Wednesday, June 13, 2007

If They Don't Have Bread, Let Them Eat Hay

When a woman is dumping her boyfriend she may break it like good news, saying she'll always cherish him, and loves him enough to set him free. That's my reaction on seeing a WSJ report on Rudy Giuliani's healthcare proposals.

Though he'll release details later this summer, he wants to "free" tens of millions of Americans from employer based insurance and move them to the individual market "to give them more coverage choices." Mirroring GWB's "ownership society" he tells Americans "It is your health, you should own your own insurance."

At present it's the 60% of Americans covered by employer insurance who are the best off, and polls show they like their employers to use their collective purchasing clout to arrange insurance. Instead, Rudy is extending GWB's approach by wanting them to shop for their own care. According to another WSJ report this approach as it applies to the much hyped Health Savings Accounts (HSAs) is already starting to falter.

Of course, more choice to consumers can work well if it is structured properly, as in Edwards' or even Romney's plans where insurers cannot refuse insurance coverage or charge higher rates from sicker patients, and yet the overall pool of members remains viable because everyone including the healthy are forced to buy insurance. But Rudy opposes such compulsory insurance coverage.

Even worse, Rudy doesn't address the biggest problem of how to take care of the 47 million uninsured. Delinking insurance from employers and making it portable does little more than scratch the surface, and Rudy is silent about subsidizing or paying for coverage of those who cannot afford it. The tax breaks he offers for individual coverage have little meaning, especially for those who pay little or no taxes. And as I mentioned in an earlier thread, even for those who do, you get at most a $31 tax break for every $100 you spend on healthcare, so how will you come up with the remaining $69?

His "market forces" argument also is meaningless when you among other things (a) disallow the government from using its purchasing power to negotiate drug prices with companies who have monopoly power in selling them (thanks to their government enforced patents - they find no irony in the strong government role in enforcing these); (b) let providers like physicians restrict their own supply way below free market equilibrium; and (c) let hospitals maintain non-transparent pricing and quality information while gouging payers and patients who come their way and cannot switch in the midst of their treatment.

The way he lauds the "free market" over anything the government does makes me want to ask him why he doesn't urge everyone to buy their own weapons under the 2nd Amendment for self-protection and do away with the police force.

So why has Rudy come up with such a bad plan? He may figure this appeals to the fiscally conservative Right who want to minimize government spending and taxes no matter what, plus those Republicans who blindly (and wrongly) believe unrestricted private activity is always better than governmental involvement. He can also attract a lot of contributions from the healthcare industry players. This can increase his chances of winning the Republican nomination, and he can then change his tune (say to something like the Romney plan with greater government spending) well before the General Elections.

Will such a "bait and switch" strategy work? And will Rudy address some of the glaring deficiencies when he reveals the details of his plan later this summer? I don't know, but as of now I find it to be the worst of those put forth by the Presidential hopefuls.


kenrod said...

Sandip, I write mainly as a devil's advocate and not necessily as someone who widely disagrees with you. I think the 45 million uninsured is a problem but not a crisis. I think we can reform the system rather than scrap it like Hillary and Edwards suggests.

I had a workman, Lopez, whom I've known for years, perform some repairs after which I paid him. On giving him the cash I reminded him that he had no insurance to which he replied, "Don't worry, I know where the county hospital is. But right now I need this money to buy a gown for my niece's wedding."

Now Lopez has made his choices. He knows the quality of the county hospital, but who are we or Hillary or Edwards to force him into purchasing healthcare, which is what a govt system and mandates will do.

When I was young my mother would nag me into eating my oatmeal. Today she still tries to do it and it bothers me to no end. She called the other day and I told her I was eating artery clogging cheesecake. I'm over 21 and know the consequences of my decisions. She shouldn't need to tell me what to do not matter the ramifications.

I know Hillary and Edwards mean well. But they cannot tell the population they cannot gamble, drink alcohol or go without insurance. It might be the govt's role to influence how the industries are run but not mandate this or that.

