threaten the fiscal safety of the U.S. government.

 

Secure America’s Future Economy recently evaluated the president’s healthcare plan and presented our own proposals.  The resulting blog entries (3/16/09, 3/23/09, 3/30/09, 4/6/09) are posted on our Website; they may be accessed from the Healthcare page.

 

Given the importance of the subject, we have also prepared this compilation of the entries for selective distribution.

 

Page

Title

1

A tale of two summits [re fiscal responsibility and healthcare]

6

Healthcare plan will not pay for itself

12

A “ready, aim, fire” approach to healthcare reform

18

SAFE plan for healthcare reform is “government-lite”

 

Feedback on the work we have done would be much appreciated.  Please direct your comments to ww3@atlanticbb.net.

 


 

March 16, 2009 – A tale of two summits

 

The Fiscal Responsibility Summit (February 23) and the Healthcare Summit (March 5) were both held at the White House, with a similar number of participants, over the course of an afternoon.  Otherwise, the two events differed profoundly.

 

FRS - As previously reported (3/2/09), the Fiscal Responsibility Summit was a “top down” event convened with little advance preparation.  All participants were prominent people, the breakout sessions addressed disparate aspects of the fiscal equation, and the only immediate result was the president’s promise to cut the currently huge deficit in half over four years.

 

A report summarizing the breakout discussions was promised within 30 days, and there was much talk about recognition of fiscal realities and bipartisan cooperation.  But the path forward remains murky for now.

 

In particular, the idea of appointing an independent commission to study the fiscal problem and propose a comprehensive solution was raised without being embraced. Consider the following comments during the closing session (chaired by the president).

 

Congressman John Spratt (D-SC), Chairman of the House Budget Committee:

 

I would agree with Kent [Senator Kent Conrad, D-ND, Chairman of the Senate Budget Committee] that we agree we need a special process.  We didn't come to final agreement on exactly what that process would be -- would it be a task force or a steering committee within the Congress, or a commission from without Congress?  That's still an issue to be resolved.  But I don't think it's an issue we can't resolve.  And we moved towards discussion of some sort of hybrid of the two.

 

David Walker, CEO, Peterson Foundation:

 

You mentioned in January about the need to achieve a grand bargain involving budget process, Social Security, taxes, healthcare reform.  You are 110 percent right.  We need to do that.  The question is, how do we do it?  Candidly, I think it's going to take some type of an extraordinary process that engages the American people, that provides for fast-track consideration.  And with your leadership, that can happen.  But that's what it's going to take, Mr. President.

 

http://tiny.cc/FD3Lm

 

HCS – The euphemistically named “Forum on Health Reform” marked the culmination of a series of healthcare workshops conducted around the country ( see 12/15/08 entry).  Seven workshop leaders attended the HCS, and the second of three speakers at the opening session was Travis Ulerick, a firefighter/EMT from Dublin, Indiana.

 

Mr. Ulerick acknowledged six other HCS attendees and 30,000 Americans nationwide who had participated in healthcare workshops in their communities.  He summed up the already prepared report (presented to the president on 3/5) as follows:

 

. . . Americans agree on the problems with the system, that costs are too high and accessing quality coverage is too difficult. Some groups submitted stories that sound familiar to me, especially, about people who were afraid to go to the hospital for treatment because they didn't know if they could afford it. The most common theme is that Americans don't believe the current healthcare system works for them.

 

The speaker went on to introduce the president, who spoke forcefully about the need to get started on an overhaul of the healthcare system this year – economic crisis or not – because the system was broken and reform could not be put off any longer.

 

Even from a fiscal standpoint, the president claimed, healthcare reform can reduce the burden of Medicare and Medicaid on the federal government’s budget (and in the case of Medicaid, state budgets as well).

 

. . . healthcare reform is no longer just a moral imperative, it's a fiscal imperative. If we want to create jobs and rebuild our economy and get our federal budget under control, then we have to address the crushing costs of healthcare this year in this administration.

Making investments in reform now, investments that will dramatically lower costs, won't add to our budget deficits in the long term. Rather, it is one of the best ways, in fact maybe the only way, to reduce those long-term costs.

 

The president stated the purpose of the forum as starting to determine how to “lower costs for everyone, improve quality for everyone and expand coverage to all Americans.”

As for how all of these goals could be achieved while reducing government outlays, he pointed to potential cost savings opportunities: “modernize our system and invest in prevention . . . ensure people aren’t overcharged for prescription drugs or discriminated against for preexisting conditions . . . eliminate fraud, waste and abuse in government programs.”

No sacrifices by healthcare consumers were called for: “[If] somebody has insurance they like, they should be able to keep that insurance . . . keep their doctor . . . just pay less.”

The road ahead would involve a search for common ground, without rigid ideas as to what the new healthcare system should look like.

In this effort, every voice has to be heard. Every idea must be considered. Every option must be on the table. There should be no sacred cows. Each of us must accept that none of us will get everything that we want, and that no proposal for reform will be perfect. If that's the measure, we will never get anything done.

 

The only obstacle was said to be overcoming “entrenched interests” [presumably healthcare providers and insurance companies] so “we will not “arrive back at the same stalemate that we've been stuck in for decades.”

The commitment was “to enact comprehensive healthcare reform by the end of this year.”

 

http://tiny.cc/z0wPj

 

Would the president’s healthcare plan truly pay for itself?  We have previously scoffed at such a notion. 10/20/08 – Both candidates offer “pie in the sky” healthcare plans.

 

But it must be conceded that the president’s opening remarks were well crafted and delivered with conviction.  Furthermore, we do agree that the healthcare system is seriously flawed; the question is how it should be fixed.

 

So this entry will focus on the president’s healthcare meeting and agenda, with our own views to be presented in future entries. 

 

As at the FRS, the participants broke into smaller groups after the opening session, but the groups were apparently focused on the overall problem (versus subsets of it) this time and the president’s sendoff was “let’s go to work” versus his oblique reference at the FRS to “the breakout sessions that are starting right now.” 

 

Some of the action in the breakout rooms was covered by “live blogger” Rebecca Adelman of DHHS, although we were unable to access the linked video clips (perhaps you will have more success).

 

2:07: Now I'm sitting in a breakout session in the Executive Office building. It's quite a group - former HHS Secretary Donna Shalala, Marian Wright Edelman, Senators Rockefeller, Bingaman and Wyden, are among the participants. The group is moderated by Larry Summers and Hz’s Neeta Tanden.

 

2:20: US Chamber of Commerce President Tom Donohue addresses the panel, saying there is a "vigorous understanding" that improvement is needed and healthcare costs need to be lower.  It's an intense discussion, but productive.

 

2:32: On to the 3rd floor of the Executive Office building to another panel. Moderating this discussion are Valerie Jarrett and OMB's Zeke Emanuel. Majority Leader Steny Hoyer, Senators Chris Dodd, Robert Bennett, Debbie Stabenow, and Bernie Sanders are among the 22 panelists. Chip Kahn of the Federation of American Hospitals and Pfizer's Jeff Kindler are also part of the discussion.

