Archive for December, 2009

New Massachusetts Polling Data: What’s the Lesson?

December 22, 2009

Paul Krugman doesn’t like the Rasmussen poll on the popularity of health reform in Massachusetts.  I’ve cited that poll in the past, so I have an obligation to present contradictory information.  Besides, when Krugman talks, I listen.  Since many people consider the reform we’re likely to get similar to that which was enacted in that state, it’s an important issue.

Krugman cites the Boston Globe/Harvard School of Public Health poll and finds this to be its essential conclusion:  ” 79 percent want (reform) to continue.”  That’s much stronger than the tepid support in the Rasmussen bill, and it’s important.

I had a somewhat different interpretation, however, when I read the write-up in the Globe that Prof. Krugman cites.  “79 percent of those surveyed wanted the law to continue,” the article says, “though a majority said there should be some changes, with cost reductions cited as the single most important change that needs to be made.”

Then there’s this:  “In another question, residents were nearly evenly split over whether Massachusetts could afford to continue with the law as it stands: 43 percent said the state could not, and 40 percent said it could.

Lastly, the money quote (literally):  “A national survey by Kaiser released this month found that Massachusetts has the most expensive family health insurance premiums in the country, averaging $13,788 in 2008.”

Some of us knew that already, but it’s important to repeat it in this context.

Granted, the Senate bill has more cost containment in it that the original Massachusetts bill, especially in the latest draft (and thanks in part to progressive opposition to the bill, in my opinion.)  But I still think it’s weak on cost controls, and that many people are wildly overestimating the effect of those that it does contain.  But it’s worth noting that many of the bill’s proponents have been touting the idea that mandates themselves will help keep premiums under control.  I think that argument has been seriously undercut by results in Massachusetts.

The Senate Deal: The Price of Everything

December 20, 2009

The CBO finally scored the redrafted Senate health care bill, saying it will cost $871 billion over the next ten years. Not that anybody waited for the numbers before cutting a deal. This was never really about the numbers. It was about coming in below an arbitrary figure and passing the bill by an arbitrary date.

The CBO Director’s Blog writes that  “(t)he changes with the largest budgetary effects include expanding eligibility for a small business tax credit; increasing penalties on certain uninsured people; replacing the ‘public plan’ … with ‘multi-state’ plans  … deleting provisions that would increase payment rates for physicians under Medicare; and increasing the payroll tax on higher-income individuals and families.”

In other words, the bill now has more breaks for business but harsher punishment for uninsured individuals, it eliminates the already-weakened public option, it pays doctors less – and it costs the Federal government $23 billion more.

Hey, what’s not to love?

The idea of raising payroll taxes on higher earners is a good one.  But if you take that new revenue, add the unfair tax on higher-cost benefit plans (studies demonstrate its unfairness), throw in the pay cut for doctors, and toss the higher individual penalties on top of that, it still doesn’t offset the fiscal recklessness behind killing the public option.

Why would the public plan have saved the government money?  Because, as the CBO puts it, “it was expected to exert some downward pressure on the premiums of the lower-cost plans to which those subsidies would be tied. ”  In other words, it would have made other insurance cheaper by creating real competition.  If it’s costing the government this much money to lose the public option, can you imagine what it’s costing the rest of us as individuals?

Remember: the CBO score doesn’t include the personal value of  these policies for each of us. The Senate’s new bill won’t just increase the Federal budget. We’ll also pay higher premiums because we lost the public option, and face more out-of-pocket payments from the excise tax.    Wasn’t it Oscar Wilde who said a cynic is someone who “knows the price of everything and the value of nothing”? It’s pragmatic to take the best deal you can get, but it’s cynical to avoid the battle and then claim it’s the best deal you can get.  The main thing dividing progressives right now is that some see pragmatism and others see cynicism.

Another question:  If Joe Lieberman can single-handedly be credited with most of these changes, is it fair to call him the Twenty Billion Dollar Man?  Maybe.  But remember, it’s easy to hate Joe Lieberman – and it’s a distraction.  The Administration and the Senate leadership made a series of choices that give him this power.