And if I want to eat cheesecake or blow a few hundred dollars in Vegas I should be free to do it. It might be the govt's role to make sure the cake hasn't been advertised as health food, or the casino is rigging the slot machines.

Now I favor mandates that has an impact on others' property. For example, mandating people carry liablity insurance for drivers. If someone hits my car I want it to be fixed, but I shouldn't mandate that he fix his.

Govt should only do what citizens can't do for themselves. For example run the military, courts, negotiate with foreign powers etc. But if they negotiate the price of drugs we encounter some problems. First, just because of their size they impact and distort the market. Second, they have legislative and judicial power. Right now the PBM's do a fine job. negotiating prices and determining efficacy. If the drugs are too expensive or don't work, it won't be included in their formularies.

I believe we can reform the system. I looked into your website for global healtnet for "medical tourism" and it makes a lot of sense. Transport people to where the costs are lower and better and let the market forces work. But having the govt heavy handedly forcing hospitals to lower the costs are ludicrous.

Guiliani's plan to me makes sense from the standpoint of letting market forces work. But there has to be reform. I disagree with your argument that employers have pooling power and indivduals don't. In states where "pooling" laws have been reformed individual plans for the comparable coverage are LOWER than employer based plans. In California and NY indiv rates are cheaper than group rates but the entire state of indivduals is in one pool. In states like Texas, at least 10 years ago, an individual may start low, but year after year it goes up if he doesn't qualify for a new healthy pool.

But qualifying for these individual policies are tough. You have to be as fit as an Olympic athelete. We can reform that by allowing waiting periods, higher deductibles etc. But there is no need to scrap the system.

Besides, why should we all be equal? The disparity between who has health care and the income scales are parallel stories. In egalitarian Sweden they are trying to encourage disparity. I have a friend there and the she is quite entrepreneurial. Recently the govt is throwing money at her in terms of low interest loans. They know egalitarianism suppress risk taking. The age old argument of efficiency vs. equality continues.

So people can eat hay but not because there's no bread. Let them apply for the plans they want rather than mandate things for them. Allow them to grow up and accept the consequences of their decisions. You can take a horse to the water but you can't make him drink. Just make sure the water isn't poisoned like the insurance companies have poisoned the underwriting rules.

Sandip Madan said...

Kenrod, you're a hard man to convince, and you force me to remain sharp. :-) Some of what you've said has been covered in my earlier comments so I'll try to limit repeating myself.

For starters US healthcare prices should ideally be a third of what they're now. They're "only" twice as high as in Europe, true, but Europe itself has inefficiencies (that drive many Europeans to other medical tourism destinations for elective procedures.) The exhorbitant US prices that affect us all, PLUS the 45 million uninsured (no small number) qualifies as a healthcare crisis to me.

Secondly, while Hillary and Edwards are going far beyond cosmetic changes proposed by Giuliani, they're not "scrapping" the whole existing system. Universal coverage can in a way be thought of simply as extending Medicare and Medicaid for everyone. One way to fund this by is requiring payments into the system through compulsory insurance or whatever for those who can afford it.

In talking of Lopez, this is the second time you've mentioned a "free" county hospital. So let me repeat that most Americans do NOT have access to such "free" care. If they had, that WOULD qualify as universal coverage (though it's better to add a little preventive care that reduces overall costs.) County hospitals are accessible to only a fraction of Americans. From your references to them I'm guessing you live in the Bay Area, Chicago, LA or New York. And most county hospitals do charge heftily from those who can afford to pay for their care.

Even for Lopez, I'd prefer that he be forced to pay premiums into the county hospital and use only money left over to buy his niece's wedding dress, rather than mooch off the system if he falls sick.

When you talk of individual insurance for the fittest people being cheaper than the group rates, you are comparing the wrong demographics. It's the sick who need coverage most, and their rates (and even the individual rates averaged over all categories) are much higher than pooled rates. That's an actuarial reality and no one's fault, so even insurers are fine with pooled membership.