 

3:05: I just entered another one of the five breakout sessions as Sister Carol Keehan from the Catholic Health Association was passionately addressing her fellow panelists about the need for reform. Budget Director Peter Orszag and Secretary Shinseki are moderating.

 

3:16: Dan Danner from the National Federation of Independent Businesses urged Orszag's panel to pay special attention to the voices of small business owners in the health reform debate, who are struggling to insure their workers because of skyrocketing costs. Danner told the lawmakers, including Congressmen Patrick Kennedy, Eric Cantor, and Senator Barbara Mikulski that "The status quo is not acceptable."

 

3:25: Ron Pollack from Families USA just closed Orszag's panel. He stressed to the assembled members of Congress that President Obama's budget was the first important step in helping make health coverage affordable.

 

Then it was back to the East Room, now set up in a town hall style with the president’s podium in the middle.  Travis Ulerick et al. were sitting in the first row behind the podium.  The ensuing session featured calls for action by surprise guest Senator Ted Kennedy and the president.

 

4:20: The President passes the microphone to Senator Kennedy, who [says] "the time for action is now." He said he looked forward to being a foot soldier in the reform effort and firmly stated: "This time we will not fail." The room erupts in applause again.

 

5:15: The President closed with some marching orders - he asked the groups to stay involved, he promised a summary report describing the views aired today, and stressed it was time to move aggressively to achieve healthcare reform. He then addressed the notion that we are taking on too much in attempting reform this year. He said when times were good - when the economy was better and we were not at war, we failed to get it done. President Obama said there is always a reason not to do it - and he could think of no better time than now. Everyone stood and cheered as the President shook hands with participants and the event concluded.

 

http://tiny.cc/fMkil

 

OK, what exactly would the healthcare reform that everyone cheered for consist of? 

 

Judging from the president’s proposals during the campaign last fall, the end result would approximate universal healthcare, albeit without an immediate government takeover of the entire healthcare system.

 

We wrote earlier (12/15/08) that the healthcare workshops being organized around the country would “predictably support” the president’s vision, and it is now possible to test [and we believe confirm] this by reviewing the summary report.

 

http://www.healthreform.gov/reports/index.html

 

The 3/5/09 report is lengthy, detailed, and in all fairness reports a range of opinions about how the healthcare system should be changed.  Perhaps the most important section from a policy standpoint is “Roles in a Reformed U.S. Healthcare System,” which goes beyond a lower cost/ fewer problems wish list to the key question: who would sponsor and pay for the changes desired.

 

There was considerable support for a “single-payer” (i.e., government run) system.

 

Over one-quarter (27%) of the groups discussed the merits of a single-payer system, and the majority of those groups supported this idea. These groups argued that this radical change was a necessary step for reform.

 

But some groups favored a hybrid government/employer system due to concerns that a single-payer system “would lower the quality of service and eliminate competition.”

 

A provider in Maquoketa, Iowa, wrote [that] . . . "some standardization is necessary, but I worry that a single-payer plan would eliminate competition." A small group in Welaka,

 

Florida . . . [was concerned about] inability to get care when needed and rationing of access to tests, medical procedures and qualified doctors."

 

And there were even suggestions that existing government programs might be at the root of healthcare problems, although “this opinion” was said to be “in the distinct minority.”

 

A group in Middletown, Virginia, reported [that] "The consensus of the group of 27 neighbors who attended the forum was that most of the problems with the healthcare system is a result of the complex tangle of Federal government regulations already on the books and that any additional interference would only make matters worse."

 

http://www.healthreform.gov/reports/solutionsb.html

 

Also, the section about the cost of healthcare fails to mention skyrocketing fiscal burdens for federal and state governments.

 

Healthcare Community Discussion participants concluded that the American healthcare system places an extraordinary cost on individual Americans and American business. The cost of insurance, the cost of drugs, and the cost of healthcare services directly affected many participants, forcing them to make difficult choices. Participants also reported that the system's lack of transparency and cumbersome administration raise the cost of services and heighten the stress and frustration associated with healthcare.

 

http://www.healthreform.gov/reports/concernsb.html

 

Legislation would be necessary to bring about the kind of healthcare change that is advocated, and the word is that the president will proceed by proposing a plan in broad strokes and let Congress fill in the details.  This marks a conscious, and probably well-advised change from the Clinton Administration’s failed strategy to implement universal healthcare in 1993.  Obama: “No sacred cows” in healthcare summit, Liz Sidoti, D.C. Examiner, 3/5/09.

 

Also unlike Clinton, Obama is planning to send only broad principles to Congress of what he wants to see in the bill, such as increased coverage and controlled costs. The House and Senate will be left to do the heavy lifting. And, Obama is planning to hold a series of healthcare forums outside of Washington to solicit ideas and drum up support for his plan.

 

http://tiny.cc/Rq5UZ

 

*   *   *   *

 

In summary, the prevalent discontent with the healthcare system has been fairly laid out.  The president is engaged on this topic as he is on none other, and change is coming.

Stay tuned for our ideas as to what form it should take.

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March 23, 2009 – Healthcare plan will not pay for itself

The president promised more and better healthcare at lower cost during the campaign last fall (10/20/08 entry), and he has continued on message.  Thus, at the Forum on Health Reform on March 5, he claimed that his healthcare plan could help rein in the rapidly growing costs of Medicare and Medicaid.

 

Medicare [and Medicaid?] costs are consuming our federal budget. I don't have to tell members of Congress this. Medicaid is overwhelming our state budgets. I don't need to tell governors and state legislatures that.  - - - Making investments in reform now, investments that will dramatically lower costs, won't add to our budget deficits in the long term. Rather, it is one of the best ways, in fact maybe the only way, to reduce those long-term costs.

http://tiny.cc/z0wPj

 

OK, sounds great, except where are the savings supposed to come from that would more than offset the cost of ensuring coverage for the 46 million or so American residents (including illegal aliens) that do not have healthcare insurance?  Here is a possible answer excerpted from the President’s budget proposal (hereinafter “Budget”), page 11.

 

Costs vary widely across areas of the United States, but evidence suggests that the high-cost areas do not generate better health outcomes than the lower-cost ones.  Costs are twice as high at some of our Nation’s leading medical centers than at others – and again the high-cost centers do not generate better outcomes than the lower-cost ones.  Academic researchers suggest that costs could be reduced by as much as 30 percent – or roughly $700 billion a year – while protecting the quality of healthcare delivered if the high-cost areas and hospitals adopted the practices of the low-cost ones.

 

http://www.whitehouse.gov/omb/budget/

 

Hmm, what if the low-cost areas and hospitals adopted the practices of the high-cost ones instead?  After all, previous expansions of the government role in healthcare (e.g., the launching of Medicare in the 1960s) fueled rising healthcare costs.

