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

American Exceptionalism Strikes Again

This chart from National Geographic combines several data sets which require a little bit of puzzling out, but which come together in one whopper of an illustration.

The parameters are:

Cost per capita – lefthand scale, and lifespan — righthand scale, which together give a sloped line for each nation showing dollars per year of lifespan.

Thickness of each nation’s line indicates number of doctor’s visits per year.

Line colour indicates whether the nation has universal health coverage (blue) or not (red.) There are only two red lines — Mexico and the USA.

Looking at these, you would hope to achieve a low lefthand starting point (low cost), a high righthand point (high longevity), and a thick line (lots of doctor visits.)

The USA line looks like it was drawn by someone who got the instructions backwards — a very high lefthand starting point (huge cost), a mediocre righthand point (middlin’ longevity), and a hairlike line thickness (scanty doctor visits, less than 4 per year.)

Who gets the healthcare bargain on this chart? Japan is the most striking, with the highest lifespan (almost 83 years), and a visit a month or more to the doctor, at a cost of about $2,600 per capita — one-third the US cost.

Fifteen of the 21 nations shown achieve longer lifespans than the USA, at roughly half the US price.

Nuts, just nuts.

h/t to “fatster” in the comments over on Emptywheel.

Heath Care Reform– Looking at the Glass Half-Full

(Run 75441…h/t)

Maggie Mahar writes an essay that is now cross posted at Angry Bear with the author’s permission:

Health Beat, a Project of the Century Foundation;
November 4, 2009 Heath Care Reform– Looking at the Glass Half-Full

What Has Been Accomplished; What Still Must Be Done

These days, many progressives are expressing deep disappointment with the health reform legislation now moving through Congress. Some suggest that some legislators made deals with lobbyists and let them write the bills. Others complain that both the subsidies and the penalties are too low. Still others don’t like the fact that states can “opt out” of the public insurance option, and decide not to offer Medicare E. Finally, many ask:
Why can’t everyone sign on for the public plan in 2013? Why do we have to wait until 2013? Why cn’t they roll out universal coverage next year?”

Normally, I would be among the first to critique the bills. By temperament and training, I’m both a skeptic and a critic.
But in this case, I think it is important to recognize that we cannot expect this first piece of health reform legislation to be anything but wildly imperfect. In fact, I’m impressed by the progress Washington has made in just ten months. I’ve been watching the struggle for health care reform since the early 1970s, and compared to what has happened over the past 39 years, this is mind -boggling.

I also believe that those who favor overhauling our health care system should send a strong signal to legislators: we support you for having come this far. We realize that you have three years to strengthen, change and refine the plan before rolling it out in 2013.

What Has Been Accomplished

What is astounding is that this Congress has made as much progress as it has. We may have a new administration in the White House, but we do not have a brand-new group on the Hill. The majority of our legislators are moderates; many are conservatives. Nevertheless, a sufficient number have found the will to stand up and back changes that would make health care affordable for millions of poor, working-class and middle-class Americans.

For example, under the House bill,a family of three making $32,000 a year would pay just $1,360 in annual premiums for good, comprehensive coverage; under the Senate Finance Committee bill, the same family would be asked to lay out only $2,013. Today, without reform, if that family tried to buy insurance, it would find that the average plan costs $13,500. For this household, the current legislation makes all of the difference.

Too often, the press suggests that such a family would be expected to pay $10,000 out-of-pocket to cover co-pays and deductibles. That just isn’t true. Even if the entire family were in an auto accident and racked up $200,000 in medical bills, at their income level, the House bill caps out-of-pocket expenses at $2,000 a year. Under the Senate Finance bill, the family would have to pay $4,000. Moreover, under both bills, there are no co-pays for primary care. Even private insurers cannot put a $25 dollar barrier between a family and preventive care.

Moving up the income ladder, a median-income household earning roughly $55,000 would pay premiums of $4,300 to $6,500—depending on whether the Senate Finance bill or the more generous House bill sets the terms. Without legislation, they too would face a $13,500 price tag –and that is if they could get a group rate. If they are buying insurance on their own, coverage could easily cost $16,000.

For self-employed workers, early retirees, and those who work for (or own) a small business; the legislation offers major savings. They will be able to buy coverage on the Insurance Exchange, where they would suddenly become part of a group—which makes their premiums much lower. Whether rich or poor, this is great news for anyone who works for himself, retired early (voluntarily or involuntarily), or is part of a small firm.