Government justification for negotiating drug prices for what it is buying has been amply covered in previous posts. Btw, do you support the government negotiating prices of the fighter aircraft or ships that it buys from defense contractors like Boeing, Lockheed, etc., or do you view it as price controls?

Did you say PBMs are doing a good job here? They're quite widely criticized as being a part of the problem of overpriced drugs. E.g., here's something from my esteemed colleague Richard Nicholas:

And here's something more recent:

Finally this concept of individual's being entirely left to decide their own welfare, savings and coverage has been rejected by most developed societies, and with good reason. That's because individuals often do not plan for their contingencies properly, and so can burden the society that does not want to leave them to die untended. That's also the spirit behind your seatbelt laws, or forced savings through social security (FICA) taxes or incentives in 401K plans.

So that's why Edwards and Hillary make sense to me on healthcare, and the likes of Giuliani do not.

kenrod said...

Sandip, if I agreed with you, what would you use as a punching bag? :)) The govt can negotiate with Boeing, Northrup etc for aircraft and ships because only the govt should run the military.

But the govt doesn't negotiate for Mcdonalds for the price of ketchup. All it should do is make sure there is enough competition amongst ketchup suppliers so the market is not rigged. They need to strenghten the anti-trust laws.

Likewise in the PBM area, you need to inject more competition into that area. You need 5 or 6 players to keep the industry on their toes.

To allow govt. to play along with private industry has huge ramifications. First, they have virtually unlimited funds. Second, they have legislative and juducial powers, and can throw the book at you when they like. Third, they have no market forsight. Look at all the "5 year plans" the Soviets implemented in the 1960's. They created white elephants because markets had found substitutes for the products that the govt insisted was "needed".

The question of how much do we want a nanny state. People like my workman, Lopez, know what they have to do but make "bad" choices. But in a free society we have to allow for failure. Yes, failure. We cannot and should not protect everyone from every raindrop. He knows the county hospital is cheaper but not free. And he weighs that against paying $400 monthly premiums.

If you want to debate in terms of seatbelt laws, we can say there can be 2 kinds of cars. One, where the seatbelt warning sign flashes. The other where the car would totally shut down if the belt were not fastened. I drive the former. The second is what mandates and a nanny state would look like. I don't want a car that tells me I must do this or that even though it may be good for me. When I was in Italy, I even saw T-shirts with seatbelts painted on them. Clearly, it was poke in the eye of the nanny state.

We're each looking for the knock out blow. But it's likely be an Ali-Fraser 15 round. You're obviously an expert in the medical arena, and I'm just a fly in the ointment. I'm just using philisophical arguments while you have techical expertise. But I predict we will, for decades to come, have a patchwork of private and govt. healthcare plans because nobody has the will to change things too much. And business like your medical tourism will start taking hold as market force come to bear in bringing down costs. End of round one:))

Sandip Madan said...

Kenrod, you a punching bag? a brick wall is more like it, and my knuckles are broken. :-)

The government negotiating Mac or ketchup prices doesn't work as an analogy unless you're talking of the government buying these, say for their army. If that's what you're meaning I'd think it is perfectly appropriate for them to negotiate for what they buy.

On seatbelt use, the government mandates that you use them (it's not optional) or you can be fined. They're talking the same thing for healthcare.

More PBMs would help but I'm afraid the problem is structural, i.e., in the way they operate and their incentives.

Where does it say that governments have to screw up everything and/or all regulations are bad? France and Germany with theirs have a better healthcare system and prices than the US?

I'm hoping all I'm saying is based on logic, and not reliance on a technical edge. :-)

kenrod said...

Sandip, Don't worry! I've heard Sardars never feel the pain even when their knuckles are broken:)) You guys are tough. But here comes my left hook against your criticism of the Guiliani plan.

Taking the rates from Blue Cross in the San Francisco area I've compiled a few numbers. I've used a 50 year old male as an example.