Some say that the public option was always doomed – that the Administration cut a deal in which they’d make a half-heated attempt to fight for it and would then let  it die, placating the always-compliant liberal wing with another mantric repetition of the phrase “we didn’t get everything we wanted, but …” In that scenario Joe’s the Bad Cop to the President’s (and Harry Reid’s) Good Cop.  If Joe Lieberman didn’t exist it would be necessary to invent him.  “Hey, I wanted to help you out – here’s a cup of coffee – but my partner here …”

Think that’s unfair ?  I certainly hope so, but that gets us back to the string-of-blunders interpretation. Reality’s probably somewhere in the middle:  mismanagement and a back-room deal or two. (We know there was a deal with Big Pharma.)

There’s an easy way for the President and Sen. Reid to disprove the Good Cop/Bad Cop Scenario, of course:  They can fight like hell to win concessions in the House/Senate conference, to bring the  final bill more in line with the House version.  That would mean, at the very least, a public option and no excise tax.

Think they will?  Me neither – but I think they should be pressed to do so.  I expect that the House will be put under enormous pressure to cave and accept the bill as it is.  I think the President and other party leaders assume the left can always be counted on to cave in for the good of the country.  I also think that anyone who points out the flaws in this bill will be subjected to another round of scoldings from party leaders and their supporters, charged with not understanding how the world works. Wouldn’t it be better to debate the tactics on their merits instead?

Because that last charge is the biggest miscalculation of them all.  Many of the people being lectured  over this bill are the same people who have been right about matters of both policy and politics for most of the last decade.  (And about the politics – the Democrats are going to get killed if they pass this bill.)  So it was particularly satisfying to see Markos Moulitsas respond forcefully to Chris Matthews for his wave-of-the-hand dismissal to those who saw the last decade’s events more clearly than he did.

That doesn’t necessarily make them right today, of course, but I think they are.  And speaking personally, I’m not talking about “killing the bill” – I’m talking about getting a better bill.  I believe it will take a credible threat  – a “fear factor” – to get that done.

We’re Not Switzerland

December 20, 2009

The pro-Senate health bill contingent keeps trotting out the example of Switzerland to buttress their arguments.  Here’s a quick recap of why the comparison doesn’t work:

First or all, Switzerland is a wealthier country: OECD figures show that the median household income there in 2007 was $60,288, versus $50,233 in this country. Despite their greater prosperity, roughly one-third of its citizens receive financial assistance from the government to pay their premiums.   If you increased the average American’s salary by 20% and then offered them health insurance for no more than 8% of their total income, who wouldn’t take that deal?

Defenders of the Senate’s excise tax use past wage and benefit trends to argue that the tax will cause benefits to be cut – but that employers will give that money to employees in the form of wages.  Unfortunately there are new studies like Towers-Perrin’s (pdf)  which show compellingly that isn’t true.   (Only 9% of employers surveyed said they would share any of the savings with employees, much less give them the whole amount.)

All insurance companies in Switzerland are non-profit, too. What’s more, the Swiss system includes price controls that would never pass ideological muster in the US.

Benefits are also much stronger there.  At a current exchange rate of nearly 1:1 between the Swiss franc and the US dollar (0.96:1.0), the Swiss typically have a government-mandated deductible of roughly $300 dollars for a basic plan (deductibles can be several times that under the Senate bill).  After the deductible is met, Swiss insurance pays 90% of all medical costs (much more generous than what we typically have), up to an out-of-pocket limit of – get this – roughly $700 per year per person.

So the maximum out-of-pocket cost for care in Switzerland is $1,000 per year adult (unless they choose more minimal coverage).  In a typical Swiss plan, two adults and two children would pay a maximum of $2,700 in out of pocket costs in their worst year, regardless of income.  In this country even a family of four struggling to get by on $54,000 could pay up to $5,000 under the Senate bill (and that’s after paying $4,000 in premiums).

And here’s another point:  Given the wage difference between the US and Switzerland, our family would be earning nearly $65,000, not $54,000.  That renders the US/Swiss comparison even less valid.