Granted, the legislation now on the table still doesn’t make insurance affordable for many Americans at the upper-edges of the middle-class–-or the upper-middle-class. They don’t qualify for subsidies. But, as I discuss below, the legislation does point the way to lowering their premiums. Before reform becomes a reality in 2013, I am convinced that this will happen, in part because it must. We can no longer ignore the waste, inefficiency and pure fraud in our health care system. There is absolutely no reason why we should pay so much more for health care than any other nation in the developed world.

And at least the current legislation protects these more affluent households from medical bankruptcy. No matter how much a family earns, they cannot be asked to pay more than $10,000, out of pocket, in a given year. For households that have savings and property to protect, this means that they don’t have to worry about being wiped out by a medical disaster. Even if you and your family are in that car accident that leads to $200,000 in doctors’ and hospitals bills, you will owe only $10,000. In that situation, doctors and hospitals will let you pay off your bills over time, because they know you can. You won’t be forced into bankruptcy court. This represents an enormous step forward.

In addition, under reform, private insurers will not be able to put a cap on how much they will pay out to you and your family, over the course of a year, or over a lifetime. If tragedy strikes and a child needs six or seven years of cancer treatments, your insurance will not “run out.” For some families, this one provision will mean the difference between being able to care for their child and financial ruin (coupled with the suspicion that, if they had just had more coverage, they might have been able to save their child.)

Moreover, in the very first year of reform, the public plan will offer less expensive, higher quality coverage to millions of Americans. Congressional Budget Office director Douglas Elmendorf disagrees. He has been spreading misinformation about the government plan. First he low-balls the number of Americans who will be eligible for the Insurance Exchange where they can choose between a public plan and private insurance. . He then asserts that only 20 percent of Exchange shoppers will choose the government plan while 80 percent will pick private insurance. Here Elmendorf pretends that he can read minds:

“Elmendorf goes on to argue that despite the fact that its administrative costs will be far lower, the public plan will cost more than comprehensive private insurance. This theory is based on the unfounded assumption that very few people will select the public plan , coupled with speculation that the public plan will make no effort to control costs and utilization. This makes no sense; as reform legislation makes clear, part of the purpose of the public plan is to offer higher quality care for less. (In part two of his post, I will examine Elmendorf’s guesstimates in detail.)”

For peculiar reasons that I don’t fully understand, progressives have been listening to Elmendorf’s numbers. They seem to forget his past: a student of the Dean of Conservative Economists. Elmendorf first made his mark in Washington by helping to quash the Clinton’s hopes for health care reform.
Finally, under the House and Senate reform bills, insurers will no longer be able to deny coverage, or charge a customer more, because of a pre-existing condition. If you have begun to take that idea for granted, keep in mind the Republican’s recent 11th hour proposal for reform “gives the insurance industry more leeway” as the Wall Street Journal put it yesterday (Media Matters for America blog points out the disappearance of WSJ story; “GOP Health Bill Gives Insurers More Leeway” from the paper’s website sometime last night.) Under the Republican proposal, insurers would be able to take pre-existing conditions into consideration.

House Speaker Nancy Pelosi’s “Fact Sheet” offers two examples illustrating just how easy it is for insurers to deny coverage today:

Peggy Robertson: A Colorado mother of two who was denied health coverage because she had a c-section in 2006. The insurance company told her if she got “sterilized” she would be eligible for coverage.

Christina Turner: After being sexually assaulted in Florida, Christina Turner followed her doctor’s orders and took a month’s worth of anti-AIDS medication as a precautionary measure. She never developed an HIV infection. Months later, when shopping for new health insurance coverage, Ms. Turner was repeatedly denied coverage because of the precautionary treatment she received after being raped.

In most states today, this could happen to anyone. I live in New York where we have community ratings and I don’t have to worry about pre-existing conditions. My employer provides excellent insurance, with no annual or lifetime caps, so the current reform legislation would probably have no immediate effect on my life. But, we all should recognize that the bills on the table would change the lives of millions of Americans, giving them the security that they don’t have today.

Progressives cannot let this opportunity slip through our fingers because we are so busy critiquing the legislation–and arguing with each other. Online WS Journal reports that Senate Majority Leader Harry Reid has begun to warn that the Senate may not be able to complete the legislation by the end of this year.

