Archive for the 'Universal Coverage' Category

Will This Study Finally End Democrats’ Magical Thinking About the ‘Cadillac Tax’?

February 19, 2010

It’s been a fascinating anthropological exercise to watch the health excise tax concept (the so-called “Cadillac tax”) keep its popularity among Democratic and liberals, even as one study after another discredits the assumptions behind it. It’s the Democratic equivalent of trickle-down economics – an idea that doesn’t seem to die no matter how much it’s contradicted by the facts.

The Senate health reform bill places a 40% tax on all employer health benefit costs above a certain threshold. This tax came with a set of assumptions which have been disproven one by one. We were told that the tax would target health plans with especially ‘rich’ or ‘generous’ benefits, for example, but a comprehensive analysis showed that wasn’t the case. We were told that employers would cut benefits as a result of the tax and give the money saved back to employees as wages, but surveys showed that they plan to do no such thing (more here).

Then we learned that the tax would disproportionately affect plans with lots of older people, or more women, or people who live in higher-cost parts of the country. Who could support an unfair-sounding idea like that? Barack Obama, for one. After months of silence as the Senate eviscerated one of his campaign promises after another, he finally spoke up … in favor of the tax which he had lambasted during the election.

A lot of bloggers and commentators continue to agree with him, too,as do his top economic advisors. Why? In part, it’s because they oppose the idea of using employers to provide health care coverage. I do, too — but I don’t think you fix that problem by reducing people’s current coverage, especially in such a discriminatory way. After all, there’s no other option available for these employees. It’s like trying to solve the problems of public housing by throwing people out into the street.

Proponents also imagine that the employees affected will somehow become “smarter health shoppers,” despite the fact that doctors – who are not taxed by the bill – make the decisions that drive health care costs. So there’s also a heavy dose of Cato Institute-style free-market ideology in the idea (although its proponents would be shocked at the comparison.)

Finally the unions stepped in and negotiated a compromise deal with the White House. By this time the tax’s proponents were insisting this was a merely tax on “union benefits,” and that the unions were a “special interest” acting selfishly. Now a new study from UC Berkeleypunctures this final Cadillac-tax myth. Research conducted by Ken Jacobs and his colleagues at the Center for Labor Research and Education suggests that the vast majority of employees affected by the tax (at least 80%) would not be in a union.

It looks like the unions did everyone a favor by mitigating the effects of this tax. They’ve managed to reduce (though not necessarily eliminate) some of its more discriminatory effects. Yes, in some ways their negotiations would benefit union members slightly more, but only temporarily. And most of the people who benefit by the concessions they’ve won arenot in unions.

The unions managed to raise the tax’s thresholds, and they got agreement in principle to adjusting the threshold for age, gender, and residence in 17 high-cost states. Yet major problems remain: The increase in threshold levels is less than one year’s medical inflation. There’s no adjustment for active workers over 55, who are an especially costly group. The potential adjustments for state and gender haven’t been spelled out yet, but political experience raises doubts about whether those adjustments will fully account for cost differences.

The tax’s proponents have embraced the CBO’s conclusion that it will raise $149 billion in revenue over ten years, mostly by taxing those extra wages workers will supposedly get (but employers say they don’t plan to give). Fact is, you can’t collect taxes on wages that aren’t paid – and if benefits are cut back, which is likely, you can’t collect taxes on people’s lack of health care coverage, either.

Jacobs et al. have other reasons to doubt the CBO’s figure, too. They believe that the total number of employees affected by the plan is less than that the CBO projected. That, plus a lower estimated per-employee revenue figure, gives them a top number of $90 billion even without the union-won agreements.

So here’s the likeliest scenario under the “Cadillac tax”: A number of employees, mostly non-union, will find that their health benefits are either being taxed or (as is more likely) cut back. Their out-of-pocket costs (copayments and deductibles) will be raised, leading them to see the doctor less often. And their overall health costs may stay the same or even go up!

Oh … and one more thing about the tax: The public hates it. Yet despite all that, if a health reform bill passes this year Democrats are expected to keep the Cadillac tax in it.

Why isn’t this idea dead? Why doesn’t somebody put it out of our misery? There are four reasons: The first nobody thinks the Senate can be talked out of it. The second is that it’s one of the few remaining measures in the bill that even looks like cost containment, even though it isn’t, and Dems want to be able to say they’re cutting costs. The third is that the House’s alternative is to tax high earners, and for whatever reason some Democrats are reluctant to do that.

The last reason is the most potent of all: Zombie ideas like the Cadillac tax and trickle-down economics are hard to kill. If they’re “intuitive” – that is, if they sound good to you the first time you hear them – then you fall in love with them. And if the idea you love one day leaves millions of employees without the coverage they need? Well, then I guess it’s like the old saying goes: Love means never having to say you’re sorry.

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.

Top Five Reasons the Baucus Bill Is Really, Really Bad

September 17, 2009

Here are the top five reasons why it’s a really bad bill:

1. Premium rules that are a giveaway to the insurance companies.

The first shocker in the Baucus bill came early on in the draft. Since  I was stunned to see that the bill allows insurers to charge up to five times as much for some enrollees as for others, based on age. (By contrast, the House draft bill only allows them to charge up to twice as much based on age.)

