Thursday, April 21, 2011

Helping Leaders Heal Health Care

Solving US health care problems and the resultant budgetary morass is not that hard.  Taken together, the steps laid out in my March 28 post do not fall into either ideological extreme, and balance each other out in terms of right versus left dogma.  Moreover, embracing trade per my April 7 post results in rapid and dramatic benefits and savings.

Increasing provider availability and competition should suit Republicans who are for free markets and supply side economics, while Democrats get universal coverage without increasing health spending.

Instead, the Republicans' Paul Ryan plan only caps future federal outlays on Medicare and Medicaid and shifts the onus of health coverage to the states and individuals.  All the cost savings are supposed to come from "flexibility" to be enjoyed by the states, and competition among private insurers who are an added layer of middlemen.  While some like BusinessWeek on April 6 seem to laud "The Audacity of Paul Ryan", Paul Krugman in his Times April 7 and April 14 columns exposes the disastrous implications of Ryan's undermining of the health safety net.

Interestingly, Ryan opposes the Independent Payment Advisory Board created by the new health care law to curb Medicare spending, that can cut Medicare rates to providers.  His Republican colleagues and even some Democrats also oppose this expert led Board.  It would reduce their political powers to favor or protect providers (and receive payback in return.)  They of course advance different reasons for their stance, calling this panel a "rationing board" that "punts difficult decisions on health spending to an unelected, unaccountable board of bureaucrats.”  Krugman in his Times April 21 column exposes the flaws in the Republican rationale in more detail.

On the Democrat side the initial 2009 attempts at cost control were confined to cutting out private insurers through single payer, or keeping them in line through a strong public option.  Both of these failed. Now President Obama on April 13 has at least pledged to protect most of the Medicare and Medicaid benefits.  But his plan of cumulative savings of $480 billion through 2023 and $1 trillion in the following decade is uncertain of success and sets too low a target at the same time.

There is pressing need to control costs, yet the Republicans and their experts avoid directly confronting root causes like high provider prices.  Obama and the Democrats do so, but only in a timid and limited way.  The reason is obvious - no one wants to lose the largesse or attract the opprobrium of one of the most well endowed industries.  Ironically, the very distortions in our system that have unjustly enriched the industry have added to the resources and leverage of the players to block corrective measures.

The direct political contributions as compiled by the likes of for the health industry or by don't even come close to giving the full picture.  That's because the special interests including this industry are keenly aware of public scrutiny and of the negative perceptions about their campaign financing.  So they can cover their tracks by using artifices like super PACs with sister corporations (this was added here on Oct. 1) or by funding through proxies.  As an example of the latter, doctors, legal and insurance professionals can contribute to candidates favored by their associations through their spouses and dependents.

Other than such legal workarounds to disclosure rules there's also the universe of employment favors or rich "consulting contracts" for relatives, or outright bribes.  Unless someone is foolish or careless most of such goings on don't come to light.  In sum, as against publicly disclosed contributions of a "paltry" $100 - $200 million annually, the actual payoffs by health industry players may well be over ten times this amount.  Even "honest" politicians can be compromised if they hesitate to annoy interest groups that can run massive ad campaigns against them or fund their opponents.

Can payers and patients do anything to counter health industry influence and help lawmakers act in the public interest?  Actually, they can.  Health overcharges are at best a zero sum game where every unnecessary dollar going to a provider or middleman comes out of the pocket of a payer.  I say "at  best" because many are heavily "negative sum" thanks to "friction" - the gainer gains much less than the loser loses.  For example, trial lawyers gross revenues are less than $5 billion annually from malpractice litigation, but they block tort reforms that eliminate defensive medicine and court costs that may exceed $100 billion.  But even in the zero sum case there are in theory losers who can neutralize the industry gainers through their own influence and financing of decision makers.

The reason this does not happen is because the losers are a diffuse populace (e.g., 300 million patients) who succumb to the "free rider" effect ("let others do this, not me, even if I benefit if they succeed.")  The special interests in contrast are a select group (doctors, hospital and insurance executives, hedge fund managers, bankers - you get the idea) who stand to gain a lot more individually and can act in unison.

This brings me to the main point of this post.  Are there any influential groups that can exert countervailing influence?  (I'm talking of other than the likes of or the AARP that have broader agendas and / or can't match the financial clout of the health industry players.)  Happily, there are, and they can play a much bigger part than at present to help themselves as well as the American people.

We should look to the large employers who according to MEPS pay for over 75% of their employees and their families health costs, and this accounts for over 12% of their payroll. They are better suited than the US Chamber of Commerce, whose large membership includes small businesses providing less health benefits, that oppose some reforms.  Besides, this Chamber includes health providers (hospitals, medical groups, device makers, drug makers and middlemen) that are the likely target of reforms.

Among the large employers the most promising subset are their biggest, like the Fortune 500.  They are a concentrated group offering the most generous benefits.  They almost all pay for the bulk of the health costs of their employees and their families, and sometimes for their retirees.  Even better, they already have their own organization solely focused on their health care issues and concerns, the National Business Group on Health.  The 300 or so NBGH members include nearly two thirds of the Fortune 100, and cover health care needs of over 50 million Americans, incurring (at a guess) up to a tenth of the national health care costs.

The NBGH is engaged in "representing large employers' perspective on national health policy issues and providing practical solutions to its members' most important health care problems." While it is doing useful work, its resources, role and impact can all be elevated orders of magnitude higher.  It can enable the right health reforms by sponsoring objective studies untainted by industry influence, shape public opinion through massive media initiatives, and through lobbying and campaign contributions. 

Other than helping Americans, making the US labor more competitive and earning goodwill as good corporate citizens, what do NBGH members get for their extra effort and invested resources?  Improved bottom lines and employee welfare as a result of a sharp decline in health care costs and better care.  They collectively spend over $200 billion annually on health care.  Supply side measures, competition and resultant price corrections alone can reduce health expenditures by a quarter so these NBGH members stand to save over $50 billion annually with the "right" reforms.  Investing a small percentage of this can give NBGH billions in resources to help make this happen.

Of course, these large employers not only serve themselves well, but in this scenario also have a much bigger impact on the US economy.  Other payers including small businesses and self paying patients all benefit as well.  And since over half of US health expenditures are met by public funds, the government (which cannot lobby itself) and taxpayers save five times as much as NBGH members. 

The course of health reforms will be strongly determined by the influence over Washington and the states.  The largest employers can step in to play the system to help themselves, while this also makes them the good guys to bring about the best outcome for the rest.

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