Given all of the criticism he has faced, Reid could be losing heart. After all, Conservatives continue to argue that legislators like Reid will be punished at the polls. Congressmen who have been pushing for reform need our encouragement. Progressives should continue to make it clear that the majority of Americans want reform– and a public option– even if the legislation is far from perfect.

2010 is an election year. Fearful of losing, some Congressmen will begin to back away from change making it critical that broad reform legislation is passed this year. Over the next three years, it can be amended as the critical details are fleshed out. Anyone who thought that Congress would be able to overhaul a $2.6 trillion dollar industry with just one bill was, I submit, terribly naïve.

What Remains To Be Done In the Next Three Years

There is so much to be done and this is one reason why reform cannot be implemented until 2013:
– Congress must figure out how to regulate the private insurance industry. This will require enormous cunning.
– Reformers will have to find a way to stiffen the penalties for those who choose not to buy insurance, without alienating young, healthy voters. This is a job for a charismatic president.
– Legislators must map out how the Insurance Exchange will work.
– They also will need to come up with a formula that will adjust for risk if one plan winds up with a larger share of poor and sick customers. (Some fear that this will happen to the Public Plan, so this, too, is a crucial detail.)
– Finally, and perhaps most importantly, Medicare needs time to begin eliminating waste in the system—saving billions of health care dollars while simultaneously lifting the quality of care. In fact, while all eyes are focused on the legislation, Medicare already has begun putting its own house in order.

What many reformers don’t seem to understand is when the public plan begins to negotiate fees with providers in 2013, Medicare fees for some very expensive services will be significantly lower than they are today, while reimbursements to primary care doctors will be higher.

“Medicare already has announced plans to cut fees for CT scans and MRIs next year, and has proposed trimming fees to cardiologist by 6 percent . Meanwhile, it would hike fees for primary care physicians by 4 percent. Congress has just 60 days to respond to the changes in reimbursements to doctors or they will automatically take effect January 1. Over the next three years, we can expect more changes in the fee schedule. And private insurers will follow Medicare’s lead.”

As they have explained to the Medicare Payment Advisory Commission (MedPAC), they just want Medicare to provide political cover. In other words, in 2013 the public plan will be negotiating fees with providers in a very different, less expensive, and more rational context.
This is another reason why public plan premiums will be significantly lower than Congressional Budget Office (CBO) director Douglas Elmendorf suggests.

Over the next three years, Medicare will be realigning financial incentives to reward preventive care and management of chronic diseases, while reducing payments for overly aggressive tests and treatments that have no proven benefit– and penalizing hospitals that don’t pay enough attention to medical errors. In the process, Medicare will be conserving health care dollars while protecting patients from needless risks. As President Obama has promised, Medicare cuts can make healthcare safer and more affordable for everyone—including the upper-middle class. Because most private insurers will mime Medicare’s efforts to reduce overpayment, the cost of care will come down for everyone.

The Public Plan will incorporate Medicare’s reforms and it will have clout. Seven percent of Americans purchase their own insurance in the private sector market. Most of the seven percent are neither poor nor sick. If they were, they wouldn’t be able to buy insurance in the individual market.)( More than half of this group earn over $55,000. They will be able to go into the Exchange and sign up for the public plan. In addition, a large share of relatively young Americans (ages 25-34) are uninsured and relatively healthy. No one knows how many will choose the public plan; but since it will have much lower administrative costs than private sector plans, it will be less expensive and more attractive to younger Americans.

States will not opt out. It would be too difficult for politicians to try to explain to voters why they cannot have access to a government plan that will be able to offer comprehensive insurance for less.

In part 2 of this post, I will explain what Medicare is already doing to pave the way for a structural overhaul of our health care system, and why none of these cost-saving reforms need to be –or should be–spelled out in reform legislation.

Fixing the fixing. Health care Deja vu

by divorced one like Bush

Responding to a couple of comments to my post yesterday, I want to present some history. PARCA. Patient Access to Responsible Care Act. 1997 by Alfonse D’Amato (R-N.Y.) and Rep. Charlie Norwood, a Georgia Republican and licensed dentist who argues: “If we can protect trees and animals, why can’t we protect patients?” (Well there is a long extinct animal!)

PARCA had this in it: PARCA states, “No insurance issuer may discriminate…in any activity that has the effect of discriminating against an individual on the basis of race, national origin, gender, language, socioeconomic status, age, disability, health status or anticipated need for health services.”

The bill was defeated. The bill was part of a response by consumers and providers to what managed care was doing in the late 90’s. People were not happy at all.