One of the things we’ve been hearing from the President and other Democrats is that insurance needs to be affordable to everyone, including those with pre-existing conditions. This new provision, however, is a back-door way to let insurers essentially evade that provision. High-cost medical conditions, including chronic (and therefore pre-existing) conditions, aren’t restricted to older people, of course. But they become increasingly common as we age — so much so that indexing costs to age addresses a lot of the difference. The Baucus bill allows insurers to use age as a proxy for costly medical conditions and make coverage prohibitively expensive for those who need it the most.

There’s a principle involved here. The fundamental reason we have insurance in the first place is to spread the risk, so that services are accessible and affordable in our time of need. That’s why it’s considered a social good (if done right). This provision goes a long way toward undoing the principle of shared risk.

The net result would be to make insurance increasingly unaffordable to Americans as they age. Nevertheless …

2. The individual mandate is in there anyway.

Although I’ve been critical of the way many proposals have structured the individual mandate, I’ve always said that I understand the logic behind them: If you’re going to force insurers to take all comers at a relatively average price, the healthy as well as the sick need to enroll. But if you’re allowing insurers to charge much more for the (probably) sick than they do for the (probably) healthier, why have a mandate at all? You’re not pooling risk in the manner originally proposed, so this is a heads-I-win-tails-you-lose proposition for the health plans.

3. It taxes benefits, slowly but surely.

I’ve been opposing the idea of taxing so-called “Cadillac benefits” for a long time. This plan does just that, although they’re not likely to be “Cadillac plans” for long. As I feared, the tax isn’t based on plan design. It targets plans above $21,000 indiscriminately, regardless of the reason for the added cost.

How is this terrible? Let us count the ways. First, it will hit plans hardest when they enroll older employees (who, you will remember, can cost five times as much to cover). That will penalize older employee groups, and will encourage employers to discriminate on the basis of age. Next, it will hurt people who live in urban and coastal areas where medical costs are higher (not that the Senator from Montana cares about that, I suppose). Lastly, if medical costs continue to increase at 10% per year, $21,000 will be the cost of the average plan in five or six years.

This plan’s good CBO forecast rests in part on this new tax income. In other words, it achieves much of its vaunted “budget consciousness” on the backs of the middle class. It’s a lousy bargain for workers and business alike. Granted, taxes will apply only to that portion of cost that exceeds $21,000 — but that portion will increase nationally every year. And the tax rate for costs above the cap is 35%, so it will quickly become a huge new burden.

4. No public plan option.

But you knew that already, didn’t you?

5. Co-ops can’t always “cooperate.”

First, the good news: Co-ops will be able to share data systems and some other services. Given the horrible nature of the bill overall, I was surprised to find that. But they can’t pool their negotiating ability to get better deals from providers on behalf of the American consumer. (Congratulations, Dems — more money out of the taxpayer’s pocket.)

The draft language reads: “[Purchasing councils for co-ops] shall be prohibited from setting payment rates for health care facilities and providers.” That means less savings to be passed on to enrollees.”

It’s unclear whether this provision also applies to drug companies and pharmacy benefit programs. If so, guess who that benefits? After all, most physicians serve patients primarily from one state, so this provision wouldn’t apply to them. Hospital systems may serve patients in two or three states at most. But pharmaceutical companies are national entities. If co-ops could bargain with them collectively (make that “cooperatively”), they could demand substantial savings.

This issue needs to be clarified right away — hopefully in the consumer’s favor, by indicating that it does not apply to drug companies.

The plan does other bad things, too, like the provision that will encourage employers to discriminate against lower-income workers. But hitting you with more than five of them at once could conceivably be bad for your health.

How Progressive Groupthink Hindered Health Reform

September 9, 2009

There’s no point just blaming Max Baucus, Rahm Emanuel, or Barack Obama for the current unpleasant state of health reform – although they’ve each earned their share of criticism. The Left bears some responsibility, too, for failing to set the stage for meaningful change. By granting too much authority to “experts” and ceding their judgment to the resulting groupthink, many progressives laid the groundwork for the poor state of health reform today.

The public option’s in trouble. And if Max Baucus and the other centrist Dems have their way Americans will be forced to buy health insurance that costs $12-14,000 per year. Progressives are finally raising a hue and cry about this burden, but a year ago they were busy promoting the idea that mandates were the centerpiece to meaningful health reform. Now, as the reality of this “reform” takes shape, it’s becoming clear how badly this could turn out. Rational options are being proposed. But with the mandate issue all but resolved politically, progressives have no leverage left to push their agenda.

I can’t have been the only one beating the drum about mandates (although it felt like a lonely position at times). It was clear long ago that any plan that imposes them on the American public without first creating significant savings would be a disaster, both politically and in human terms. As things stand now, a family of four without employer coverage trying to get by on $75,000 could suddenly be forced to fork over 20% of their income to a health insurer – or face government punishment.1

And according to the usually-reliable form Martin E. Segal, those costs are likely to rise more than 10% on average in the coming year, even as benefits are cut back. Mandates? To buy that??

So perhaps those of us who have been sounding the alarm may be forgiven a little frustration when we read items like this one from Josh Marshall, which asks: “Am I the only one who thinks that if the Dems pass a bill with mandates and subsidies for poor and moderate income people to purchase it but no public option or competition with the insurers, that it will be pretty much a catastrophe for the Democrats in political terms?”

