Relevant and even prescient commentary on news, politics and the economy.

Argument: more health insurance does not lower cost

This morning on Washington Journal was a discussion with Marogt Sanger-Katz of the NYT Upshot blog.    She wrote a post: No, Giving More People Health Insurance Doesn’t Save Money.  It’s a controversial title for sure, but there is some interesting points that I know are often mentioned on a few email lists I’m on for my profession.

Let me just say I’m am a bit cautious of her writing after listening to her answer regarding why the nation did not get a single payer system in her interview this morning.  She was correct there was not the political will, but she suggested that it was do to a lack of interest/drive on the part of the people.  She states most of the people do not want single payer.  My understanding is that is was more the politicians involved namely President Obama and the congressional dem leadership that flat shut down any talk of single payer and then the Medicare option.  Ms. Sanger-Katz did not mention this at all.   Here is the clip:

In her article however, she does mention the issue of “number to treat”.  This is a big issue in health care and has been ignored generally.  When the move was on to control costs, medicine began to promote prevention, only it was not prevention by means of better food, better life environment via a reduction in the risks of life (security of housing, income, aging).  If you think about it, to promote better food requires going up against our industrialized food system.  To promote a better life environment would mean going up against the entire economic model we have been deriving policy from that has lead to the life people are living today.

Raising the Price of Pizza 10 to 14 cents. . .

by Bill aka run75441

Raising the Price of Pizza 10 to 14 cents. . .

Will pizza and food prices really have to increase to cover healthcare costs for the mostly young employees of the Olive Garden’s, Denny’s, and Papa John’s restaurants?

A 10 to 14 cents increase per pizza is being proposed by Papa Johns’ to pay for the PPACA. At the same time, Papa John’s is advertising a 2 million-pizza giveaway with the help of Peyton Manning “Two Million Free Pizzas” (must be a freebie?). Not sure myself how I might decide to account for the cost; but, here is a try; free pizza for 2 million NFL fans to increase sales, . . . cut employee hours to avoid the PPACA and keep the price, . . . raise prices 10 to 14 cents per pizza to have healthcare insurance for the restaurant staff, . . . or maybe a kind of half cheese/half sausage combo. . . healthcare and free pizzas with Peyton Manning promoting the social responsibility of Papa John’s?

Maggie Mahar at The Health Beat Blog “Can US Businesses Afford Obamacare?” points to an interesting article by John Padua of Managed Care Matters discussing who bears the healthcare reform cost if restaurant owners opt out while Forbes Caleb Melby runs the numbers and questions the increased costs suggested by Papa’s John’s CEO “Papa John’s Obamacare Math” .

The issue(s): The Affordable Care Act dictates that full-time employees (30 hours or more per week) at companies with more than 50 workers need to be provided health insurance. CEO John Schnatter has further claimed that some employers will cut employee hours to avoid providing them with healthcare.

The Cost: John Schnatter estimates that Obamacare will end up costing his company $5-8 million annually.

The Price Increase: 10 to 14 cents per pizza

Checking John Schnatter’s Math: Last year, Papa John’s International captured $1.218 billion in revenue. Total operating expenses were $1.131 billion. If Schnatter’s math is accurate (Obamacare will cost his company $5-8 million more annually), then new regulation translates into a .4% to .7% expense increase. It is difficult to set that ratio against the proposed pie increase and across all sizes given size and topping differentials, but many of their large specialty pizzas run for $16. Remarkably, a 10-14 cent increase on a $16 pizza falls in a comparable range of .6% to .9%; but, the cost transference becomes less equitable if you are looking at medium pizzas which run closer to $12, meaning a .8% to 1.15% price increase.

Lets say that Papa John’s sells exactly half medium/half large specialty pizzas. Averaging the ranges for both sizes, then averaging that product yields a .86% price increase — well outside the range of what Schnatter says Obamacare will cost him.

So how much would prices go up, under these 50/50 conditions, if they were to fairly reflect the increased cost of doing business onset by Obamacare? Roughly 3.4 to 4.6 cents a pie.

3.4 to 4.6 cents does not seem like such a huge increase to bear by either customer or the business and if the advertising is done right; it might prove more positive than giving away 2 million freebie pizzas during the NFL season . . . a little like Schooner Tuna in the movie “Mr. Mom,we are in this together for the long haul.'” What customer would not buy into this?