 

But we digress, for the contemplated $700 billion a year savings from adopting best practices nationwide are not claimed in the Budget.  Instead, there is a $634 billion “reserve fund” over the 10-year period (see pp. 28-30, 127-128), which purports to represent how the president’s healthcare plan would be funded.  The composition of the reserve fund follows, along with our comments:

 

$318 billion in tax increases, to be achieved by reducing the value of income tax deductions for upper income taxpayers

 

There is no apparent connection between tax increases for “the rich” and healthcare benefits for “the poor.” It would seem more logical to allocate the assumed tax increases to government expenditures in general.

 

 $177 billion in savings from eliminating the average 14% “overpayment” (versus traditional Medicare coverage) for Medicare Advantage plans.

 

This change would (a) reduce benefits for seniors who have chosen Medicare Advantage plans, (b) eliminate competition for traditional Medicare coverage, and (c) increase Medicaid costs. The Success of Medicare Advantage: What Seniors Should Know, Robert Moffit, Heritage Foundation, 6/13/08.

 

To compare two different insurance systems with different levels of benefits and suggest overpayment because one is covering the benefits that the other is not is a classic apples-to-oranges comparison, and it only highlights the traditional Medicare program's serious gaps in not covering services that many seniors need and for which nine out of 10 must pay extra for supplemental insurance.  As noted, Medicare Advantage payments include the payments for the extra benefits and services not included in traditional Medicare . . .

 

http://www.heritage.org/Research/HealthCare/bg2142.cfm

 

$139 billion in savings that primarily fall under the heading of tightening the screws on drug companies and insurance companies.

 

After all the claims about cost savings, such cuts (totaling 1.4% of baseline Medicare + Medicaid outlays for the 10-year period, see p. 117) seem underwhelming. Healthcare: Obama’s Budget Skimps on Cost-cutting, Catherine Arnst, Business Week, 3/5/09. 

 

http://tiny.cc/zw5vN

 

Although the president’s healthcare plan has not been priced out at this point, and perhaps fairly so as the details are to be developed by Congress, it is acknowledged (Budget, p. 27) that the total cost would exceed the amount of the reserve fund.

 

The President recognizes that while a very large amount of money and a major commitment, [more than] $630 billion is not sufficient to fully fund comprehensive reform. But this is a first crucial step in that effort, and he is committed to working with the Congress to find additional resources to devote to healthcare reform.

 

According to budget experts outside the government, e.g., John Sheils of the Lewin Group and John Rother of AARP, the cost of the president’s healthcare plan over the next ten years would be on the order of $1.5 trillion.  MyWay.com, 3/17/09.

 

http://tiny.cc/YAquj

 

So how can the president’s healthcare plan be squared with the  fiscal sustainability principle he espouses?

 

The [healthcare] plan must pay for itself by reducing the level of cost growth, improving productivity, and dedicating additional sources of revenue.  [Budget, p. 28]

 

Simple, the additional savings and revenue to zero out program costs are TBD (to be determined).  Budget, p. 128.

 

Rumors that the imputed value of employer-provided healthcare benefits would be taxed are already flying.  Administration Open to Taxing Health Benefits, Jackie Calmes & Robert Pear, New York Times, 3/14/09.

 

http://tiny.cc/6dK6AB

 

Proposing to tax healthcare benefits would be a bit awkward for the president, who ripped his opponent on the campaign trail last fall for suggesting the idea (even when packaged with an offsetting tax credit).  So the game would be to have Congress propose the tax and “go along with it.”  Vindicating McCain, Wall Street Journal, 3/21/09.

 

In a deeply cynical turnabout, the White House now says a tax on employer benefits is acceptable as long as someone else proposes it.

 

http://online.wsj.com/article/SB123759906029901559.html

 

To sum up: (a) the alleged savings from the president’s healthcare plan have not been explained (let alone quantified), and (b) the costs of his plan would be covered primarily by tax increases.  It is far from clear the tax increases would be borne only by “the rich.” 

 

Claiming that this plan would “pay for itself” seems absurd, and we decline to buy into the deception.\

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The big picture: Our political leaders should concentrate on getting the financial system back and planning how to address the government’s existing fiscal problems before embarking on costly new initiatives. 

 

As though a gold-plated healthcare plan would not be bad enough, the Administration is also pushing  costly “clean energy” and education initiatives.  “The young and the reckless” are trying to bite off more than they can chew (3/2/09), and the consequences of letting them do so would be disastrous (3/9/09).

 

Evidence and analysis that support our “put first things first” advice (11/24/08, 12/1/08) continue to accumulate:

 

Economists say the president’s proposals to raise marginal rates and diminish the value of mortgage interest deductions for upper income taxpayers would work against a recovery in the housing market.  Destroying housing market: More taxes, fewer deductions are twin killers, Washington Times, 3/16/09.

 

http://tiny.cc/HhBfQ

 

AIG bonuses are minor in comparison to the $173 billion in taxpayer funds that have been injected into AIG, but the furor about them – notably House passage of a 90% tax on bonuses paid to firms (including AIG) that received $5 billion or more in TARP funds – could undermine efforts to restore confidence in the financial markets.  Obama’s AIG Panic, Wall Street Journal, 3/19/09.

 

http://online.wsj.com/article/SB123742023932678335.html

 

What a time for the Treasury’s proposal for a public-private partnership to buy toxic assets!  Treasury readies bank cleanup plan, Washington Times, 3/21/09.

 

While the toxic loan cleanup program has been much anticipated in financial markets, it debuts amid dark clouds hanging over the Treasury's bank bailout program. The possibility of getting new funding for the program any time soon seems remote, given the public furor and backlash in Congress this week over bonuses paid to the biggest bailout recipient -- American International Group.

 

Also, banks and private investors have grown wary about participating in the bailout program because of stiff restrictions on pay enacted by Congress, including a move this week to claw back bonuses from employees at AIG and other banks. The hedge funds the government hopes will participate in the toxic loan program cater to some of the highest paid executives and wealthiest investors in the world. Moreover, they are secretive and jealously guard information about their pay, perks and profits.

 

http://tiny.cc/Bfayd

 

In addition to being feckless, the 90% tax on bonuses might be deemed unconstitutional if applied retroactively.  “Congress Betrays Ideals of America’s Founding,” National Center for Public Policy Research, 3/20/09.

 

http://www.nationalcenter.org/P21PR-AIG_unconstitutional_032009.html

 

The Federal Reserve announced plans on March 18 to purchase $300 billion of Treasury bonds and an additional $750 billion of mortgage-backed securities.  There can no longer be any doubt that the Fed is “printing money,” and you know what that means.  Secretary of the Fed, Wall Street Journal, 3/20/09.

 

With its announced plan to make a mammoth purchase of Treasury securities, the Fed essentially said that the considerable risks of future inflation and permanent damage to the Fed's political independence are details that can be put off, or cleaned up, at a later date. Whatever else people will say about his chairmanship, Ben Bernanke does not want deflation or Depression on his resume.