Ironically, any American plan with benefits like those would be a likely target for the Senate’s excise tax.  A percentage of its benefits would be taxed at 40% – meaning that plan benefits would probably be slashed.  at which point it wouldn’t be a  Swiss-style plan anymore …

But wait, there’s more.  Those nonprofit Swiss insurers are forbidden to charge any more for a 90-year-old than they do for a young and healthy adult, while wide variances (3 times or more) are permitted in the Senate bill.  Not only are the Swiss protected from having their premiums go up as they get older – a protection not afforded by the Senate bill – but the excise tax will exacerbate our  American “age penalty” by disproportionately affecting health plan whose members are older than average.

Needless to say, the Swiss pay much less in healthcare costs than we do, and their costs are rising much more slowly.

This bill doesn’t do things the Swiss way. You can’t impose a Swiss-style mandate on a system that is more expensive, provides less benefits, and is profit-based, unless you provide meaningful cost controls and more equitable coverage. If you also decide to tax any benefit plan that begins to approach Swiss-style coverage, you’ve rendered the comparison completely meaningless – if it wasn’t already.

Is Truth the Next Casualty in the White House’s Push For the Senate Bill?

December 18, 2009

Many of us admire the wealth of talent on display in the White House, so it’s disappointing when there’s a breakdown in the accuracy or completeness of information being put forward by members of this Administration.

Take Jason Furman, the Deputy Director of the Administration’s National Economic Council. We understand that emotions are running high about the Senate health bill, but Mr. Furman’s recent brief in support of that bill isn’t just rhetorically overheated (although it’s certainly that.) What’s less excusable is the way he overlooks some significant new findings that undercut his argument. He’s entitled to his opinions, and even to his emotions. But it’s his responsibility as an economic advisor to know and report the facts, too, and in this case he’s failing to carry out that part of his job.

Here’s what Mr. Furman said – and didn’t say – in a recent blog post on the White House web site.

He opens with sarcasm – an unfortunate tactical decision when addressing one’s potential allies. “(O)pponents of reform are testing the age old adage that if you only say something enough times you can somehow make it true,” writes Mr. Furman. “Yesterday, we heard a new version of the old, tired refrain that the health reform bills in Congress would raise taxes on the middle class.” Here are the rest of his statements, and the facts that undercut them (as available in data from the Joint Committee on Taxation and several other sources):

Statement: “First, the health insurance reform bill being considered in the Senate does not raise taxes on families making less than $250,000 – in fact it is a substantial net tax cut for American families.”

Fact: In 2019, six years after this bill takes effect, the excise tax will affect one in five taxpayers making $50-$75,000 per year. The average tax impact on people in this income bracket will rise to $1,100 in 2019. Overall, more than 24 million taxpayers (or “tax units”) will be affected by 2019.(1)

The CBO found that the tax would impact 19% of all employees with health insurance by 2016.

Statement: “(T)he excise tax levied on insurance companies for high-premium plans, the so-called ‘Cadillac tax,’ will affect only a small portion of the very highest cost health plans – a total of 3% of premiums in 2013. The vast majority of health plans fall below the thresholds set in the Senate plan and would be completely unaffected by the provision. “

Fact: the Communication Workers of America, using figures provided by the Joint Committee on Taxation, found that 27 percent of single plans and 22 percent of family plans will be affected by the tax in 2019. (Report available in pdf form here.) And a recent Mercer survey (discussed here) found that 19% of all benefit plans – that’s one plan in five – could be affected by the tax in its first year.

Mr. Furman is either unaware of these figures, or – as is more likely – he’s playing a misleading game with numbers. He says that 3% of premiums will be affected, but what he doesn’t say is that this is because only the premium above a certain level is taxed. Here’s the financial reality for working Americans, once the games are set aside: At least one in five employees will be hit with a new tax, and studies show that on average this will add $958 to their benefit costs in 2013 (also from the CWA report). Both the average cost and the number of people affected will keep going up each year.

(And, as an aside, let’s stop using the phrase “Cadillac tax.” Like the phrase “death tax,” it’s a misleading and emotionally charged phrase designed to manipulate people’s perceptions of the issue.)

Statement: “In addition, the Senate plan provides special protections to plans held by workers in high-risk professions – like police and firefighters – as well as by those over 55.”