From the Frontline article:

According to a recent survey by Robert Blendon at the Harvard School of Public Health, some 48% of Americans say they personally have experienced problems with HMOs’ care, or have close friends or relatives who have run into such difficulties. Complaints include difficulty getting access to medical specialists, problems with emergency care, and excessive red tape when trying to file grievances or appeals.

From: A report from Families USA, April 1998:

…almost three out of five Americans say that managed care plans make it harder for sick people to see medical specialists. Over half say managed care has decreased the quality of care for people who are sick. More than three out of five say managed care has reduced the amount of time doctors spend with patients. And 55 percent say they are at least “somewhat worried” that if they are sick their “health plan would be more concerned about saving money than about what is the best medical treatment.”

Yet, with nothing really changed other than consolidation of the health insurance industry, we hear arguments that people are happy? Bull! Come on people, don’t you remember?

From Duke University, Marc A. Rodwin: Backlash as Prelude to Managing Managed Care, is this summary of the then accepted pro managed care thoughts:

Managed care organizations (MCOs) and the private sector, so the story goes, are not perfect, but the alternative–having legislatures manage health resources and bureaucracies make health care decisions–is even worse. Experts in the private sector should manage health care… Over the long run, however, the market will ensure that MCOs deliver high quality health care. Consumers will leave poorly performing MCOs for ones that respond to their concerns (Enthoven 1993).

A summary of the potential defeat of PARCA presents the arguments against it as this:

Insurers and employers also are lining up to defeat the bill, claiming that its provisions could drive up the cost of insurance by 23 percent to 39 percent. The naysayers argue that if this bill became law, it would cause “thousands” of employers to stop offering insurance. They also maintain that the higher cost of premiums will force millions of lower-income workers to drop their insurance… The insurance companies are obviously concerned because PARCA will hold them liable.

Same story today. Government bad, regulation not needed, don’t worry the market will fix it. Mr. Rodwin’s closing statement:

Backlash is unlikely to disappear until the industry matures and thoughtful regulatory authority protects the public, and the industry from itself.


We even were concerned in 1998 about CEO compensation for the insurers. From the Families USA 1998 report:

In keeping with the industry’s accentuated focus on costs, this report analyzes a very different facet of managed care costs–namely, the costs associated with compensation for high-level HMO executives. The report examines 1996 executive compensation for the 20 for-profit, publicly traded companies that owned HMOs with enrollments over 100,000.7 These 20 companies owned 64 of the nation’s largest HMOs in 1996.
The 25 highest paid executives in the 20 companies studied made $153.8 million in annual compensation, excluding unexercised stock options, in 1996. The average compensation for these 25 executives was over $6.2 million per executive. The median compensation for these 25 executives was over $4.8 million.
The 25 executives with the largest unexercised stock option packages in 1996 had stock options valued at$337.4 million. The average value of unexercised stock options for these 25 executives was $13.5 million. The median unexercised stock option package for these executives was over $7.2 million.
(Go here to see what it’s worth today.)

In fact, we are so having the same debate again, yet, still that, I found this regarding the 1998 congressional timing for the health care issue:

All sides in the Senate debate have used the August recess to push their managed care proposals…

We are soooooooo doing it again that we are right down to the same time of the year! AHHHHHHHHHHHH!

Which brings me to Save the Rustbelt’s comment “…but it is not some conspiracy to drive up administrative costs.” My point was not that there is a conspiracy regarding administrative costs, certainly not by Massachusetts. It is that in order to fix what was fixed they are reaching for more of the same reasoning: Control the cost via administration of the costs. It is the very reasoning that has allowed the insurance industry (just look at the sub corps that UHC owns) to develop an entirely new business that is only expending but is not delivering the product results as advertised as it adds costs. And now, we will shift the cost by shifting the administrative model to the providers via a model that is questionable.

This Massachusetts model of capitation via “accountable care organizations” (ACO) is really just a new twist on the staff model HMO. Only now the insurer will collect the money and just pass it on according to the state fee schedule (yes it is still a fee schedule whether fee for service or fee for head count), and keep the difference. If there is not state setting of premiums, then where is the cost savings to the purchaser of insurance. If there is state setting of premiums, then why go through all this when we could just have a single payer system and cut out the profit and reduce the duplication of claims management to obtain our savings?