His reaction’s being echoed all over the progressive blogosphere, as progressives suddenly realize the idea’s unfair – and a political loser. Jed Lewison at DailyKos called it “horrible political miscalculation” when Marc Ambinder reported that “the President continues to operate under the belief that liberals will warm to the bill when presented with a goodybag that includes an individual mandate … “

How? How could the President get the idea that an individual mandate, especially without a public option, was a “goody” for progressives?

Because progressives told him so – over and over during the 2008 primaries. Supporters of John Edwards and then Hillary Clinton hammered Obama because his plan didn’t include individual mandates, claiming explicitly (and wrongly) that mandates equaled “universal coverage” and were therefore more “left.” And it’s still happening, as in Joan Walsh’s comment from a recent piece: “Let’s remember that Obama opposed mandatory universal health insurance and backed the GOP fiction about the need for social security reform’ – two social policy stands that put him to the right of all the leading Democrats in the primaries.”

No! “Mandatory universal health insurance” is not a progressive position, as we explained here in 2007. And it’s not even “universal,” as we explained in early 2008. That’s why Obama was able to score some points against his opponents in the primaries by rejecting mandates. That’s a pledge he broke early on without drawing liberal fire, perhaps because of progressive misconceptions about this policy. But Paul Krugman, who battered Obama on this point during the election, understands what a wildfire the Democrats will ignite if they push mandates without a public option.

Context is everything. Virtually without exception, writers who are considered progressive leaders on health care pushed for individual mandates without considering the regressive and confiscatory form they could well take, and without emphasizing that they could only work fairly in the right context. As Ezra Klein wrote when the President met with all those “stakeholders,” reflecting this progressive consensus: “Insurance market reforms can’t happen in the absence of an individual mandate. Either everyone jumps together or no one will leave the ledge.”

There is sound actuarial logic and economic calculation behind this concept. But a kind of groupthink took over. The group-thinkers decided to push Obama on mandates and assume that questions of access, fairness, and cost containment will be handled through a public option or some other mechanism. But nobody put those issues on the front burner, even though they were given lip service The result is the potentially disastrous plan facing us today.

With mandates, the execution has to be practical and fair. Taxation’s one such principle – the one I originally pushed – but it’s apparently politically unsupportable. So Jacob Hacker came up with another (as discussed in my interview with him, here). But Hacker’s plan, as with any meaningful reform proposal, requires a public option – both for cost containment and to serve as an insurer of last resort. If you’re going to force people to buy something, you have to ensure they can afford it.

How did we get here? Josh Marshall’s piece holds part of the answer. First he writes of Switzerland and Massachusetts, whose plans feature individual mandates and no public plan. But Switzerland created a rational system before things got out of control, so the Swiss aren’t being forced to buy $14,000 plans. As for Massachusetts, its reform is only vaguely popular there, where the initial problems weren’t nearly as complex as they are nationally, and is decidedly unpopular with those who have been affected by it (see summary about two-thirds of the way down the page, here).

And I have a sneaking suspicion that the people affected on the national level – independent tradespeople and contractors, for example – might just be swing voters in critical states like Indiana.

Marshall writes: “… many health care experts I have a lot of respect for still believe (these plans) would be a big improvement over the current situation.” I have respect for those people, too, but we might be better off today if Josh Marshall and others had trusted their own instincts instead of relying on a group of people who appear to have reinforced each others’ fixation on mandates. Now the progressive debate has been reduced to whether the likely final version (via Sen. Baucus) will be slightly better or significantly worse than today’s status quo – and sadly, we can’t know the answer to even that modest question yet. We could have had better than this.

So what now? Let’s encourage the people who spoke with one voice in favor of mandates to speak with one voice again – this time, in favor of comprehensive and meaningful reform – while there’s still a chance to influence this legislation.

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1The new Baucus draft bill limits out-of-pocket costs to 13% of income, but that draft is jumbled and incomplete, and it’s unclear how this would be achieved. See here for details.

Co-op, Co-opt, Cop-Out: Conjugating Health Reform

August 19, 2009

A verb is conjugated according to its context. Healthcare proposals change according to their context, too. Health insurance co-ops have worked very well in certain parts of the country. But when they’re used to kill meaningful nationwide reform, “co-ops” become a “co-opting” of the political process by special interests.

I’ve already expressed my objections to co-ops in this context. Bob Laszewski calls them “the single dumbest idea (he’s) heard in the health care debate in twenty years.” I think that’s harsh – after all, I’ve heard lots of dumb ideas over the years – but Bob raises some objections I hadn’t considered.

Sen. Kent Conrad boasts on his website that his co-op idea is a “a bipartisan, compromise health care reform proposal.” But he apparently forgot to get any “bi” support. Sen. Jon Kyl rejected the idea by calling it a “Trojan Horse.”

That makes co-ops a “monopartisan” proposal.

Conrad insists there aren’t enough votes in the Senate for a public option. He has rejected Obama’s deadline for health bill, and has sent mixed signals on whether he’d even vote for a bill that included a public option. He was evasive and perhaps even a little misleading in this exchange with Robert Siegel on National Public Radio:

SIEGEL: How much would it cost to get a network of nonprofit co-ops up and running all around the country?

Sen. CONRAD: We’ve gone to the best actuaries in the country and they’ve independently come back with the same answer. They have said about $6 billion to have the insurance reserve requirements met.