Fact: Two new papers in the respected journal Health Affairs (summarized here) have concluded that the Senate bill does not do enough to offset these factors, and that people are most likely to be subjected to this tax because of the industry that employs them or the age mix of employees in their plan. According to one of the papers cited(2), only 3.7 percent of the variation of premiums for family plans is determined by a plan’s benefit design.

What does that mean? Health plans don’t usually cost more because they offer extravagant benefits. They cost more because they include people whose medical expense are higher – older workers, chronic disease sufferers, and women. Other important cost drivers include the size of the employer and the part of the country where the employees are located.

Statement: “(F)or the small sub-set of plans that are affected, the primary impact of this provision will be to increase workers’ wages. Getting a pay raise is not what most people would call a tax increase.”

Fact: In a survey of employers conducted by the Towers-Perrin firm (pdf), only 9 percent said they would increase salary or direct compensation if health care reform reduced their benefit costs; 78 percent said they would keep the savings in the business as profit.

Mr. Furman quotes a list of economists who believe that wages will go up if benefits are cut. That’s a theoretical assertion based on multi-year comparisons of wage and benefit trends. But theories are theories and reality is reality. It’s hard to give a theory – especially one that’s based on data from a different economic climate – more credit than real-time, real-life survey results like these.

What’s more, even a small increase in wages – which are taxable – would never offset a similar loss in benefits, which aren’t taxed. Once you add in the much higher deductibles and cost sharing that will result from this tax, people will wind up deep in the hole.

Statement: “Finally, supporters of the status quo are supporters of continuing the hidden tax of $1,000 that the millions of Americans who get insurance through their job or buy it on their own are already paying each year to cover the costs of caring for those without insurance.”

Fact: None of the groups or experts opposing this tax are supporting the “status quo.” This is the kind of rhetorical gamesmanship that has become all too common in Washington lately. Opponents of this tax simply suggest that it be removed, as is proposed in the Sanders-Franken-Brown Amendment, and replaced with the more rational and progressive taxation policy in the House’s bill.
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Peter Orszag committed a similar, if less egregious sleight-of-hand on Monday when he cited the excise tax as one of four “fiscally responsible” measures likely to contain costs – ignoring the new Health Affairs report which challenges that assumption. As we’ve already mentioned, that study shows that generous benefits- the very cost tax supporters claim it will contain – only account for 3.7% of the variations in premium for a family plan.(3) That means this tax will hit a lot of plans that aren’t generous at all.

Is it really possible that neither Mr. Furman nor Mr. Orszag have heard of these studies – and neither has anyone who works for them?

Policy experts like Furman and Orszag are free to represent their Administration or push a political line. But, like generals testifying before Congress, I believe they also have a responsibility to lay the facts out fully before the American people. They work for us. If they want to tell us why they don’t accept these new findings, fine: they can make their counter-arguments. But pretending that these studies don’t exist should not be an option. Either these White House officials are ignoring critical information, or they and their teams are unaware of some important new studies affecting their areas of policy expertise. I don’t know which explanation is worse.

Either way, we expect more from this Administration.

(1)Joint Committee on Taxation data, as summarized by the Communications Workers of America (pdf)
(2)Jon Gabel, Jeremy Pickreign, Roland McDevitt, Thomas Briggs, “Taxing Cadillac Plans May Produce Chevy Results,” Health Affairs (Dec. 3, 2009)
(3)Ibid.

(Disclaimer:  I’m actively involved in a campaign to eliminate the proposed excise tax, and any writing I do on that topic should be read with that understanding.)

You Call That Health Reform?

December 13, 2009

These days when people ask about health reform, I’m reminded of Gandhi’s visit to England in 1931. Somebody asked him what he thought of “Western civilization” and his answer was, “I think it would be a good idea.”

That’s how I feel about health reform: It would be a good idea.

The truth is that what we’ve been calling health reform doesn’t really “reform” the system at all. It mostly shifts responsibility from one part of the economy to the other. While the Senate’s misguided excise tax places undue and unfair pressure on working people’s health plans, both bills squeeze the middle-class enormously. How? By mandating the purchase of costly and inefficient private insurance, in order to create conditions where the lower-income uninsured can receive coverage. Maybe we should call it “health inefficiency redistribution” instead, since the few cost-containment provisions are in all likelihood being oversold.