The Issue(s): From the annals of I made this; “Everyone is looking for a way ‘not‘ to provide insurance for their employees. It is essentially a huge tax on all us business people,” declares Denny’s RREMC Franchise Owner CEO John Metz on Fox News. To offset costs further, John adds; “he also will slash most of the staff’s time to fewer than 30 hours per week” to start January 2014.

Talk about giving a long notice for plant closures to employees. What happens if franchise owner sidesteps the insurance provision of the PPACA and cuts hours to fewer than 30? John Padua of Managed Care Matters says the cost falls back on the US citizenry, employees, and customers of these restaurants.

If companies do not provide insurance for low-paid workers, we taxpayers have to. That is the way Obamacare works; folks with incomes below 400% of the FPL can get subsidized coverage. If restaurants cut workers’ hours so as not to insure employees, all of us taxpayers get to pay for their health insurance. These companies are avoiding their responsibility and increasing our tax burden. “The Cost of Obamacare -14 cents per pizza”

The Cost: Maggie Mahar raises the question in her “Can They Afford It???” post. Metz employs 1,200 associates at his Denny’s RREMC franchise. Taking the extreme case of all 1200 employees going into the state exchange and being subsidized up to 400% of FPL; by slashing everyone’s hours to 28, Metz avoids the $2,000 penalty (~$2.34 million in total) for those going into the state exchange.

The Price Increase: 5% surcharge to all meals in 40 Denny’s in Georgia, Florida and Virginia. (note: I wonder how that will appear on the bill?)

Checking The Math: The CBO (which forever appears to be anti-healthcare reform) found in a recent study, 2014 comprehensive healthcare insurance could be had at $3,400 for an employee up to 30 years of age and single. Understanding we are not talking about writing off Metz’s employee expenses from his corporate income tax yet and knowing the PPACA requires an employer to pay 65% of the employee’s healthcare insurance, the $3,400 per person (down from a projected $6,700 without the PPACA) now becomes $2,210 per person.

Denny’s franchise owner Metz is angry with Obama, the PPACA, and his employees. Granted, the example is as much an extreme as Metz’s knee jerk reactions and posturing; but, it points to the overall fallacy in the too-much-healthcare- cost is a drag on my business argument. Both of these entrepreneurs did take grief for their stances. Denny’s CEO John Miller did call john Metz to discuss his stance and John Schnatter has been called out in various blogs and is the subject of multiple boycotts.

Much of this sounds like sour grapes starting with SCOTUS affirming the PPACA and is carryover from the re-election of Barack Obama to the Presidency. Some have protested the validity of the PPACA claiming it was immoral to force business owners to pay for employee healthcare insurance. In an email exchange, John Paduca answers:

“In response to your query as to when it became an employers’ responsibility to provide health insurance, that would have occurred when PPACA was passed, signed into law, and upheld by the Supreme Court. Laws run this country, not morals. If ‘morals’ did, we never would have invaded Iraq or water-boarded prisoners or interned Japanese Americans or overturned legitimate governments in Africa and Central America or supported the Shah of Iran. ‘Morals’ are personal; laws are societal.”

Maybe it is just Republicans having to cancel their airline tickets to Boston for the celebration on November 7th which has placed both Johns in a bad mood. Or could it be pent up anger with the very people who elected Barack to The White House for a second term? You know, those 47 percenters who might make up the bulk of the restaurant workers.

The CBO Wants to Discuss Healthcare and the Deficit?

The CBO Wants to Discuss Healthcare and the Deficit?
(from run75411)

Someone struck a nerve, “The Lady Doth Protest Too Much: CBO Director Asks for A Chat . . .”. Yves Smith at Naked Capitalism received an interesting email after a voice mail from the Associate Director of Communications for the CBO:

Greetings, Susan.

I am following up on my voicemail to see if we can arrange a time either today or sometime this week for you to speak with our director, Doug Elmendorf. He wanted to speak with you about your blog post “Fed Budgetary Experts Demolish CBO Health Models, the Lynch Pin of Budget Hysteria” that appeared Sunday on Naked Capitalism regarding CBO.