Sen. Conrad wasn’t asked about “reserve requirements.” He was asked how much it would cost. The total cost for creating a national co-op network would include offices, staff, computer systems, overhead, advertising, etc. etc. … … plus those billions in reserves. (We can’t vet the $6 billion figure without knowing the underlying assumptions the actuaries were given.)

The Medicare organization at CMS already has much of the needed infrastructure in place, so it could do the job at much less cost – that is, if politicians don’t bargain away too many of these cost-efficiencies. (Here’s a little political shorthand: When it comes to the public option, “level playing field” is a euphemism for “spending a lot of money to provide political cover.”)

Sen. Conrad also said this in the NPR interview: “There are large cooperatives all across this country. Land O’Lakes is a $12 billion club functioning all across America. There are rural electric co-ops in 47 states. Ace Hardware is a cooperative.”

But healthcare is not a “commodity” like a kilowatt of power or a stick of margarine. Insurance is an amalgamation of predictions backed by financial instruments, and medical delivery is an economy in which the seller (who is frequently the physician) often controls the demand. Ace Hardware and Land O’Lakes may be fine companies, but they aren’t working models for a competitive and efficient healthcare system.

Here’s the political bottom line: Right now the “centrist” Democrats support a requirement that middle-class Americans obtain health insurance – the so-called “mandate.” If they don’t also provide a meaningful alternative to costly, for-profit insurance, the backlash against them will be enormous. Co-ops will not be able to provide that alternative.

And those who think Obama hasn’t compromised enough on the public option should take note: He’s already compromised plenty. He promised during the campaign that “any American (would) have the opportunity to enroll in the new public plan or an approved private plan.” Yet only about six million employees will have that opportunity under most proposals being discussed, according to the Congressional Budget Office. (You can read the pdf report here or see Timothy Noah’s summarization in this piece for Slate.) Six million employees is far more modest than a plan that’s available to “any American,” so there’s already been plenty of compromise.

The co-op idea is probably dead, so the public option remains the last best hope for meaningful reform. So far the President has remained above the fray, preferring to let others fight it out. He won’t have that luxury for much longer. The confrontation between progressive House Democrats and Senate Dems over the public plan option will come to a head soon. It will take a firm Presidential hand to resolve the conflict.

It’s going to take leadership to turns co-option into co-operation.

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UPDATE: Speaking of Timothy Noah, today he points out that Obama is increasing funding for that “socialized medicine” over at the Veterans’ Administration. I share his outrage, but I have a suggestion: Democrats should add provisions that remove the VA’s “unfair advantages” over private insurance. That way they can ensure that our veterans receive care that is both more costly and less efficient than other Americans get.

Gotta level that playing field!

Dealbreaker: Five Reasons Co-Ops Will Fail

July 29, 2009

Now we’re being told that “health care cooperatives” are emerging as the “centrist alternative” to the public health plan in the Senate. Ezra Klein reminds us that a public plan option wasn’t in any of the other plans Democrats championed. We’re hearing that the idea is gaining in popularity – at least among a small group of U.S. Senators.

Well, why not? What’s wrong with avoiding the stigma of ‘government health care’ by creating co-operatives instead? ‘Co-op’ has a warm, fuzzy, even socialistic sound to it, like the hippies who run the local health food store. Co-op plans like the Group Health Cooperative of Puget Sound deliver excellent care and get consistently high ratings from their members. If we can take some centrist Democrats off the hot seat and still have meaningful health reform, what’s the problem?

Here’s the problem: Co-ops will fail. They will be unable to deliver the kind of comprehensive and systemic reform that’s needed to save the U.S. economy and ensure the health of its citizens. Here are five simple reasons why:

1. Previous plans, like the Massachusetts reform, haven’t been ‘game changers.’

Democrats and their Republican counterparts celebrated when the Massachusetts reform law was passed. There were a few of us who saw warning signs, but our concerns were not given much credence. Yet despite the fact that Massachusetts started out in better shape that much of the country, they haven’t been able to provide systemic reform or insure all their citizens. The state has insured a lot of people, and we’ve learned from its experience. What’s more, Massachusetts is looking at some new and creative ways to create meaningful change. Previous national reform plans didn’t have the benefit of the Massachusetts experience – where it succeeded and where it did not.

A few of us had concerns about these proposals even then. Still, Ezra Klein and others point to earlier reform proposals without a public plan option and ask, why did you support these back then? My answer is this: We’ve learned from experience.

2. Co-ops will be a localized, haphazard solution to a nationwide problem.

When Sen. Kent Conrad first proposed co-ops as an alternative to a public plan option, the discussion centered around “regional cooperatives.” But we’ve had state cooperatives before. They haven’t been able to provide fundamental change in the financing and delivery of health care, because they lack sufficient resources to compete against the seven mega-corporations that now dominate private sector health insurance. They may make marginal improvement in one market or another, but that’s as far as they’ve been able to go.

In response, Sen. Conrad is now making statements like this one: “If somebody came forward and wanted to put together a national entity, they could do that. If various states wanted to join together to have a regional option … nothing would prohibit either of those.”