 

http://online.wsj.com/article/SB123750959910890623.html

 

Barron’s panned the Budget in a March 2 article by Jules Epstein, predicting that “foreigners may eventually grow tired of accumulating our debt” and “may even start liquidating [their holdings], which could unleash a selloff in the dollar that could in turn hammer our capital markets.” And why not, given:

 

Permanent ratcheting up of federal spending – [unrealistic] assumptions for growth in gross domestic product – boosting taxes on the rich [with at least some] retarding effects on growth – no respite from chronic fiscal deficits

 

http://tiny.cc/ff5b9

 

Foreign lenders may be getting restive already.  Consider the comments of Chinese Premier Wen Jiabao at a recent press conference.

 

"We have lent a huge amount of money [roughly $1 trillion] to the U.S., so of course we are concerned about the safety of our assets. Frankly speaking, I do have some worries," Mr. Wen said in response to a question. He did not offer specific suggestions on economic policy to the U.S. government, but called on it to "maintain its credibility, honor its commitments and guarantee the security of Chinese assets."

 

http://online.wsj.com/article/SB123692233477317069.html

 

The immediate response from the Administration (per Press Secretary Robert Gibbs) was don’t worry because the president’s Budget is fiscally responsible.

 

I think the best thing we can do to assure anybody in Washington, America or throughout the world that we're serious is to pass the President's budget and put ourselves back on the path towards fiscal sustainability and fiscal responsibility. The President's budget will cut the deficit in half in four years, because the President understands that we cannot continue to do what we've been doing for years and years, and spending money that we don't have. Instead, we need to put ourselves back on that path in order to give everybody confidence that we're serious about not only dealing with those challenges but not wasting taxpayer money.

 

http://tiny.cc/M2V7i

 

The president is apparently on the same page.  At a March 18 rally in California, he defended raising taxes on upper income bracket taxpayers and urged supporters to push for swift approval of the Budget.  Obama: Rich can afford tax hike, Washington Times, 3/19/09.

 

Mr. Obama's main thrust was to sell the budget blueprint he submitted to Congress as a long-term investment in the next generation, and said too often people look at the document as a spreadsheet of numbers instead of realizing "It's about your lives; it's about your future."

 

Earlier in the day the president released a Web video urging people on his 13-million-strong e-mail list to knock on doors and make phone calls in support of his budget plan.

 

http://tiny.cc/XdO3y

 

The CBO further clouded the picture on March 20 by releasing an analysis indicating deficits over the next 10 years will be $2.3 trillion higher than projected by the White House.  A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook, Congressional Budget Office, March 2009.

 

The CBO’s baseline projection (continuation of existing policy) indicates deficits of $4.4 trillion over the next 10 years, which would increase to $9.3 trillion if the Budget were approved.

 

http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf

 

The president’s Budget (p. 115) shows baseline deficits of $9.0 trillion over the next 10 year being shaved to $7.0 trillion.  Quite a different picture!  For further detail, see the following table.

 

 

Deficits in trillions of dollars, by fiscal years

 

2010

2011

2012

2013

2014

2015-19

2010-19

White House

 

 

 

 

 

 

 

Baseline

1.2

1.0

0.8

0.7

0.8

4.5

9.0

Budget

1.2

0.9

0.6

0.5

0.6

3.2

7.0

CBO analysis

 

 

 

 

 

 

 

Baseline

1.1

0.7

0.3

0.3

0.3

1.7

4.4

Budget

1.4

1.0

0.7

0.7

0.7

4.8

9.3

 

Budgets over the next 10 years depend on many assumptions, and it would be unwarranted to consider the CBO data more “correct” than those of the Administration without a detailed comparison.  However, the CBO analysis has heightened concerns about projected deficit spending – which is a good thing. 

 

The latest figures, even worse than expected by top Democrats, throw a major monkey wrench into efforts to enact Obama's budget, which promises universal healthcare for all and higher spending for domestic programs like education and research into renewable energy.

The dismal deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his allies controlling Congress would have to consider raising taxes [by more than is already planned] after the recession ends or paring back his agenda.

 

http://www.breitbart.com/article.php?id=D971T0RG0&show_article=1

 

There has been no indication the president is prepared to back away from “a clear, renewable energy future,” however, nor from a “complete and competitive education for every American child.” As for healthcare, he has drawn a line in the sand.  Obama: Budget priorities won’t change, Christina Bellatoni, Washington Times, 3/21/09.

 

To those who say we have to choose between healthcare reform and fiscal discipline, I say that making investments now that will dramatically lower healthcare costs for everyone won't add to our budget deficit in the long-term — it is one of the best ways to reduce it."

 

http://tiny.cc/Yh1fI

 

If you are dubious about the president’s healthcare plan and would like to hear about alternatives, stay tuned.  Our suggestions for real healthcare reform are on the way.

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March 30, 2009 – A “ready, aim, fire” approach to healthcare reform 

The last two entries posed a dilemma: no one is happy with the U.S. healthcare system, but the Administration’s plan for fixing it appears unaffordable.

 

3/16/09: The president is pushing hard for near universal healthcare coverage, with government mandates and/or subsidies visualized to achieve it.  The impetus for change is widespread dissatisfaction with the soaring cost of and perceived lack of access to healthcare.

 

3/23/09: Despite claims that the healthcare plan would “pay for itself,” most of the cost involved (perhaps $1.5 trillion over the next 10 years) would apparently be covered by tax increases.  With the economy in recession and the government facing a dangerous and growing fiscal gap, such a use of resources seems questionable at best.

 

Some skeptics may decide to hold their fire.  Well, the healthcare plan sounds expensive, but it might save money in the long run.  Perhaps the best idea is to go along, asking just enough questions so I can claim to have opposed the plan if it does not work out.

As though to invite such a reaction, the president continues to glibly talk about cutting healthcare costs.  Consider this comment at his March 24 evening press conference:

[Let’s] invest in health information technologies. Let's invest in preventive care. Let's invest in mechanisms that look at who's doing a better job controlling costs while producing good quality outcomes in various states and let's reimburse on the basis of improved quality, as opposed to simply how many procedures you're doing. Let's do a whole host of things, some of which cost money on the front end, but offer the prospect of reducing costs on the back end.

“If you’re making all these long-term cuts,” asked Chip Reid of CBS News, “why does [the deficit] continue to go up in the out-years [of the 10-year budget projection]?”

Patience, responded the president, “a budget is a snapshot of what we can get done right now.” He relegated Medicare and Medicaid “reforms” to future talks, as though the subject was separate and distinct from healthcare reform – and considerably less urgent.

There's been a lot of talk about entitlements in Medicare and Medicaid. The biggest problem we have long-term is Medicare and Medicaid. But whatever reforms we initiate on that front -- and we're very serious about working on a bipartisan basis to reduce those deficits or reduce those costs -- you're not going to see those savings reflected until much later. 

http://tiny.cc/foAW3

 

Why all the fancy footwork?  Cynics might see the healthcare plan as a “bait and switch” scheme, likely to have much the same results as Romney care in Massachusetts.  National Health Preview, Wall Street Journal, 3/27/09.