I am copying Brianne Hutchinson, Doug’s executive assistant, who will work with you to find a convenient time for the call. You can reach Brianne by e-mail or directly at: 202-226-2700.
We look forward to hearing back from you at your convenience.

Kind regards,
Deborah Kilroe
Associate Director for Communications
Congressional Budget Office
2nd and D Streets, SW
Washington, DC 20515

Recently, Dan posted some of my earlier conversation with Yves and other participants on her post’s thread “Healthcare Spending Growth in the US” at Naked Capitalism . Yves’s post pointed to a recent paper completed by Glen Follette and Louise Sheiner examining and challenging the CBO analysis of healthcare costs as a percentage of GDP An Examination of Health-Spending Growth in the US. Simplified, what the study is found Healthcare growth as a percentage of GDP is sustainable at 1% which is precisely what Obama and even Romney used in their limiting factor for healthcare costs.

Read more at   Health spending growth in the US  at Angry Bear.

Health Care Thoughts: Reform Status According to Really Smart People

by Tom aka Rusty Rustbelt

Health Care Thoughts: Reform Status According to Really Smart People

So after two days in rooms full of top notch front line experts, and two nights sleeping on a couch in a hospital waiting room, I offer a list of key take-aways.. This is reporting only, not advocacy. Some of my opinions may vary (not much). I avoid the nitty-grittiest of operational details. So…..

The amount and complexity of work to be done in the next 24 months is crushing and impossible – expect delays or sloppy rollouts.

Scale is everything, small providers will get crushed. Impacts on rural health care uncertain, so…

Consolidation and integration is the critical path. Some bad outcomes likely.

The Obama administration is incapable of producing regulations and guidance papers on time (in Washington a little late is considered on time).

Providers are preparing cuts both permenant and “cliff” cuts.

The amount and complexity of IT work through the system is staggering. Data is the new currency of health care.

Setting up the exchanges is a massive and messy task, even in the enthusiastic states. Letting the feds install “plug-and-play” may become a good option for many states.

Some large public companies are seriously considering dropping health insurance and paying the penalty (stunned me). No decisions yet known.

Winners, sorta in sequence:

Health IT – vendor companies and geeks
Health lawyers – transaction and regulatory
Health executives – the “talent wars” are going full blast
Health CPAs, finance officers and consultants
Physician executives
Nursing executives
Bureaucrats and regulatory


Physicians – mostly (depends on many factors)
Nurses – hands on care givers
Therapist and ancillary providers
Hospital support staff

Getting a child ready for college? Push them towards…..

IT, health emphasis
Health care administration
Medical records administration / health informatics
Medical coding (good jobs with 2 year degree)
Accounting and finance, health emphasis
Actuarial science

Private health insurers may be really big winners (oops). Some private health insurers are building primary care networks and ACOs.

There are some intesresting and even exciting geriatric care innovations morphing out of the Obama administration, academia and providers.

The “old elderly” are using huge amounts of Medicare resources, innovations may cut usage with the same or better care.

Hospital capital spending is going wild as a market share play, just what we don’t need.

So, now to plug through a thousand or so pages on operational and regulatory details. Did I mention the Obama administration writes a lot of long and largely incomprehensible regulations and guidance statements?

Interesting times ahead.

Tom aka Rusty

Health spending growth in the US

Yves Smith at Naked Capitalism brings us news of an important study addressing the issues of determining the costs of medical care, delivery, and insurance:

A remarkably important and persuasive paper that calls into question the need for “reforming” Medicare has not gotten the attention it warrants. “An Examination of Health-Spending Growth In The United States: Past Trends And Future Prospects” (hat tip nathan) by Glenn Follette and Louise Sheiner looks at the model used by the Congressional Budgetary Office to estimate long term health care cost increases. Bear in mind that this model is THE driver of virtually all forecasts of future budget deficits.
This paper, although written in typically anodyne economese, is devastating in the range and nature of its criticisms.

The election for Senator in MA is close and takes a lot of time, so discussion of this topic has received short shrift till later, but reponses are in the works.  I have taken the liberty of lifting comments from that thread at Naked Capitalism from run75441, Yves, and reader river.

run75441 says:
I have mentioned this before and caught a lot of flak, Elmendorf was one of several who helped kill Hillarycare.
 Yves Smith says:

  • November 4, 2012 at 1:24 pm
    Yes, Dean Baker (along with others) have been criticizing these models for some time, but the fact that it is the folks in the Fed’s fiscal impacts section who have also gone after it (i.e., are not card carrying lefties and therefore don’t have an axe to grind) puts this in a different light.
    What is distressing is that Krugman in particular (someone who is seen as knowledgeable about health care and a pinko) has been taking the conventional line.