That said, the current House and Senate bills would both accomplish some very important things. But these bills do little to lower costs, and it didn’t have to be this way. This seems like a good time to get out of the weeds and look at the situation from a slightly broader perspective.

Here are some thoughts that might help sketch the outline of real reform:

People don’t understand how the money really flows in InsuranceLand.

Ezra Klein will point out that insurance company profit margins are low. They are, but as I pointed out here, the really big insurers have better-than-average margins – and most people are covered by really big insurers.

Even more importantly, margins are artificially low for health insurers. Think of it this way: Let’s say you hire me to pay your bills for $5 each. The first bill is for $1,000, so I charge you $1,005. My profit margin is very low (0.5%), but I just made five bucks and all it took was a second to write the check (and 42 cents for the stamp). Sweet. If I do that 10,000 times I day I’m rolling in cash … and I when I bitch about my profit margins, it’ll sound reasonable to lots of Democrats and liberals.

With the cost inflation we’re seeing, health insurers aren’t “managing” anything. Like my example above, they’re just writing checks. They should be treated that way – as overpaid performers of a clerical function – until they demonstrate that they can do their jobs better. We could make some accounting changes, too.

The idea that insurers have to pay 90% of whatever they charge for medical expenses sounds good, but …

if that happens, what’s the one sure way to make sure they have more profit in the years to come? Charge more! If you only get to keep ten cents on the dollar, the only sure way to get more money is to collect more dollars. Don’t think they’d do that? I hope you’re right. But at a minimum, it certainly doesn’t give them much incentive to lower costs, does it?

There are more creative ways to accomplish the same goal – and give them the right incentives.

We already have single-payer in most of the country – but it’s private single-payer.

One study has shown that 94% of health insurance market areas in this country have a near-monopoly situation, while another showed that in 16% of markets they studied one carrier had 90% or more of the market. We have near-single-payer or absolute singer-payer in wide swaths of the country – but it’s single-payer in the hands of a profit-making elite answerable to no one.

Real health reform would do something about that.

Meanwhile, here in the real world …

So, what about the health reform we do have? I had already said that the watered-down public option probably wasn’t worth keeping, and that advocates should hang tough in favor of something more robust. Medicare expansion seemed like a good alternative to that weak public option in certain ways, although that’s a tough choice to be forced to make. There are also many unanswered questions – and it could become a dumping ground for bad risk. The number of people eligible for the plan is likely to be extremely small. And I never underestimate the political process and its ability to mess up even a marginally good thing. (See reports that Kent Conrad was trying to ensure that the expanded Medicare program can’t use Medicare rates – an idea that would rob it of any real value.)

So the Medicare expansion, even if it’s not diluted any further, is a backdown from a compromise proposal that was a itself compromise from the Democrats’ 2008 campaign pledges – pledges which were themselves less than what most experts felt needed to be done. A compromise of a compromise of a compromise of a compromise: I’ll let others decide if that’s the best we can expect from (and for) our nation.

Any good news? Sure. Both the Senate and House bills provide insurance to the lower-income uninsured (although the subsidies are too weak), create portability for people with pre-existing conditions, and limit out-of-pocket costs. (Note that I said limit and not reduce. From what I’ve seen, neither bill would lower those costs much, but they’d cap them.) But would the bill be “a pretty remarkable accomplishment,” as Mike Lux put it? Only if you grade on an extremely steep curve – one in which an “A” is not the health reform we should have, or even the one that was promised by Democrats in the 2008 election, but is the result of a process that seemed to lack the best our leaders can offer in the way of imagination and decisive leadership.

Maybe, once the bill is passed, we could use the enormous reservoir of talent our leaders possess to begin work on real reform. The work won’t end then – it’ll just be beginning.

The Middle-Class Health Tax Must Be Stopped

December 8, 2009

Liberal/Democratic Washington policy thinkers appear close to reaching the consensus view that the Senate’s excise tax on higher-cost health plans is a good idea. Here’s the problem: The consensus is wrong. The so-called (and misnamed) “Cadillac tax” is unfair and unwise. It’s also a political landmine for its supporters, and a political goldmine for those who oppose all health reform. It must be stopped.