 

First create vast new entitlements that can never be repealed, then later take the less popular step of rationing care when it's [the] last hope to save the federal fisc.

 

http://online.wsj.com/article/SB123811121310853037.html

 

For those who disapprove of the healthcare plan – or think entitlement outlays should be reined in before committing to spend another $1.5 trillion over the next 10 years – or want some alternatives considered as a matter of due diligence  – we would like to suggest a healthcare plan that would accomplish more and cost less.

 

Our presentation will (1) identify the key problem with the healthcare system (READY), (2) discuss its root causes (AIM), and (3) offer a proposed solution (FIRE).

 

The basic problem Spending on healthcare has risen rapidly over the past half century, not just in dollars but also in real economic terms.  Indeed, healthcare expenditures as a percentage of Gross Domestic Product (GDP) have tripled since 1960.

 

U.S. Health[care] Expenditures – % of GDP, $ in billions

 

1960

1980

2000

2007

Private

3.9%

5.3%

7.7%

8.7%

$1,206

Federal government

0.6%

2.6%

4.3%

5.5%

754

State & local gov’ts

0.7%

1.2%

1.8%

2.0%

281

Total

5.2%

9.1%

13.8%

16.2%

2,241

             Source: Centers for Medicare & Medicaid Services

 

http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf

 

There is no sign that the growth of healthcare spending is abating.  It could consume nearly half of the U.S. economy by 2082 (see graph from the PGPF blog) based on the current growth trend, although we suspect the trend line will level off before then.

 

http://www.pgpf.org/blog/?storyId=24872

 

As healthcare spending rises, the issue of who pays for it becomes increasingly important.  Individuals, private employers, and state & local governments are all finding it difficult to keep up.  Even the federal government is not “too big to fail,” and healthcare outlays will be a big part of the reason if a fiscal meltdown does take place.

Proponents of healthcare reform acknowledge that rising costs are a problem, but most of them place more weight on the number of Americans (currently said to be about 46 million) without healthcare insurance (HCI). 

 

We would recommend caution in making major decision based on this statistic.  For one thing, lack of HCI is not synonymous with lack of access to healthcare.  Uninsured?  So What? John Goodman, National Center for Policy Analysis, 9/6/06.

 

It is far more important to make medical care easily accessible than it is to make health insurance easily accessible.  Beyond that, health care reformers are simply using the uninsured as a excuse to hawk reforms they want enacted anyway.

 

Take the oft-repeated proposal to make health insurance mandatory, just like automobile liability insurance.  Health policy expert Greg Scandlen points out that although 47 states make auto insurance mandatory, the national uninsured rate for drivers is almost the same as the health uninsurance rate (13.2 percent vs. 15.7 percent in 2004). 

 

http://cdhc.ncpa.org/commentaries/uninsured-so-what

 

Millions of people counted as uninsured have ready access to healthcare.  What Do We Really Know About the Uninsured?  William Snyder, Wall Street Journal, 11/21/08.

Many Americans believe that the uninsured are too poor to purchase coverage and that government programs aren't available to them. But a study published in Health Affairs in November 2006 estimated that 25% of the uninsured were in fact eligible for public coverage, and another 20% probably could afford coverage on their own.

http://online.wsj.com/article/SB122722921596746391.html

 

On the other hand, millions of people enrolled in government healthcare programs (and therefore considered insured) are not receiving adequate care.  What Medicaid Tells Us About Government Healthcare, Dr. Scott Gottlieb (American Enterprise Institute), Wall Street Journal, 1/8/09.

Reimbursement rates [for Medicaid] are so low, and billing the program so complicated, that it is hard for internists like me to get beneficiaries access to specialized care or timely interventions. For my patients as well, many of whom are uneducated or don't speak English, Medicaid is replete with paperwork, regulations and rejections that make the program hard to navigate.

http://online.wsj.com/article/SB123137487987962873.html

 

In sum, mandating HCI for everyone would not necessarily produce better healthcare for the poor and disadvantaged, let alone better healthcare at lower cost for everyone.  We therefore feel quite comfortable in concluding that the key problem with the healthcare system is rapidly rising spending (aka cost).

Root causes – Several explanations have been offered for the high and rising cost of healthcare, all of which have some validity – and limitations as well.

 

GOVERNMENT POLICIES: Surging healthcare spending over the past half century has been accompanied by a dramatic expansion (under presidents of both parties) of the federal government’s role.  Among the milestones:  Medicare and Medicaid enacted in 1965; Medicare eligibility extended to people under 65 with long-term disabilities in 1972; access to hospital emergency rooms provided to all comers in 1985; State Children’s Health Insurance Program (SCHIP) enacted in 1997; prescription drug benefit for Medicare enacted in 2003.

 

http://www.cms.hhs.gov/HealthCareFinancingReview/downloads/05-06Winpg1.pdf

 

Government programs have (a) increased the aggregate demand for healthcare, (b) imposed substantial costs and restrictions on service providers, and (c) reduced the incentive for consumers to take cost into account in making healthcare decisions. 

 

Meanwhile, advances in medical technology have created a profusion of treatment options that did not formerly exist.  For example, the prime treatment for a heart attack used to be bed rest.  Now the options include bypass surgery, angioplasty and pacemakers.

 

Given the foregoing, the surge in healthcare spending has been inevitable and can be expected to continue until some of the underlying causes change.  The Cure: How Capitalism Can Save American Health Care, Dr. David Gratzer, Encounter Books (2006).

 

http://tiny.cc/ZhHs1

 

Gratzer’s confidence in Capitalism is appealing, especially given our predilection for smaller, more-focused, less costly government.  After all, the U.S. Constitution says nothing about doctors or hospitals, and the 10th Amendment must be there for some reason.

 

But we recognize that healthcare is run by the government in many countries, which spend considerably less per capita on healthcare than the United States does and may well get more for their money.  For example, life expectancies in some of these countries are longer than here.  See our 8/14/07 entry, “Healthcare by the numbers.”

 

http://www.s-a-f-e.org/blog_2.htm#8/14/07:

 

Longevity is a function of many things besides the quality of healthcare available, of course, and for people in need of heavy-duty medical treatment, the U.S. system is first rate.  Thus, according to Gratzer’s book:

 

The World Health Organization, in partnership with the International Union Against Cancer, compiles five-year survival rates for various types of cancers. The United States consistently beats Europe.  The reasons include access to physicians and specialists, aggressiveness of treatment, and use of new technology and pharmaceuticals.

 

In the healthcare systems held up as a model for the United States, moreover, costs are typically held in check by restricting access to (aka rationing) healthcare. “Too Old” for Hip Surgery, Nadeem Esmail, Wall Street Journal, 2/9/09, relates several “horror stories” from Canada, including this one.

 

In Ontario, Lindsay McCreith was suffering from headaches and seizures yet faced a four and a half month wait for an MRI scan in January of 2006. Deciding that the wait was untenable, Mr. McCreith did what a lot of Canadians do: He went south, and paid for an MRI scan across the border in Buffalo. The MRI revealed a malignant brain tumor. Ontario's government system still refused to provide timely treatment, offering instead a months-long wait for surgery. In the end, Mr. McCreith returned to Buffalo and paid for surgery that may have saved his life. He's [now] challenging Ontario's government-run monopoly health-insurance system [in court].