And further question and answers here:

river says:
November 4, 2012 at 6:57 pm
Long time reader, but haven’t written on here too much, as I am a financial illiterate and find that this blog is above me a great deal of the time.
That said, the overall point of this blog post seems to be that the CBO is simply basing their long range predictions of health care spending based on the overall increase in spending seen over the last thirty years, but what will actually happen is that the cost increases will taper off naturally because they almost have to . . . you can’t have ever rising exponential growth in a world of limited resources.
The question then becomes what will happen to stop the cost increases from continuing their upward march, and what will be the consequences of that occuring. After all of us experiencing this exact same thing play itself out in the housing market, I can only imagine how it would play itself out in healthcare. For the last few years, most of my raises have gone to healthcare cost increases, and I would expect that to continue, but after a while, we would switch to a catestrophic insurance program and just not use the services that they are providing. As the costs keep going up, more and more people would stop getting any insurance. Bankrupcies, and cost pressures on medical facilities will start to hit the practitioners (if all of the antelopes are starving, the lions will soon starve themselves).

  • run75441 says:
    November 4, 2012 at 9:00 pm
    I have not looked lately; but, commercial healthcare insurance has been increasing in cost at ~8% as opposed to ~2.4% for Medicare (S&P Healthcare Indices). The goal is to get both down to 1% through a series of cost initiatives led by Medicare. Obama has pledged to allow Medicare to begin negotiating healthcare industry services.
    The MLR was put in place to control the amount of premiums spent on insurance administration. Within the MLR are risk factors based upon the youngest and healthiest insuree, 150% for smokers (too low), and up to 300% for the elderly. There is also a maximum you will pay as a percentage of income.
    I had a discussion today with Maggie Mahar on the growing costs and the attached article. I am sure she would not mind my posting some of her thoughts:
    “It seems to me that any attempt to forecast that far out is nuts. Wall Street analysts don’t try to predict a corporation’s finance out more than 3 years– maybe 5– and that’s just one corporations.
    They’re talking about healthcare spending– a huge chunk of the economy.They also assume that the aging of America means higher spending.
    A number of countries in Europe that have populations that are significantly older than ours have shown that just isn’t true. (I’m thinking of Germany & Sweden in particular).
    We’ve always been somewhat hysterical about “What will happen when the Baby Boomers Grow Old!!” We’ll handle it because we have to.
    We already know that 1/3 of Medicare dollars are wasted. Cut even 2/3 of that waste, and problem solved. Getting away from fee for service, more efficient systems, refusing to pay for preventable errors, reducing what medicare pays for services we know are not terribly effective; greater use of nurse practitioners, less screening, . . . etc.”

New Report on Getting the Best Care

by Run 75441

New Report on Getting the Best Care

Both Matthew Yglesias at Slate and Sarah Kliff at WonkBlog and a host of other sites have posted some interesting results coming out of a recent study by the Institute of Medicine  Best Care at Lower Cost: The Path to Continuously Learning Health Care in America.

Unfortunately as a lowly and unpaid (99% of the time) blogger, I do not have access to the entire report. What I do have is a abstract of what the report is about and some of the charts placed on Wonkblog.

We spend $750 billion on unnecessary health care. Two charts explain why. This report documents much of the whys to a much needed Healthcare Reform in the numeric of it. Phillip Longman in his book The Best Care Anywhere touches upon a similar transition in the VA administration and the experiences of his and Timothy Noah’s wives in being treated for cancer. Unfortunately, the best named hospitals and the best insurance does not guarantee the best care. Too much is spent inefficiently on the wrong type of care.


The second series of chart is an accounting of how some of these expenditures are made within the system. Again, this is something which Phillip Longman touched upon with his book on the VA and how they overcame the inefficiencies. Sarah Kliff at Wonkblog calls it creating an environment in which it is easy to create waste. When healthcare and its associated industries were not the monsters in cost, no one paid attention to the cost, loss of efficiency, and the lack of quality outcome in treating patients. We spent for the services and not the outcome with the results being a higher cost.