Sen. Conrad’s use of the passive voice is probably not accidental. If somebody wanted to create a national, not-for-profit cooperative, we wouldn’t stop them. If somebody wanted to create a multi-state organization they would not be “prohibited.” But people don’t create national organizations simply because it’s not explicitly prohibited. A massive undertaking of that kind – which would, incidentally, needlessly replicate the already-functioning infrastructure of Medicare – would require billions of dollars.

But, hey, says Sen. Conrad. If you’ve got a few billion to burn, who’s stopping ya?

3. Co-ops can’t identify national trends and react accordingly

Here’s an example of what a public health plan can and does accomplish routinely: Health Leaders Media informs us that a government analysis showed “doctors in certain geographic areas order a lot more unnecessary tests.” Investigators found “questionable ultrasound scans for Medicare patients in 20 counties where they are performed more often per beneficiary.”

Those 20 counties were in the far-flung states of Florida, New York, New Jersey, Texas, and Alabama. Had we been talking about general health insurance under the Conrad plan, we’d be dealing with four or five regional cooperatives that don’t share information and can’t spot these costly and harmful trends. Fortunately, this data was provided by Medicare – that “socialized medicine” system everyone seems to hate like so much.

Large-scale data mining, study – and yes, advisory panels – will be a necessary part of our effort to modernize and innovate our health care system. A balkanized system of fragmented local organizations will not be able to contribute to that process in a meaningful way.

4. Co-ops can’t fight monopolies.

Did you know that health insurance is typically exempt from Federal antitrust regulation? Good thing, too, because a recent study showed that 94% of US markets are “highly concentrated,” according to Justice Department guidelines. Blue Cross dominates Arkansas, for example, with 75% of the market. This monopolization has led to skyrocketing premiums.

A cozy relationship between state politicians and mega-industry has fostered a system where most U.S. markets are dominated by a single health insurance player. On May 29, 2007, then-candidate Barack Obama said this in Iowa City, Iowa: “”We’ll investigate and prosecute the monopolization of the insurance industry. And where we do find places where insurance companies aren’t competitive, we will make them pay a reasonable share of their profits on the patients they should be caring for in the first place.” That’s a good idea.

How do monopolies – especially ones with a cozy relationship to local pols – respond to a new and idealistic intruder? They use the power of favorable contracting (with critical hospitals, for example) to drive the newcomer to their knees. Then they deal a death blow with artificially low premiums until the threat is gone. After that they go back to their old rapacious ways.

Remember: Federal antitrust laws do not necessarily apply when these hardball tactics start. “Forget it, Jake. It’s Health Care Town.”

5. Co-ops have no reason to keep living – as co-ops.

Once we had a nationwide system of nonprofit health organizations. While each was local, they were tied into a loose national confederation. Since they were nonprofit, the idea was that their primary goal was to have the interest of their members at heart. The name of this national nonprofit organization?

Blue Cross.

In the last several decades Blue Cross organizations privatized themselves in massive numbers, with the help of supportive state and national politicians. There is no reason to believe that any cooperative will remain nonprofit if it becomes successful. The continued benevolence of any cooperative will depend on the direction and guidance it receives from politicians like Sen. Conrad. But even now, in the courtship phase of this process, Sen. Conrad doesn’t hesitate to discuss the establishment of effective cooperatives with passive and indifferent language (see above.)

What will happen ten years from now, when a few executives have the chance to get rich by converting your cooperative to for-profit status? Can we count on state and national politicians to take a brave stand and refuse them, even in the face of the massive campaign contributions they’ll be able to offer?

I think we know the answer to that.
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Co-ops are not a bad idea – if they are offered alongside a public option. As a replacement for them, however, they’re a dealbreaker. They won’t create the comprehensive, systemic change we need.

UPDATE: Ezra K. clarified his position with a couple of posts, including one which emphasizes the need for a robust insurance exchange. He’s right that current proposals exclude most of us from buying into the public plan option, even if it has been created and we want it. That bothers me. But we’ve tried an insurance exchange without a public plan before (Massachusetts) and it’s not a model for systemic reform. I’d rather see an incrementalist approach – a robust public plan, followed by public demand that forces Congress to open it up to the public. But the exclusionary nature of current public plan proposals is a real problem and I hope it can be changed.

Elmendorf vs. Orszag: A “Teachable Moment”… for Geeks and Nerds

July 29, 2009

This week a bitter confrontation between individuals from two distinct social groups offered our nation a rare and precious “teachable moment,” an opportunity to grow beyond those things which divide — or unite — us as a people.

Those individuals, of course, are OMB Director Peter Orszag — a geek — and the CBO Director, ubernerd Douglas Elmendorf. Their struggle is our struggle. Through it we can learn not only about ourselves, but about how to understand and talk about … numbers.

That’s right. I said we can talk about numbers. Wait! Don’t go. This doesn’t have to be boring! Numbers can be exciting!

First, the conflict. As NBC’s First Read reported: “Peter Orszag accused Congressional Budget Office Director Doug Elmendorf of ‘overstepping’ in a Web post Saturday … Orszag, a former CBO director, accused Elmendorf of playing into a stereotype that the CBO often overestimates cost and underestimates savings.”

This is war … between two analytical types whose names sound like characters in a Tolkien novel.

And they didn’t just throw down. They did it on blogs. The conflict began when Elmendorf blogged that the new Medicare advisory panel charged with reforming payments was likely to generate a paltry $2 billion in savings over the next ten years. Orszag replied by saying, in effect, that short-term savings was never the point, adding for good measure that the CBO had “overstepped.”