 

http://online.wsj.com/article/SB123413701032661445.html

 

Similarly, a 2007 report of the Healthcare Commission noted numerous failings in the UK, from hospital patients left unwashed in soiled bedding to two-year waits for psychological therapies and hearing aids.  NHS patients face humiliating treatment, UK Telegraph, 12/6/07.

 

Opposition MPs said the report provided a "damning indictment" of the NHS after more than a decade of Labour government, which has seen huge increases in investment.

Funding has increased from £55 billion in 2002-3 to almost £90 billion in 2007-8, and the workforce has increased by 29 per cent.

 

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/12/05/nhs105.xml

 

EXCESSIVE CONSUMPTION – In addition to covering the healthcare expenditures of many Americans, the government provides favorable income tax treatment for employer-provided healthcare benefits (cost is deducted by the employer; benefits are not taxable for employees).

Given the prevalence of government and employer-paid healthcare plans, direct payment for services by consumers has been the exception rather than the rule.  Payment of the bills by intermediaries fosters the illusion that healthcare is free, and many people make healthcare decisions without much regard to cost.

So what, surely people will not undergo unnecessary medical tests and procedures or take medicine they do not need.  Or will they?

It is common experience that drugs tend to be over-prescribed (perhaps by several different doctors, none of whom is aware of all the drugs being taken).

 

Medical tests or procedures may be recommended by doctors (and accepted by their patients) even if the risk-to-benefit ratio is problematic, especially if the Medicare reimbursement schedules that basically set prices in the U.S. healthcare system provide leeway for an attractive profit.  Three “Inconvenient Truths” about Healthcare, Victor Fuchs, New England Journal of Medicine, 10/23/08.

 

Overutilization of care is another problem that is not easily solved, partly because

unnecessary or marginally useful tests, prescriptions, operations, and visits generate income for providers.

 

http://content.nejm.org/cgi/content/full/359/17/1749?query=TOC

 

Last but not least, treatment is all too often required for illnesses, such as childhood obesity or early onset diabetes, which could have been prevented by sensible lifestyle adjustments.

 

For an in-depth review of the foregoing, see The Last Well Person, Nortin M. Hadler, M.D., McGill-Queen’s University Press (2004). (Caveat: Dr. Hadler surveys a wide range of medical problems/ treatment options.  For a balanced view, we recommend that you also consider the opinions of other medical professionals.)

 

INDUSTRY STRUCTURE – In many industries, such as computers for instance, advances in technology have led to lower costs and better products.  Customers get more and more for their money.

 

Advances in medical technology, on the other hand, create new uses for healthcare dollars while doing little or nothing to reduce costs.  The reason: healthcare providers are organized to provide treatment on a fee for service basis.  With limited incentive for efficiency gains, players in the industry continue operating in a dysfunctional manner.

 

# Hospitals serve wildly disparate functions, from cutting edge diagnosis and treatment to helping whoever shows up in the emergency room, which cannot be intelligently managed under one roof.

 

# Family doctors have become gatekeepers for referrals to specialists; time and effort spent counseling patients on how to stay well or manage their infirmities is poorly compensated.  Young doctors seek to become specialists so they can earn more money providing lucrative tests and procedures.

 

# Pharmaceutical companies spend hundreds of millions of dollars to test and obtain approval of new drugs of general application.  Such drugs benefit only a fraction of the people who take them, and they may result in crushing legal liabilities if all applicable side effects have not been identified and noted in the product inserts (which many people do not read).

 

# Insurance companies rule on reimbursement requests.  They have a built-in incentive to disapprove expenditures (even if merited on a long-term basis).

 

# Government healthcare regulations, notably Medicare reimbursement schedules, serve to preserve the status quo rather than promoting constructive change.

 

Enormous cost savings could be achieved by rebooting the healthcare industry, but the changes required would be disruptive for most of the players involved, including consumers (i.e., the general public), and they cannot be implemented on an ad hoc basis.  The Innovator’s Prescription: A Disruptive Solution for Healthcare, Christensen, Grossman and Hwang, Harper-Collins (2008).

 

Christensen et al. visualize a top-down change process in which the needed changes would be driven on a systemic basis by large employers, long-term HMOs organized along the lines of Kaiser Permanente, or if need be the government.

 

*   *   *   *

Sorry, we have run out of space.  Our proposed plan to fix healthcare will have to wait until next week.  Meanwhile, we would welcome reader input about the “right answer” to an undeniably difficult problem.

top

April 6, 2009 – SAFE plan for healthcare reform is “government-lite”

Our last entry identified the leading problem with healthcare (soaring costs) and its root causes (government policies, consumer behavior, and ossified industry structure).  Now, here is how to make the healthcare system more affordable without sacrificing quality, rationing services, or excluding the poor or disadvantaged from access.

 

1.  Scrap the president’s plan (3/17/09 entry), which would use the government’s clout (and our money) to mandate near universal healthcare

 

In addition to being unaffordable (3/23/09 entry), this plan would block restructuring of the healthcare industry. The Innovator’s Prescription: A Disruptive Solution for Health Care, Christensen, Grossman and Hwang, Harper-Collins (2008), p. 408.

 

. . . we urge our readers, our lawmakers, and our fellow American citizens not to look to a government-controlled single-payer system as a solution to our healthcare crisis.  It is a route that is relatively easy to get onto, but it is in fact a one-way street heading in the wrong direction.  And there is no exit.

 

By the way, healthcare will be at the top of the legislative agenda when Congress reconvenes in mid-April.  The first issue will be whether the majority party will seek to invoke the “reconciliation” process, thereby enabling its version of healthcare reform to be rammed through the Senate on a party line vote.  Healthcare reform battle begins, Sean Lengell and Kara Rowland, Washington Times, 4/4/09.

 

http://tiny.cc/BPl0u

 

2. End the tax exemption for employer-provided healthcare benefits.

 

This tax exemption represents an unjustifiable subsidy.  First, the cost involved is deductible by employers (just as additional salary would be), so there should be corresponding income to employees.  Second, employees of companies offering healthcare benefits come out ahead of other taxpayers, who can only buy healthcare insurance (or cover healthcare expenses) from their after-tax income.

 

The existence and operation of employer healthcare plans, in conjunction with government plans, fosters wasteful consumption of healthcare.  So long as a third party pays most of the bills, consumers tend to ignore cost in making their healthcare decisions.  The Cure: How Capitalism Can Save American Health Care, Dr. David Gratzer, Encounter Books (2006), p. 43.

 

Walk into a grocery store, and every item has a sticker indicating its price; but have you ever walked into a doctor’s office and seen a list of prices?  Has it even occurred to you to ask what a procedure or test will cost?