Constantly targeted within today’s healthcare system is the cost of treating the elderly. While it is true as we grow older, the costs of treating us increase due to our aging and failure to care for ourselves. Within the system it is easy to have increased waste as treatments and records may not be logged to computer leading to duplicate treatments and a lack of coordination amongst way to many doctors in treating patients. It has happened where a group of consulting doctors can be describing treatments when the oncologist knows there is little more to be done.

What does the IOM recommend? I will leave you with Sarah Kliff’s post on Wonk Blog to find out. What’s Possible for Healthcare

Getting back to today’s politics between Romney and Ryan vs Obama, would you want more of the same? More of today’s private market with its rising healthcare cost is precisely what is being advocated by Mitt Romney and Paul Ryan. More to come.

Uwe E. Reinhardt on health spending

Uwe E. Reinhardt offers his viewpoint on trends in US health spending.  Following are excerpts from two articles in the NYT’s Economix  concerning the costs of our system and how they are apportioned in the big picture, and the impact on family budgets.  Reading the charts is actually important.

There are trends in our health care system that are in place and that providers are responding to, making the regulation process only part of the bigger story.

The Fork in the Road for Health Care

For 2012, the nationwide average of the total health spending for a typical family of four was estimated by Milliman to be $20,728. On a regional basis, that average varies from a low of $18,365 in Phoenix to $24,965 in Miami.

A just-released study by the Health Care Cost Institute shows that much of these spending increases are the result of rising prices and not of rising use. Reporting on the study, Julie Appleby of Kaiser Health News notes,

Higher prices charged by hospitals, outpatient centers and other providers drove up health-care spending at double the rate of inflation during the economic downturn – even as patients consumed less medical care over all. 

The chart below shows the path of the Milliman Medical Index since the year 2000. Although the increase of “only” 6.9 percent between 2011 and 2012 was the lowest since Milliman started publishing the index 12 years ago, a 6.9 percent increase is nevertheless alarming in a period when gross domestic product per capita and the gross wages of employees rise at much lower rates.

Although the family’s contribution of $8,584 is by no means trivial, it is less than half of the total average cost of a family’s health care cost. Most employees probably believe that “the company” – that is, its owners – absorbs the other 58 percent of the family’s total health spending. 

Economists have long argued that this is an illusion – that over the longer haul the bulk and possibly all of the ostensibly employer-paid health insurance premiums gets indirectly shifted back into the employee’s paycheck through lower increases in take-home pay. 

To the extent that there is a limit to this cost shift – e.g., for low-wage or unionized employees — the backward shift takes the form of reduced employment or, alternatively, the employer’s decision not to offer employees health insurance at all. 

This point on backward cost-shifting was driven home recently in a paper in Health Affairs by David Auerbach and Arthur Kellerman. The authors present data showing that a decade of health care cost growth in employer-based health insurance “has wiped out real income gains for an average U.S. family” from 1999 through 2009. Health care has come to chew up American household budgets like Pacman.

Is US health spending finally under control?

Charts 1 and 2 show the growth of health spending from 1965 to 2010, broken down by source of payment. Chart 1 exhibits the time path of actual health spending, not adjusted for inflation. Chart 2 exhibits the percentage of total national health spending contributed by the various sources in the chart. In the charts the green area denotes out-of-pocket spending at the time health care is consumed, the red private health insurance, the gray Medicare, the yellow Medicaid and the blue “other third-party payments.”

Economists would explain such a trend as flows: as the fraction of G.D.P. devoted to health care increases, the added satisfaction, or utility, that people derive from added health care is likely to diminish relative to the added satisfaction derived from consuming more of other things. It could explain a gradual decline in the excess growth of health care spending.