Also, to make this work, a patient will have to remain with the same “accountable care organization” at least through to the conclusion of their health problem. Being that the new fix is just a rehash of some old models, it is reasonable to assume that there will be some limiting of the consumer of health insurance to change ACO’s. Bet it will be like the Medicare drug program; one year, which I believe is already part of the Massachusetts insurance program. I doubt that locking a consumer into a program for 1 year is long enough for an ACO to have affected a change in the consumption of health care services by the consumer. In fact, you will not know unless that consumer gets sick in such a way that there are lifetime residuals and then starts ACO shopping. Will the consumer put up with having to be locked into the ACO for more than a year? Consider that health care outcomes are looked at over 3 and 5 year periods to determine success. Can you say “administration of cost”? How will the consumer know which ACO is actually getting the product of health and healing correct for the least price without more administration? How will the consumer come to appreciate value before actually having to purchase?

Which leads me to Vtcodger’s comment: “About the best I can say for this idea is that it is new.” I hope I am making clear that this is not new. Nothing about the current discussion of the health care problem is new. It is just the game of hot potato. It is just a shifting of the costs down the line. (An approach we seem to have been using since “trickle down” theory was created.) I do agree and it is why I believe capitation did not catch on and staff model HMO’s declined, when Vtcodger states: ” I don’t think that your average primary care physician wants to be an insurer…”.

But, let me correct one assumption that like the myth of Reagan lives on regarding managed care. Again Vtcodge: Actually, HMO/PPOs etc did and do seem to work to some extent. When they were first introduced, increases in health care costs did moderate for a while.

Yes, cost did seem to moderate. But there were very specific reasons and it had little to do with manage care actually reducing the “unneeded tests and procedures”. From the Frontline article:

In the mid-1990s, HMOs made some people think that they had vanquished medical inflation — as rates to big employers increased just 0.5% to 2% a year. But the managed care plans “paid dearly for competitive pricing in 1997,” says John Erb, a benefits consultant at William M. Mercer Inc. “Many lost money and margins were slim for most of the rest.

It was the old business model to market share, cut your pricing and hope your competition folds first. It’s the big box store model. It worked. In RI land we were reduced to BC and UHC. Two years ago, UHC undercut BC to win the state contract. Prices are up.

There was a report put out by Muse & Associates for the pro PARCA coalition. In it they noted two other reports when making a conclusion about costs. Quoting from an article from my national association’s journal 4/98 (I have no link):

“Private sector average premium costs, for HMOs, the most tightly controlled form of managed care, are 18.4 percent lower than traditional indemnity plans.
Other researchers have come up with estimates reassuringly similar to the Towers Perrin figure. For example, the Lewin Group, in a 1997 report, estimated direct savings from managed care at 19 percent.
So, Muse & Associates are on sound footing in concluding: “Clearly, overall managed care savings could not exceed 20 percent. The best evidence strongly suggests that 15 percent of the 20 percent savings comes from managed care organizations reducing provider prices…”

We’re talking the same old approach to what really is a problem with the product. At least in the bad socialist health care programs they recognize that a for profit third party only adds cost and thus do not have to account for that part of our problem (it’s called savings). They just need to resolve the product quality issue. It is the only common issue to all nations.

I’m taking bets on the date of the new fix of the newly fixed, fixed system.

Massachusetts is fixing the fixed health care system: more administration?

by divorced one like Bush

In this debate on how to finance health care, we are hearing about the costs to deliver health care and how to bring them down. Mass is now proposing a capitated payment system that will be government created. It is the latest fix to a herald “fixed” problem. Which begs the question, why do they need to fix it again, yet, still?

The 10-member commission… voted unanimously to largely scrap the current system, in which insurers typically pay doctors and hospitals a negotiated fee for each individual procedure or visit. That arrangement is widely seen as leading to unneeded tests and procedures.
A state commission recommended yesterday that Massachusetts dramatically change how doctors and hospitals are paid…the group wants private insurers and the state and federal Medicaid program to pay providers a set payment for each patient that covers all that person’s care for an entire year and to make the radical shift within five years. Providers would have to work within a predetermined budget, forcing them to better coordinate patients’ care, which could improve quality and reduce costs.
The plan would require significant restructuring of the healthcare system, and some of its components would need legislative approval. Primary-care doctors, specialists, hospitals, and home healthcare agencies would have to form so-called accountable care organizations. Patients would choose a primary care doctor to coordinate their care, mostly within the organization. Insurers would pay the accountable care organization a flat yearly per-patient fee to be divided among the providers.