 

http://tiny.cc/ZhHs1

 

The annual loss of revenue to the federal government from the healthcare benefit exemption is some $250 billion.  Add that amount to direct government spending for healthcare, and it will be seen that the federal, state and local governments are covering nearly 60% of U.S. healthcare costs.  Congressional Budget Office study, December 2008, p. 18.

 

http://tinyurl.com/a8sdun

 

Taxing employer-provided healthcare benefits is not proposed as a revenue raiser; the object would be to impose taxes in a more equitable manner.  We would expect offsetting tax cuts in other areas, e.g., through elimination of the Alternative Minimum Tax.

 

Some employers might drop their healthcare plans if the cost was taxable to employees, while others would not – fielder’s choice. Such plans are fine if employees prefer healthcare benefits to an equivalent amount of cash, just so long as the government does not use the tax law to subsidize them.

 

However, we do support favorable tax treatment for one form of healthcare insurance coverage, which, as discussed under the next heading, offers unique advantages in combating soaring healthcare costs.

 

3. Encourage catastrophic coverage insurance combined with health saving accounts to cover outlays for routine healthcare services.

The predominant form of healthcare insurance today is not really insurance, at least in the classic sense of covering large and relatively infrequent losses (as with car insurance), but rather a healthcare service contract.  Gratzer pp. 31-32.

Car insurance premiums aren’t particularly heavy, especially when people purchase high-deductible plans; but the average family’s health premium tops $9,000 a year.  What would car insurance cost if people insisted on plans that had limited deductibles?  Or policies that included not just major bodywork, but also oil changes and gas and a paint job every time you spouse got tired of the car’s color?

Healthcare service contracts generate lots of costly paperwork; they also insulate consumers from the payment process with the adverse results already noted.  These disadvantages do not apply with catastrophic coverage (high deductible) insurance.

As for Healthcare Savings Accounts (HSAs), they are rather like Individual Retirement Accounts (IRAs) in which contributions can either be made from pretax income or deducted on one’s tax return.  Disbursements from an HSA for healthcare expenses are not taxable; unspent amounts can be carried forward for future healthcare needs.

With an HSA + catastrophic coverage, the individual manages routine healthcare expenditures, thereby minimizing administrative overhead.  He or she can choose the services desired without obtaining referrals, etc.  And the individual has a financial incentive to stay well.

Do people really need a financial incentive to stay well?  Evidently they do, for some 70% of total healthcare expenditures are for the treatment of chronic diseases (treatable but not curable).  The aggregate cost would be far lower if the subjects made lifestyle changes when their conditions were first diagnosed, began taking preventive medication, and/or joined a network (e.g., Alcoholics Anonymous) in which people suffering from the condition exchanged information and supported each other. 

Many people intend to do these things – starting next week – but fail to get around to it if there is a substantial time lapse between failure to act and unfavorable consequences from the condition in question.  In such cases, a financial incentive may be more compelling than one’s physical well-being. The Innovator’s Prescription, pp. 172-173.

It turns out that for most people who have chronic diseases with deferred consequences, “improve my financial health” is a much more pervasively experienced job than “maintain my physical health.”

For example, recent research findings demonstrate that “smokers who are paid to quit succeed far more often than those who get no cash award” – never mind the well-known health hazards from smoking.  Wall Street Journal, 2/16/09.

http://online.wsj.com/article/SB123438843231174457.html?mod=

 

4.  Have the states assume full responsibility for Medicaid and SCHIP programs, with the federal government providing block grant funding and not attempting to dictate what coverage should be provided.

 

Like most people, we believe the poor and disadvantaged should be afforded decent healthcare because it is the right thing to do.  Ideally, such support would come through private charity, but government programs will probably be needed as well.

 

That said, there are major problems with the Medicaid and SCHIP programs as presently constituted, not the least of which is that joint funding by the federal and state governments creates an incentive for states to keep expanding their programs in order to qualify for more and more federal funding.  The Cure, p. 104.

 

Consider that the average federal contribution is 57 cents on every Medicaid dollar, meaning that an enterprising governor can offer his citizens new services without spending much from his state treasury.  Historically, expanding Medicaid has been a good deal for the states.  In fact, for every dollar of new state spending required for, say, a children’s health program in West Virginia, Washington will pony up three “free” dollars.

 

On finding that they have underestimated costs, states often attempt to rein in their Medicaid (and probably SCHIP) expenditures by cutting reimbursement rates to the bone, thereby jeopardizing the delivery of adequate healthcare services for participants. The Cure, pp. 107-108.

 

Compared with private insurance and even Medicare, state governments’ reimbursement is modest.  In fact, for every dollar a physician collects for a service from Medicare, he or she will probably get 30 to 50 percent less from Medicaid for the same service.  With so little pay, many physicians opt out, choosing not to treat Medicaid patients.

 

For example, consider what happened after the Massachusetts Medicaid plan – under pressure to save money – slashed its already low reimbursement rates for basic dental services.  The Innovator’s Prescription, p. 377.

 

Additional free care was still available in community health centers funded by the state through a different pool of funds, but those were much less convenient to access for many of the poor.  Within three years of the reimbursement cuts, 100,000 fewer MassHealth patients received dental services that were reimbursed by MassHealth.

 

Meanwhile, a lot of Medicaid funding has been diverted into providing long-term care in nursing homes for older members of families that could quite possibly pay the bill. The Cure, pp. 116.

 

A Rhode Island man with, say, three Mercedes Benz cars and a large Newport mansion can still qualify for Medicaid.  That may sound ridiculous and morally dubious – but it is completely legal.  (When it was revealed that Carol Moseley-Braun, a Democrat from Illinois, had done “asset-shifting” to get her mother qualified for Medicaid, she still managed to win her Senate race in 1992.)

 

Once the aggregate level of Medicaid block grants to the states has been set, the commitment should be indexed for inflation – not permitted to continue growing in real economic terms.  The states would be compelled to run their Medicaid programs in a businesslike manner, with the details to be determined at their discretion.  Federal budget savings over time would be substantial.

 

If block grants are a good idea, why did no one ever think of them before?  Turns out the idea was unsuccessfully proposed in the early 1980s. The Cure, p. 103.

 

President’s Reagan’s idea – which passed the Senate in 1982 with bipartisan support but was dropped from budget negotiations – would have left states with a fixed amount of money to spend as they saw fit.  With such a move, the administration hoped that state governments would rethink the program, reining in costs along the way.

 

Critics might question whether the states are qualified to run their Medicaid programs.  Look at the results of state efforts under federal supervision: soaring enrollment (crowding out private insurance) and cost, coupled with cut-rate reimbursement schedules that defeat the purpose of providing basic healthcare services to those least able to afford them. 

 

As joint federal/state responsibility has worked so poorly, however, why not try something else?

 

Also, state management of Medicaid programs would provide flexibility for experimentation. Some approaches would work and presumably spread.  Others would fall by the wayside.