$3500 Ded HSA group plan.. $248
$3500 Ded HSA indiv plan.. $188

Another one:
Basic PPO Group... $200
Basic PPO Indiv... $170

What I'm saying is individual rates are lower because California has pooled individual rates. These rates will stay with the person provided he always pays his premium. In states where proper pooling bills haven't passed, what you get is a person may get a rate of $170 for the indiv. Basic PPO , but the next year his rates could be raised dramatically if he couldn't qualify for the new healthy pool.

The reason the group rates are higher is that insurance companies are forced to take all medical conditions.

And it's very convenient for you to use the argument that the sick need the plans. I could save myself $1500 a year in homeowner's insurance if I only bought the plan after my house was damaged. The sick should have thought about buying the plan before the onset of their ailments.

But what prohibits them from applying is that they have a pre-existing condition, say migraines. What I propose is that anyone could apply, get a 6 month waiting period for migraines and join the pool. For more serious conditions like major heart disease, you might tack on a further 25% premium.

Where I think Hillary's plan is obsolete is that it is employer based. You will be force to work for a company if you have even the slightest medical condition. My individual freedom as an independent contractor, free as a bird, will vanish under her reform.

I think Guiliani's plan is very workable without busting the budget. California has shown him the way though, and, with a few minor adjustments you can get close to universal coverage without the restrictions of an employer based mandate. But people like Lopez can only be lead to the water but cannot be force to drink. We cannot outlaw stock market crashes, famines or failures of any kind. All we should provide for them are the conditions for them to make their choices properly.

Sandip Madan said...

Hmmm, Kenrod. Since you know about (my) Sardar quirks I'm guessing you're of Indian or South Asian origin, the Caucasian sounding "Kenrod" and your right wing leanings notwithstanding. :-) Plus your researching CA / SF rates coupled with your references to a free / low cost county hospital makes me think you're a Bay Area resident... But I'll probe no further.

Anyway, thanks for contrasting the individual versus group plan rates. The reason individual rates are lower is as you yourself answered that these apply to healthy individuals with no pre-existing conditions. The groups can have sick individuals, and they have to be covered while paying the same rates under the "open enrollment" and "all employees coverage" clauses.

Note that portability of individual plans, keeping members in "healthy pools" subsequently and individual pooling is happening only because of a mandate by the very government you hate (in this case the CA Govt.) Rudy's plan says nothing about such mandates so I don't know if he supports them or not. But the rest of his plan looks woefully inadequate.

About your Lopez example, the right policies as proposed by Dems will force him to drink water, not just lead him to it. So these are better.

About Hillary I hope and expect her detailed plan to encompass portability even if she expects employers to contribute. If for some reason it doesn't I agree that's a serious deficiency.

kenrod said...

Sandip, You're obfuscating my use of the word "mandate". What I mean is that the govt should not mandate that everyone carry insurance. That action will distort the marketplace, and once again, establish the "nanny" mentality.

But I do support mandates that set the ground rules between how the public, ins. cos and medical institutions play. A libertarian I am not.

California did establish AB 1672 which by which group insurance plays. It states that groups cannot be denied coverage, and they will pay plus or minus 10% of the published rates. If a person in the group hasn't carried insurance, he will be subject to a 6 month waiting period for pre-ex conditions.

I think we can extend AB 1672 to individuals. After that the Dems say we should force everyone to join. Guiliani says take responsibility for your own life and choose the plan you want, if any.

Two of the biggest business mistakes in modern history are purportedly:

1. Apple keeping its source code secret. Microsoft went open source and captured the operating system market.

2. Henry Ford stating, "You can have a car of any color as long as it's black." Alfred Sloan of Gen. Motors seized that opportunity to become the largest auto producer.

Hillary's plan makes both those mistakes. She has secret committees which are accountable to no one. She has a "one size fits all, any color as long as it's black, approach.

Guiliani's plan allows freedom. Choose any plan that suits your family's needs. Some want a high deductible; others low; yet others want an HMO. It's just going to give tax credits or deductions for your choice but it's a hands off approach.