While it ain’t exactly rival rap entourages exchanging gunfire outside a radio station, it’s pretty badass stuff for number-cruncher types. Orszag’s post also suggests that the CBO would be wise to restrict itself to “qualitative” and not quantitative projections over longer periods of time – a polite way of say “you can’t touch – or quantify – this.” (His “qualitative” comment even includes a hyperlink … back to the very post it’s embedded in. Is that kind of head trip? Some ultra-hip, self-referential “meta” critique of the blogging medium itself?)

“Playing into a stereotype”? Those are fighting words in any context. The stereotyping in this case is between Orszag as geek and Elmendorf as nerd. While people consider the two terms interchangeable, here’s the difference: A ‘nerd’ is conservative, number-fixated, and highly rational. A ‘geek,’ while equally bookish and intellectual, is more given to flights of intellectual fancy and wild imagination.

A nerd can count. But a geek can dream.

Each of us can be a nerd or a geek at different times of our lives, of course, or even at different times of the day. But in this fracas, that’s how the social divide breaks down. Why? Perhaps it’s because Elmendorf’s job is to calculate the bottom-line effect of any program on the government and its coffers, while Orszag (who once held Elmendorf’s job) is allowed to project the long-term and systematic change that new ideas (like advisory panels) might have. There may be bigger savings in Orszag’s vision (I think there are), but dreaming those sweet dreams isn’t in Elmendorf’s job description.

For those of us who love our policy by the numbers, it’s heady stuff. It’s hard dollars vs. soft. It’s expenditures vs. imagination. Elmendorf is the stone-faced banker who won’t lend the money, while Orszag’s the inventor holding a prototype of the hula hoop. Elmendorf’s the dour landlord who says “Sorry, kids – the theater’s closed,” while Orszag is Mickey Rooney and Judy Garland saying “Hey, kids! Let’s put on the show right here!”

Orszag is the right brain and Elmendorf is the left. Orszag is the … oh, you get the point.

Does any of this matter? Actually, it does. We need to apply both types of rigor, but policy analysis is no different from judicial analysis. Numerical impartiality can be a mask for ideological leanings and other assumptions. Both Elmendorf and Orszag have important roles to play, but I think Orszag is right to look at a larger and more quantitative picture. Real “healthcare reform” will come in ways we can’t quantify yet.

I was also surprised by the ideology that seemed implicit in Elmendorf’s recent testimony about health reform. It was striking that he noted simply the cost to the Federal government, and not the potential for overall savings. Even more noticeably, according to the Wall Street Journal, he commented on the support many health policy analysts have expressed for taxing health benefits (an idea I’m not crazy about). The vast majority of health analysts believe there are great savings to be had, along with improved health outcomes, from structural reforms of the very kind that the Medicare panel represents. Elmendorf’s selective use of health analysts’ thinking reflects either ideology, a mode of thought, or (to be fair) simply his necessary focus as the “expenditure and revenue guy” on Capitol Hill.

It’s not up to me to adjudicate between these two analysts, whatever my biases. I do think Orszag has the cooler job, and perhaps as a result has a broader outlook. But that may only prove that I’m a geek. As for resolving this throwdown, maybe the President can invite the two of them over for a beer. Or an Ovaltine. They can watch sci-fi movies, chill out, and resolve their differences.

In the end, however, health care isn’t about the numbers at all. It’s about human lives. Numbers are only tools to help us achieve the right ends. If those of us who love numbers remember that, this will have been a true “teachable moment.”

The Moon and Health Reform

July 22, 2009

(Wrote the following editorial for a general-interest audience; it’s up at The Huffington Post)

Yesterday we celebrated the 40th anniversary of the moon landing. What else? Oh, right. More pundits and politicians told us that meaningful health reform was impossible. In 1961 the president of the United States set the goal of landing astronauts on the moon and returning them home safely within 10 years.

We did it in eight years — and while we were at it we created Medicare and implemented the Civil Rights Act. Just how tiny have we become in the last forty years?

The moon landing changed the way we thought about ourselves. It gave us pride, and a belief in our own abilities. It became a folk saying, common in everyday conversation and television commercials: “If they can land a man on the moon (it was always a man in these sayings; we’ve come a long way), why can’t they make a cup of coffee I like without caffeine?” Forty years later, you can even get a decent cup of decaffeinated coffee at Starbucks or the Coffee Bean.

If the president were to set a goal like President Kennedy’s today, we would probably see Republican senators saying that the GOP should “slow him down” because it would “break him.” And Republicans who thought it might be good for the country to meet such a goal would be confronted by pundits like Bill Kristol, who said this of health reform: “(T)here will be a temptation … to try to appear constructive, or at least responsible … Resist the temptation. This is no time to pull punches. Go for the kill.” Meanwhile Blue Dog Democrats might be afraid that a bold stand on the issue could hurt them with swing voters.

And yet polls show that the public wants meaningful health reform with a robust public option. To paraphrase that line from Sunset Boulevard, the American people are still big. It’s politics that got small.

It’s true that the recent Washington Post/ABC Poll shows weakened support for deficit spending to stimulate the economy (the question is phrased somewhat differently in the recent poll, which could skew the results, but the decline is dramatic). Hence the new, poll-driven concern about ensuring that health reform doesn’t “raise the cost curve.” The first response on the Democratic side has been to propose the partial taxation of employer-provided health benefits (a proposal which may not make as much sense as it seems to make).