Read the above again: recommended…that Massachusetts dramatically change… to make the radical shift… The plan would require significant restructuring of the healthcare system, and some of its components would need legislative approval… to form so-called accountable care organizations.

Deja vu?

Dramatically? Radical? Significant? Legislative approval? An entirely new thingy called “accountable care organizations? What? IPA, HMO, PPO, POS, EPO, Self Directed, HSA, Capitated, IME, Primary Care, Fee-for-service, PCP, CAM, and for Massachusetts specifically; Commonwealth Connector just didn’t do it for you. We need more? “Doctor”, “insurer”, “patient”, “government” were not enough?

I want to know, just how much in administration cost will this new fix add? Is this the old promise of managed care, that the savings will accumulate enough to pay for the cost of administration plus a profit? Hasn’t worked yet.

It may work I guess, if we just add enough superlatives in our sentences while we present the new and improved Model T. Or maybe not. From the journal, Medical Care: Managed Health Plan Effects on the Specialty Referral Process:

Results. The percentages of office visits resulting in a referral were similar between the two gatekeeping groups and higher than the no gatekeeping group. Patients in plans with capitated PCP payment were more likely to be referred for discretionary indications than those in nongatekeeping plans (15.5% v 9.9%, P The frequency of referring physician coordination activities did not vary by health plan type. The proportion of patients in gatekeeping health plans within a practice was directly related to employing staff as referral coordinators, allowing nurses to refer without physician consultation, and permitting patients to request referrals by leaving recorded telephone messages.

Massachusetts states: That arrangement is widely seen as leading to unneeded tests and procedures. They were referring to the method of paying a doctor. Yet the study shows that the referral patterns don’t change with changing the method of payment. Well, does Massachusetts think the unneeded tests and procedures are happening without referrals?

Pick the approach, it didn’t change the referral pattern and, systems were set up by those being managed to make the referral process more efficient. So, either the patients need the referral (thus tests and procedures) and none of these money managing approaches are going to ultimately stop it, or the PCP finds a way to keep the traffic moving through the office because the more patients served the more money collected. (Deja vu) It’s a solution to a head-count/ piece-work payment system that still does not get the doc to do the job of applying the knowledge of health and healing to a given person’s presentation. (I’m accepting bets on how long it will be before we hear about the next fixing of the latest fixed Mass health care system. Post your bet in comments.)

This gets us to the one area that has been rolled out many times, but is often excused off as not being reliable as to achieving real savings and thus why we really don’t want a government funded single payer solution (other than our pride of not thinking of it first): Administration costs. It is the old medicare is cheaper than private insurance because of administration cost argument.

We’re hearing of the new plan being modeled on the Massachusetts system. It’s not working as noted by the need to fix it again (though past experience with other states showed it would not work). The fix is more administration costs on top of more administration costs. If they keep going this way, soon a medicare modeled administration system’s costs will be comparable to the private insurer, thus defeating the need to fix health care. So lets just accept that health care costs a lot to administrate, stop wasting time trying to reduce the cost and let the private system stay?


From this article: Costs of Health Care Administration in the United States and Canada, NEJM 2003, we learn that administrative costs have been rising faster in the US than in Canada.

We investigated whether the ascendancy of computerization, managed care, and the adoption of more businesslike approaches to health care have decreased administrative costs.

For the United States and Canada, we calculated the administrative costs of health insurers, employers’ health benefit programs, hospitals, practitioners’ offices, nursing homes, and home care agencies in 1999.

In 1999, health administration costs totaled at least $294.3 billion in the United States, or $1,059 per capita, as compared with $307 per capita in Canada. After exclusions, administration accounted for 31.0 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada. Canada’s national health insurance program had overhead of 1.3 percent; the overhead among Canada’s private insurers was higher than that in the United States (13.2 percent vs. 11.7 percent). Providers’ administrative costs were far lower in Canada.

Between 1969 and 1999, the share of the U.S. health care labor force accounted for by administrative workers grew from 18.2 percent to 27.3 percent. In Canada, it grew from 16.0 percent in 1971 to 19.1 percent in 1996. (Both nations’ figures exclude insurance-industry personnel.)