And we don't force people to buy homeowner's or auto insurance, why force on health insurance? Though I think mandates are a minor point. The key is how these plans are structured. Thanks Sandip, for you investigation into these matters.

Sandip Madan said...

Mandating health insurance is like mandating taxes - it's a way to ensure there's funding for something you know has to be provided in a humane society. This forced payment also makes sense since it avoids the situation of people like Lopez squandering all their resources and then demanding free care when it's needed because they don't have money any more.

About that black color only analogy, for the fifth time let me say no one is talking of taking away other choices. It is like being guaranteed you at least get to have a basic black car, and you're free to get a better make, model and color if you're willing and able to pay extra.

Most countries including those in Europe have this system. E.g., even in UK anyone with means can go to very good private hospitals and pay for great care out of pocket without any waiting period. So I'm at a little bit of a loss as to what's our ongoing disconnect about this.

Btw, those CA PPO Basic rates you mention look suspiciously low so it must be a very skimpy plan with high deductibles and copays.

Giuliani's "freedom" plan sounds like he's telling folks they're free to fend for themselves, free to pay high prices and free to die without health coverage if they don't have sufficient means. :-)

kenrod said...

And for the fifth time, you say there are rainbow colors, but all I can see are shades of black. Hillary and Obama and Edwards all support employer based plans. Most employers will only allow a choice of one or two plans, from one carrier. Thus my neighbor, who works for a small engineering firm, can only choose an HMO $10 copay plan.

His choices are limited to the whims of the office manager. If he wanted a $25 copay PPO from another carrier he would be shown the door. With Guiliani's plan he could go anywhere because it is individually based.

Do mandates really work? Our state has a mandate to carry auto insurance. My workman, Lopez, until a few years ago, would get auto insurance. Then, when he got his licence plate tags, he would call up and cancel his policy to get a refund.

How is Hillary or Edwards going to enforce a mandate?

BTW, the premiums for the PPO Basic are correct. It is a basic in-patient only $1000 deductible plan. That means it won't pay for rehab, chemo, or anything done outside the hospital.

So far, Sandip, I haven't seen any decent counter punching from you. I've given you my ideas about how a health plan would look like if I was prez. Namely, extend Assembly Bill 1672 to individuals, and have an open enrollment period, or waiting period for pre-ex.

After that have true pooling. That means, a 50 year old male living in SF would pay exactly the same as his 60 year old neighbor 10 years from now once he becomes insured. That doesn't mean his rates won't go up. But he won't have to qualify for a healthy pool every year.

That means he has incentive to pay his premiums. And to me, incentives are a lot better than mandates.

Sandip Madan said...

Kenrod, I appreciate your involvement and enthusiasm, but all good things must end. We can spill over new points to a fresh post. I'll respond one more time then call it quits.

Insurance 101 talks of insurance being viable only if you can pool risk. That's why your total free choice individual insurance scenario is not workable without massive subsidies or a steep rise in rates compared to the limited employer sponsored plans you seem to dislike.

Google the string "health insurance adverse selection" without the quotes to see what I mean. In the absence of pooling people will choose the plan that gives them advantage, so insurers have to hike up the rates to compensate.

For example, say your grouped employer plan with $10 deductible costs $400 monthly, and with $50 deductible costs $300. Then the individual plans with the same $10 and $50 deductible may cost $550 and $400 respectively. This is because those who go frequently to the doctor want the $10 deductible plan and the infrequents choose the $50 plan so the insurers have to raise both rates to break even in a "free market" non-pooled scenario. Please don't ask me to walk you through the numbers.

I'm sure Giuliani and Co. know all about this, but they can rely on 30 second sound bytes, limited public understanding and superficial media coverage to avoid being exposed.

I'll say no more - you can have the last word. :-)

kenrod said...

Now that was a good example, Professor Sandip. Thanks.

Sandip Madan said...

You're welcome. I do appreciate your interest and involvement. :-)