There’s a bolder, smarter, better way to lower costs and improve health outcomes: Why not create a new national mission, on the scale of the mission to the Moon? Here’s the outline for such a mission: To learn what medical techniques work best, for which people, so that we can have the most effective medicine in the world within ten years. That means we’ll need to study, identify, and reduce the use of unneeded and harmful medical procedures, starting now.

One good place to start is with the McKinsey study on excessive use of costly services in the US (although we should make more comprehensive studies of this problem a national priority). McKinsey estimates that we spend $480 billion more per year than other industrialized nations on medical services, after adjusting for population and other factors. That figure isn’t justified by either our level of health or the results we get from our care. We’ve been hearing a lot about the reputed $1 trillion cost of reform over a ten year period, but even a 25% dent in this excess spending would give us reform that saves money. Why not make it a goal to use our nation’s imagination and ingenuity to make those savings a reality?

Some will say this is a form of rationing. That’s not true. It’s not ‘rationing’ to let people know that the painful and invasive operation they’re about to undergo isn’t necessary, and may even make them worse. You’re not ‘denying’ them something. You’re protecting them.

The nation that launched a manned moon mission in eight years can fix this problem — but only if we stop tinkering with the small stuff and start looking at the big picture.

In other moon-related news this week, the Indian state of Haryana announced that it would provide free travel insurance for a million religious pilgrims. Fear of ill fortune brought by this week’s eclipse might made travelers reluctant to come to the state for their ritual bath in the waters of Brahmsarovar, the pond of Lord Brahma. That could deprive Haryana of much-needed tourist revenue at a critical time.

The lesson of Haryana’s “eclipse coverage” is this: Insurance is too often a reflection of what we fear, rather than what we can prevent. Americans should make it a national goal to learn the difference in the next ten years, and then manage their care accordingly. If we can land a man on the moon – and make a decent cup of decaf – surely we can do that.

Why Tax Health Benefits? Unanswered Questions, Unspoken Assumptions

July 21, 2009

In a guest post at Jon Cohn’s blog The Treatment, Professor Harold Pollack makes a heartfelt case for allowing some taxation of employer health benefits.  “Don’t take the (tax) exclusion off the table,” he tells Democrats.  As Prof. Pollack rightly says, there’s a heated debate among Dems about the possibility of taxing some health benefits in order to offset some costs (and some political resistance) to health reform.

“There’s no bad guy in this fight,” says Prof. Pollack.  “Democrats must raise more than $1 trillion over ten years to pay for health reform.”  The $1 trillion figure is debatable, especially since we don’t know the final shape of health reform, but the “no bad guys” comment is reasonable enough.  And as he points out, there is some discussion of limiting new taxes to higher earners (e.g. $100,000 for individuals and $200,000 for families).

Taxing health benefits got a big shout-out last week from Douglas Elmendorf at the CBO, too.  They may not be bad guys, but advocates for this form of taxation still haven’t answered a fundamental question:  Why use this form of taxation? Why – politics aside – does it make sense to start taxing health benefits?  Health benefits are a relatively small part of overall earnings in America, and the decision to exempt them from taxation was an acknowledgment that we – alone among industrialized nations – don’t provide government health coverage.

Taxation is used for two basic reasons:  To raise revenue,  and to change behavior in a socially productive way.  We tax liquor and cigarettes to discourage consumption, for example.  Early advocates of taxing health benefits used logic and assumptions that aren’t being discussed much these days, especially by liberal advocates.

Their reasoning went something like this:  Americans spend too much money on healthcare, but they’re insulated from the consequences of that expenditures by insurance.  We’ll remove some of that insulation by taxing health benefits.  That will lead to greater awareness of costs, which in turn will change behavior and force down overall costs (or “bend the cost curve,” in the new parlance).

There’s a reason why this logic isn’t getting much exposure these days:  It’s hard to defend. Typical wage earners have little influence over their health care costs.  Doctors make recommendations about care that patients are loathe to reject.  A generation of experimentation hasn’t changed that much, although I strongly support continued work in that area.  But the “facts on the ground” are these:  Doctors, not patients, control health demand.

What’s more, the choice of benefit plan and insurance provider rests with the employer, not the employee.  So the idea that taxing health benefits will “bend the curve” doesn’t seem like a persuasive one.

Perhaps I’m making unfair assumptions about the reasons why some analysts support taxing benefits rather than, for example, increasing taxes on the top 1% of earners.  But the fact remains that even a well-structured benefits tax is less progressive than other new taxes would be.  Liberal analysts like Prof. Pollack need to give their colleagues a persuasive rationale for imposing this form of taxation, rather than another.  And I haven’t heard one yet.

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PS:  As an aside, is it just me?  Sentences like this one from the Treatment post make me uncomfortable: “… (A)ny unions’ hallmark accomplishment was to win generous employer-provided health benefits for their members.”  Not to go all Michael Moore or anything, but in light of other developed nations our union benefits are no longer all that “generous.”  The days of first-dollar coverage for anything are long gone.  Am I missing something?

That said, I do appreciate Prof. Pollack’s call for comity.  The online battle royal gets wearisome sometimes, even for the feistiest among us, so the tone is much appreciated.