Why do I feel so strongly about this issue? Probably because I’ve been involved in the health care field for nearly thirty years, in roles that include data analysis, health policy, private-sector management and consulting, and international development. Before I began writing and blogging I worked for private and public clients domestically and in over 20 other countries. Yes, I confess! I’ve worked in the much-disliked health insurance industry. But that work taught me many valuable lessons, one of which is that an idea may look good on paper and work out very badly in real life. The health excise tax looks a lot like one of those “looks good/works out badly” ideas.

That’s why I intend to spend a great deal of time in the next few weeks working to prevent this tax from being enacted into law. I will be working closely in this effort with the Campaign For America’s Future, whose leadership understands the political and human damage this tax could inflict. For the next six weeks I’ll be maintaining a blog page at CAF’s website called “No Middle-Class Health Tax,” which will lay out some of the arguments against this tax and will track new findings and developments in this area.

Here are some of the key arguments against this tax:

  • It’s based on flawed logic:  Adherents would have you believe that the excise tax will change the way people use medical services – for the better.  In the days to come we will demonstrate why this is untrue.
  • It’s a tax on middle-class Americans: They call it a “Cadillac tax” because it was originally pitched as a way to make wealthy executives pay for their luxury plans.  But this tax isn’t tied to overall income.  It will hit middle class families the hardest – and because health plan costs are rising much faster than the tax’s inflation index, it will hurt more middle-class families every year.
  • It’s anti-union:  Many American unions traded real wages and other forms of income in order to ensure that their members got decent health coverage.  Taxing those benefits will provide employers with an excuse to break their promises and cut these benefits, while giving nothing back in return.
  • It’s bad politics:  We will show that this tax is likely to hurt politicians who support it. This is true nationwide, and especially in some states and regions where it can least afford to alienate core constituencies.  We will show in the coming weeks why this tax is unpopular and how it is likely to hurt the party’s chances in 2010.
  • It could promote bias in hiring: Health plans become costly for a variety of reasons. Benefit design, the target of the tax, is only one reason. Geographical variations in health cost are another. An older workforce and other demographic factors also drive costs. This tax does not do enough to distinguish these cost drivers, and could make employers reluctant to hire certain workers.
  • Campaign promises are being broken:  A number of candidates in last year’s elections, including the President, promised voters that health reform would not result in new taxes for the middle class.  They also promised voters that “if you like the plan you have now, you can keep it.”  This tax not only breaks the first promise, but also the second.  Employers will cut current health plans in order to avoid this tax.

There are other compelling reasons to oppose this tax, but this list hits most of the key points.

I know first-hand that the common wisdom of accepted policy experts can be wrong. During last year’s primaries I said that mandates wouldn’t provide “universal coverage,” contrary to expert opinion, and “guesstimated” that such a plan would still leave 8 million uninsured. Now the CBO estimates that figure at nine million, which is pretty close. I said the “opt-out” public option provision was nothing to celebrate, predicting that at least 20-30% of states would use it (while many liberal policy analysts insisted that none would.) Now the CBO essentially agrees with my number. I also said that a public option without Medicare-based rates or a common administrative platform might not reduce costs at all, and the CBO validated that argument too. (They estimate a public plan under current proposals could actually be more costly – and they may be right.)

Many of the experts promoting the excise tax failed to anticipate the problems that Massachusetts would face in enacting its health reform proposal. So the conventional wisdom can be – and has been – wrong. The same shortsightedness is at work here. This is not a partisan issue, nor should it be. The numbers and the logic drive inexorably to one conclusion: The excise tax is a bad idea, both as policy and as politics, and must be stopped.

I hope you’ll be moved to join the effort by getting active on this issue in the days and weeks to come. Most of the middle-class plans under attack are pickup trucks, not Cadillacs. They may be “ram tough,” like the TV ads say, but they’re not luxury vehicles. They’re hard-working and durable, and they carry a lot of middle-class Americans. They shouldn’t be driven into a ditch.

(The new “No Middle-Class Health Tax” web page can be found here. Please check back regularly, as we’ll be updating it more than once a day.)

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