 

As an example of upside potential, consider the innovative Medicaid program for which Governor Bobby Jindal of Louisiana recently requested a federal waiver.  The idea is to steer Medicaid recipients into private managed-care plans, with the state to pay a fixed per patient amount (risk adjusted) for coverage, instead of continuing to reimburse healthcare providers on a fee for service basis.  This is not a new idea, but it sounds like a good one – particularly for a state where the healthcare system is in a mess (half of the population is on Medicaid or uninsured).  Jindal’s medicine: Louisiana’s governor pushes a creative Medicaid reform, Wall Street Journal, 11/24/08.

 

http://online.wsj.com/article/SB122748834975151953.html

 

In addition to adopting a block grant system for Medicaid funding, the federal government must eliminate obstacles to serving the healthcare needs of the indigent more effectively.  One needed step is discussed under the next heading.

 

5. Repeal the federal statute requiring hospital emergency rooms to admit all comers.

 

Although enacted with the best of motives, this statute has proven costly.  Moreover, it impedes the kind of restructuring of the healthcare industry that is needed to provide lower cost, more convenient healthcare services – not just for the general public but also for the very people that guaranteed emergency room access was meant to help.

 

U.S. hospitals have a tradition of trying to do everything for everyone, which generates enormous overhead costs that cannot be allocated logically to any given service and drive up the cost of all hospital services.  The Innovator’s Prescription, pp. 73-105.

 

The requirement to accept all comers in emergency rooms is far from the only thing that needs to change, but it contributes to the broken business model problem.

 

Also, it is irrational to guarantee hospital access to the indigent – for any medical complaint – while failing to provide walk-in clinics that could serve their needs more effectively in most cases.  The Innovator’s Prescription, p. 255.

 

The medical expenses foremost on the minds of most of the uninsured are not those resulting from catastrophic hospitalization.  Rather, they are the costs of day-to-day care for acute infectious diseases and routine medications.  When we . . . allow physicians’ groups to block the licensing of affordable retail clinics in poor neighborhoods, those we are hoping to help have little access to the non-catastrophic care so essential to their daily well-being.

 

Finally, the emergency room access requirement is much abused.  According to a recent report from Texas, for example, nine patients logged 2,678 visits to hospital emergency rooms over six years at an average cost of about $1,000 per visit.  Comcast News, 4/1/09.

 

Eight of the nine patients have drug abuse problems, seven were diagnosed with mental health issues and three were homeless. Five are women whose average age is 40, and four are men whose average age is 50 . . .

 

http://www.comcast.net/articles/news-national/20090401/Frequent.ER.Patients/

 

6.  Phase out traditional Medicare coverage, providing capped funding for private insurance coverage of future retirees.

 

It may sound radical to recommend the end of traditional Medicare, but we have no doubt the country would be better off if this program had never been established. 

 

#Medicare’s cost reimbursement schedules amount to a price control regime for the healthcare industry.  The schedules make some diagnostic and treatment procedures very profitable (creating a strong incentive to promote them), while failing to provide adequate compensation for other procedures (notably preventive medicine to keep people well).  The Innovator’s Prescription, p. 235.

 

#Medicare regulations impede the type of restructuring that is needed in the healthcare industry.  For example, licensing requirements for reimbursement typically lag “many years behind changes in technology.”  The Innovator’s Prescription, p. 385.

 

#And, of course, the rapidly growing cost of Medicare is a big contributor to the overall fiscal challenge facing the federal government – as we and other fiscal visionaries have pointed out so often.  The Cure, p. 126.

 

Given the millions of people looking to Medicare for coverage of their post-retirement healthcare needs and the difficult transition issues that would be involved in outright termination, a compromise seems necessary.  The Innovator’s Prescription, p. 398.

 

We believe that Medicare can be transformed into a neutral force in the industry – still able to fulfill its mission of providing care to the elderly, yet not inhibiting innovation that can help everyone.  * * * We need to initiate change in portions of the industry that are beyond Medicare’s reach [note the importance of not extending the reach of government within the healthcare sector], rather than trying to change Medicare directly.  And we need to control the ballooning costs of Medicare through regulatory change that enables or facilitates disruptive business models.

 

In one way or another, Medicare reform proposals generally replace traditional Medicare with private insurance or managed care coverage.  Thus, per the House Republican Budget Alternative, April 2009, p. 28.

 

To make [Medicare] sustainable and dependable, those 54 and younger will enroll in a new Medicare Program with health coverage similar to what is now available to Members of Congress and Federal employees; and they will receive a premium support payment equal to 100 percent of the Medicare benefit.

 

http://www.house.gov/budget_republicans/press/2007/pr20090401_gopbudget.pdf

 

Such an approach would give Medicare participants more choices about their healthcare coverage, but we would be surprised if it proved effective in curbing the rapid growth in Medicare spending – as must be done.

 

Accordingly, we propose an alternative arrangement – which would be somewhat analogous to the current procedures for Medicare Part C (Medicare Advantage plans) and Part D (prescription drugs) coverage.

 

#Traditional Medicare coverage for Part A (Hospital insurance) and Part B (Medical Insurance) would not be offered for Medicare participants retiring after a given date, e.g., January 1, 2012.

 

#Private insurance companies would be empowered to offer Senior Healthcare plans with specified terms (insurance coverage, deductibles, etc.) to subsequent retirees.  Medicare would pay the insurance companies a fixed amount per senior insured, hereinafter referred to as the Medicare Contribution, thereby enabling the insurance companies to quote lower premiums.

 

#The Medicare Contribution would be adjusted for age and individual health problems (as identified at time of retirement) to avoid creating a disincentive for insuring high-risk seniors.

 

#The average Medicare Contribution would be indexed for inflation, thereby stabilizing Medicare’s outlays per senior in real economic terms.  Over time, major savings in Medicare outlays could be expected versus the current system.

 

#Medicare’s role in directly paying healthcare providers, which has impeded innovation in the industry, would fade away.  As explained in The Innovator’s Prescription, the results should be beneficial for all concerned.

 

7.  Cap punitive damage awards for medical malpractice.

 

Our list of cost saving ideas is not meant to be exhaustive, but we cannot resist one more.  Punitive damage awards in medical malpractice cases represent a windfall to recipients and the attorneys who represent them, at the expense of everyone else involved with the healthcare system. 

 

Malpractice insurance premiums for doctors are raised, which in turn leads doctors to raise their billing rates, move to another state, or retire.  Also, doctors and hospitals order every medical test to man, whether needed or not, in hopes of avoiding potential legal liabilities. 

 

Likewise, drug companies are motivated to expand the size of their clinical trials for new pharmaceuticals, and to spend inordinate effort identifying and listing potential adverse effects on product inserts that most people never read.  Prescription drug prices are set higher in an effort to recover the resulting costs.

 

Surely doctors and other healthcare providers should be liable for actual damages if they blunder.  Beyond that let’s put a cap on it!

 

*   *   *   *

 

We hope that these ideas will strike a responsive chord with readers.  Feedback please, this subject is far too important to “leave it to the experts.”

 

And next week, we promise – after four straight entries on healthcare – to introduce a new topic.

top     close    ww3@atlanticbb.net