You know, I think maybe administration has become a growth industry for the health insurance industry? Was this part of the plan to shift us to a service economy?
Understand what the authors are saying here. It’s not just administrative costs related to the job of getting the patient’s dollar to the provider (medicare vs private), it’s the overall costs to the entire health care system as a results of the “administrative” systems the private insurance industry has put in place to “save us money”. No one is immune from paying these costs. They are part of the premiums charged, fees withheld, claims refiled, etc. All this administrative labor to control the costs, and yet the cost of health care keeps rising. Well, if the insurance employees can’t stop the rising costs, then what are we paying them for?

This is starting to make me think that Bruce Webb’s “do nothing plan” for Social Security should be applied to fixing health care. In this case the “do nothing” plan would be to get rid of the paper chase and achieve real savings. That is, do nothing regarding active management of health care costs via administrative systems. Don’t try to manage the doc’s, just let them do what they do and save money by eliminating all the systems that try to manage them. Though, there is a way to manage the doc’s that would not cost us in administration: competition among provider types. Let the various algorithms of applying the knowledge of health and healing compete. Thus, research such as this needs to be considered regardless of one’s opinion of the group studied.

Clinical and cost utilization based on 70274 member-months over a 7-year period demonstrated decreases of 60.2% in-hospital admissions, 59.0% hospital days, 62.0% outpatient surgeries and procedures, and 85% pharmaceutical costs when compared with conventional medicine IPA performance for the same health maintenance organization product in the same geography and time frame.

How about that, a reduction in “unneeded test and procedures” without adding administration costs. Let the doc’s be but, use the clinical practice approach that actually cuts the “unneeded” because it is unneeded. I think there is a lesson here? Something along the lines of free market capitalism only the market is not the types of insurance competing for the patient, it’s the types of doctors that need to compete for the patient.

I got side tracked. Lets stay with the one area for cost reductions: Administration. The authors:

The gap between U.S. and Canadian spending on health care administration has grown to $752 per capita. A large sum might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style health care system.

Despite these imprecisions, the difference in the costs of health care administration between the United States and Canada is clearly large and growing. Is $294.3 billion annually for U.S. health care administration money well spent?

Well, is it? Did they even ask?

Did Part D Work?

Mark Duggan and Fiona Scott Morton published a paper at NBER with this general conclusion:

Using data on product-specific prices and quantities sold in each year in the U.S., our findings indicate that Part D substantially lowered the average price and increased the total utilization of prescription drugs by Medicare recipients. Our results further suggest that the magnitude of these average effects varies across drugs as predicted by economic theory.

Even though they were only using one year’s worth of data—or perhaps because of it—they concluded that the program has been a success for the most common drugs. I posted this list at MU, but it bears repeating here:

Lipitor, Zocor, Prevacid, Nexium, Zoloft, Epogen, Celebrex, Zyprexa, Neurontin, Procrit, Effexor, Advair, Paxil, Norvasc, Pravachol, Plavix, Allegra, Wellbutrin, Oxycontin, Fosamax, Vioxx, Singulair, Protonix, Actos, Ortho, Aciphex

Duggan and Scott Morton also found that—for the “small subset of ‘protected’ therapeutic classes” that all providers were required to carry—the Part D prices to consumers actually rose. The authors explain this as a standard of economic theory:

According to Part D regulations, there are six “protected” therapeutic classes in which PDPs must be less aggressive with their formularies than in other therapeutic areas. All products in the HIV, anti-cancer, anticonvulsant, immunosuppressant, antipsychotic, and antidepressant categories must be included in all Part D formularies. While a PDP cannot exclude any drug in these categories, it can create financial incentives or administrative hurdles to affect a patient’s choice of drug….We do not know whether the restrictions applied to these classes have a measurable impact on the behavior of PDPs because in the first year of the program it was not clear how much CMS would oversee formularies. If restrictions are binding, their effect will be to reduce Part D’s effect on the substitutability among drugs (lower [gamma-sub-g]) and therefore reduce the PDP’s ability to extract manufacturer discounts.

English version: without being able to threaten to exclude a drug from coverage, and not being certain about whether they would be permitted to classify a drug as more expensive than a counterpart under their specific plan, the drug companies could not bargain effectively with drug manufacturers.

Which makes perfect sense, until you consider that the price to Medicare recipients of those drugs went up.

Imagine the negotiations. “You charge $1,000 for that drug.” “Yes, but for you, $1,005.” “Done.”