Insurance and Birth Control

In this Forbes article, Tim Worstall says he agrees with generally available birth control, but questions why health insurance should pay for it.    Specifically he says:  “But I really cannot see the point of trying to have health care insurance which then covers a multitude of treatments that aren’t really insurable matters, contraception being just one of these (regular shots, ‘flu vaccines, general everyday low level treatments in fact).”  This is after he points out that, per Wikipedia, “Insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

The first question this prompts in my mind regarding insuring against (unwanted) pregnancy is what loss does that pregnancy entail?  The answer is large measures of personal freedom, hundreds of thousands of dollars in unplanned child-rearing expenses, and quality of life for the potential child resulting from the pregnancy.  These are significant risks, with ramifications for society at large, involving the employability and  productivity (in a purely economic sense) of the involved woman, and her uses of discretionary income.  Furthermore, unwanted children, particularly if the mother is single, are more liable to live in poverty and neglect, suffer from illness and abuse, become delinquent, and develop into adults that are psychologically disturbed, draw welfare, and commit crimes.

So, there are significant personal hardships and costly negative externalities that result form unwanted pregnancies. 

Is it ironic that in the past right-wingers have proposed the forced sterilization of welfare mothers

Also, the hormone therapy we call “birth control” has many other preventive medial uses, including controlling endometriosis.  So a focus in the merely contraceptive attributes is misplaced.

Currently, more than half the states mandate that hormonal birth control be included in prescription coverage, and since 1998, this coverage has been included for all federal employees.  There is ample precedent for this coverage, and insurance companies are well equipped to handle it.

Worstall conducts this thought experiment.

 Just to make up some numbers, say that the preferred method costs $30 a month. But that having the contraception covered by insurance will raise the premium by $50 a month. The insurance company does, after all, have certain costs associated with taking the premium then paying it straight back out again to buy the pill. Why would anyone do this? Why not purchase the pill for $30, stiff the insurance company bureaucrats the $20 and spend it on a couple of cocktails at a place where you might meet someone who thinks that your being a contraceptive user is a good idea?

Of course, when you’re just making up numbers, its easy to have them suit whatever fell purpose you have in mind.  Suppose a much more realistic $16 per month, and the whole make-believe argument  collapses.

Besides, in terms of brute economics, the insurance company is better off paying for decades of contraception in $30 increments than one avoidable pregnancy at many thousands of dollars, if everything goes smoothly.   Let’s just say you can’t count on that. 

So far, this has been a basically economic argument.  Now let’s look at an issue of fairness and parity.  More than half of the prescription programs cover Viagra.   Need I say more?

Worstall’s argument has some logical consistency – he seems opposed to insurance coverage of other types of preventive care.  But this is ignorant and short-sighted.  A flu-shot is less than $25.  An office call is $90 and up.  Prevention, in general,  is cheap, and treatment is expensive.  If cost minimization is your goal, then the clear focus should be on prevention.

Worstall’s problem, I think, is in relating contraception to a free-market business model, though, as I have indicated, he isn’t even understanding that properly.  The proper focus also includes the high costs of the externalities that he conveniently ignores.

The real root problem though, is in trying to force-fit any health insurance system into a for-profit model.  There is simply no way to reconcile the conflicting goals of profit maximization and providing the needed services.  In fact, there are only three avenues to profit maximization: raise premiums, deny coverage, or emphasize prevention.

Whether this leads to the conclusion that a single payer, government mandated program is the best overall approach is left as an exercise for the interested reader.

UPDATE: I forgot the great positive externality of contraception – it prevents hundreds of thousands of abortions every year.

Cross posed at Retirement Blues.

Health Care Thoughts: Research on Defensive Medicine (Part 1)

by Tom aka Rusty Rustbelt Health

 Care Thoughts: Research on Defensive Medicine (Part 1)

(Background – I have been an executive in two orthopaedic centers, and write and lecture for orthopaedic practice executives.)

A Vanderbilt research survey of orthopaedic surgeons indicate that 24% of diagnostic testing is “defensive medicine.” This does not surprise me, as I have been in the room when defensive medicine protocols have be decided. I have been involved in settling about two dozen malpractice suits against orthopedists (three had some merit, one was certainly malpractice). I also have done analysis for both sides in other malpractice actions.

Orthopaedists treat patients who have intense pain from serious injuries and conditions, and many of those patients have high expectations for positive outcomes. Those outcomes are not always possible, despite near miraculous results in many cases. But don’t they have insurance? Yes, but the stress and costs of a malpractice suit grind on physicians, even when suits are ridiculous it is a very unpleasant experience. An orthopaedist who does surgery without an MRI study puts him/herself in real jeopardy, and to be fair some lab and cardiology tests are required by accreditation standards.

More on access in part 2.