The House Health Reform Bill: How Good Is It?

July 16, 2009

First, the good stuff: The bill includes a public plan option, although initially its availability will be limited. There’s an insurance exchange to help the uninsured gain coverage. Some of the insurance industry’s egregious underwriting practices will be banned, and rates can only vary based on age, location, and family size.

Premium subsidies are fairly generous, with some level of assistance going up to 400% of the Federal poverty limit (though if I had to bet, I’d wager that will drop to 300% after all the horsetrading is done). The Medicare subsidies for private insurers are eliminated.

Potential problems:

It’s not universal. It’s probably not politically possible to pass truly universal coverage, but it should be noted: Despite the presence of both individual and employer mandates (more about that below), the CBO estimates that 9 million citizens (as well as a similar number of illegal immigrants) will remain uninsured. That’s very close to the figure of 8 million I came up with a year ago, using back-of-the-envelope calculations based on Massachusetts experience. It means that roughly 20% of the uninsured will stay that way under these proposed reforms – and it’s my suspicion is that this figure is, if anything, low.

Why does that matter? Incremental improvement is a good thing, and if I were in Congress I’d probably vote for this bill. But it will leave an ongoing humanitarian problem as well as a strain on the system.

The small employer provisions can be gamed. Tax penalties for failing to offer benefits kick in on a sliding scale for companies with payrolls of $250,000 and higher. How many small employers – small restaurant or retail chains, for example – will simply re-incorporate as mutiple businesses with common ownership in order to avoid this penalty?

The plan’s major provisions don’t begin until 2013. Granted, it will take time and effort to ramp up a a public plan and a national insurance exchange. But it shouldn’t necessarily take three years, and the roll-out could be phased. I collaborated with a multinational initiative to help formerly Communist countries set up national insurance programs, and that didn’t take this long to begin rolling out. That was without any previous infrastructure, and using technology that was nearly 20 years old.

We have Medicare’s platforms and other resources. We also have the experience gained in Massachusetts and elsewhere. I would have thought they’d be able to implement some of the bill’s features in stages, with slightly more aggressive timing. (On the other hand, the desire to do it right rather than quickly is understandable.)

Those individual mandates will be tricky.
I understand the economic role of mandates, but here’s the problem: Many uninsured middle-income families will find it difficult to pay five-figure premiums. And the penalty for not obtaining insurance is 2.5% of adjusted gross income. That means most middle income families will find it much less expensive to take the penalty than to buy the insurance (which was one of my primary concerns with Massachusetts’ legislation). In fact, based on current premiums, you’d need to make upwards of $400,000 before premiums and penalties are in the same ballpark.

Of course, many or most families will realize that it’s prudent to purchase insurance – if you can afford it. But many hard-pressed families may choose (or be forced) to gamble if they don’t have enough cash on hand to pay premiums and meet their monthly obligations. That’s why I suspect compliance projections are overstated.

There’s a political red flag, too: While the Massachusetts health reform plan is generally popular, we reviewed the poll results here and found that those who were affected by it personally felt (by a 56% margin) that it had a negative impact on their lives. To those who choose the lower-cost penalty over the insurance premium, this bill will not provide coverage … and it will feel indistinguishable from a tax hike. That could create an immediate compliance problem, and a political problem for Democrats down the road.

Which gets us to the big problem …

It doesn’t do enough to control costs
. The outline of an effective, information-driven cost reduction (and, more importantly, outcome improvement) program is there – but only if administrators follow through with intensive research and creative redesign of provider reimbursement programs. The intensity with which these initiatives will be followed depends on political will … and political will, in turn, depends on how effectively the Democrats make the case that true innovation is required to bring our cost problems under control.

I’m not as negative as Roger Collier on this score, but I do see reasons for concern. Since these outcomes-improvement and cost-management provisions are being underplayed in the political arena – perhaps wisely – they’ll need to be emphasized during implementation.
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The Senate HELP Committee has just passed its version of the bill. While the Senate is essentially following the same path as the House, they are also pursuing premium discounts for enrollees making “healthy lifestyle” choices. Employer mandates are gentler in the Senate version, and there are several other (relatively minor) differences.

The HELP Committee passed its bill with no Republican votes in favor. The Democrats are likely to own both the credit and the blame for whatever winds up being passed in Washington. And, while they’re likely to change in some ways, these bills may well provide the basic outline of health reform legislation. That means everybody tasked with finalizing and executing reform should concentrate on four areas:

1) Ensuring (and communicating) fairness in defining and enforcing mandates;
2) Creating the most sophisticated, effective, and user-friendly insurance exchange possible;
3) Defining robust benefit plans that protect enrollees from financial shock due to out-of-pocket medical costs;
4) Developing strategies for providing care to those who will be left out of this plan.

They’ve avoided my biggest fear: that the bill would contain individual mandates but no public plan option. We could tinker with the balance between the two, but at least the public option is there. Still, as complicated as it may be to pass a bill, it’s only the first step. Even if Congress meets the President’s August 1 deadline, the reform process is only beginning.

Other references:

- Maggie Mahar’s comparison of the House and Senate bills
- Full text of the House bill
- CBO’s initial analysis of the House bill
- Joe Paduda’s summary of the House bill
- Ezra kinda digs the bill, and gives a shout-out to its process

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