Duggan and Scott Morton do present some caveats

To the extent that plans become more or less successful at negotiating prices in future years, the results may of course change. Secondly, we are unable to measure any ex post rebates which PDPs may have been able to negotiate and which affect net prices to PDPs. Such rebates do not appear on the invoice, which is the source of IMS data, and might be causing prices to be even lower than those measured here. If rebates are present, our estimates are a lower bound to the price reductions achieved by PDPs.

Translation: Some PDPs may be making more money than we think at the current levels.

The other rebates that we do not measure are Medicaid rebates paid by manufacturers to the Medicaid program. Dual eligibles’ pharmaceutical purchases under Medicaid automatically generated this rebate. Once dual eligibles move into Medicare Part D plans, their pharmaceutical purchases occur at different prices, which is what we document here, but they no longer trigger automatic rebates. Any study of the total cost of Part D to the government would want to consider both sets of rebates.

Translation: While the PDPs may have earned more, the government may have spent more (rebates not received).

The last two possible results would be similar to those expected by many economists who looked at the form of Part D, where the largest buyer (the Government) was prevented from using its buying power, but obligated to foot the bill for private companies that, individually and probably even collectively, would not be able to negotiate with the same influence.

More worrisome than that this conclusion should be expected is what might be expected to happen if the PDPs were rational. Again, this would come from standard economic theory, though it is not discussed explicitly by Duggan and Scott Morton.

To be direct about it, the PDPs in Medicare Part D each has a steep learning curve, effectively creating a switching cost for the consumer. That, in turn, will enable each PDP to retain its consumer base, even while increasing the prices it charges.

Health Economists especially are fond of talking about the “full cost” of something. If it would take me twenty or thirty hours to select a replacement PDP, the that “cost” will keep me from switching, even if I end up paying a few dollars more for a prescriptions.

Contrast this with, say, automobile insurance. The terms are all similar, and I can spend “15 minutes” getting a quote from GEICO (or three or four from Progressive) that I know is essentially the same coverage as my current provider.

I may not know how well the insurer will respond to me, and I may not know if they can provide the other policies I need (home, life, etc.), so there may be minor externalities (e.g., having to write different checks at different times to different insurers for different policies). But there will be nothing on the order of the switching costs currently associated with Medicare Part D.

Duggan and Scott Morton have done a service in indicating that Part D has gotten more people using more drugs.* And they have so far shown that economic theory appears to be holding in a real-life situation.

If economic theory continues to hold, we should expect that profit margins will grow over time, in reaction to the high switching costs that are built into the program.

We can hope that will not be so, but Mark Duggan and Fiona Scott Morton have not indicated that would be the way to bet.

*This is also the lesson of the Massachusetts universal health plan, but that’s for another post, though I note that the differing reactions to the two situations from some of the think tanks is interesting in itself.

Voter Info and AARP FYI

I came across this site: Voice of the Middle Class. They have organized the candidates by issue and voting record. They have created comparison tables by issue listing the solutions on the side and candidates across the top with a check mark if they support. They have tables by candidate for each issue. You can also see their voting record based on bills related to each issue. Seems like a nice place to start in understanding the differences. There are links to each candidates’ web page.

There is this article I thought would also be of interest: AARP position on Universal Health Care.
It is a collection of info via articles with links on AARP and their influence on the debate. It notes various other front organization they have teamed up with to keep the discussion moving toward private insurance. AARP and the Business Roundtable have joined with SEIU [Service Employees International Union] to form something called Divided We Fail. Divided We Fail is a corporate liberal answer to single payer.

We’re talking some big money here by AARP. Even AARP, which earned $379 million in royalties in 2005, mostly from health insurance sales, appears to favor universal public and private health care coverage…. AARP also said it would use $500 million of insurance sales revenue over the next decade to help people navigate the health care system, with a new counseling service.

One of their links is to an article in the Nation on the drive to privatize medicare.

However, after 2003 the government began shoveling huge sums of money into the Medicare Advantage plans to entice seniors to leave the traditional program-in effect subsidizing privatization… This year the government will pay insurers on average 12 percent more than it costs to provide the same benefits to people who stay in the traditional program, according to the Medicare Payment Advisory Commission (MedPAC), an independent group that advises Congress. HMOs will get 10 percent more, but private fee-for-service plans will get a whopping 19 percent more, a subsidy that lets them offer rock-bottom premiums and lots of extras-at least for now.

All I can say in such a climate where hiding one’s true intentions can be done so easily is THANK GOD FOR NET NEUTRALITY!