Congress labors to find savings of about $900B over 10 years to fund pending health care reforms and covering the uninsured. It has even cut $43B or 13% of Medicare spending on home care, which is arguably a cheap and efficient alternative to far more expensive hospital or nursing home care.
Yet there is almost total silence on the most promising and quick way to exceed the desired savings, while improving care for patients. I'm talking about the trade solution that Prof. Jagdish Bhagwati and I wrote about in the WSJ on May 27, 2008, (with a more detailed version posted on our website.)
Of the four modes (types under GATS) of trade in health care, our annual savings estimate from just the first two is $120B. This consists of $75B from remotely delivered services like tele-medicine, claims processing and customer service (mode 1), and $45B from medical tourism (mode 2). About a fourth of these savings is the government or public share that can be "scored" by the Congressional Budget Office (CBO), given the right trade-friendly steps. This is $30B of annual savings that over a 10 year period covers over a third of the funding required for the health reforms pending consideration in Congress.
Modes 3 and 4 of health care trade can actually realize far higher savings than the first two, though they may be hard to quantify (and hence not adequately count) in the strict CBO methodology.
Mode 3 with hospitals established abroad is of particular interest in the establishment of foreign-run medical facilities in the US. It is also one in which our thinking has evolved in terms of estimated potential savings. We thought foreign establishments could lead to price reductions, mainly by offering competition to the increasingly concentrated medical industry. A Report in February 2006 from the Robert Wood Johnson Foundation has described this trend to concentration since 1990 and has concluded that 90% of the larger metropolitan areas now face concentrated markets.
What we hadn't considered explicitly was the concept and power of reverse innovation in driving down US hospital prices. For instance, US hospitals trapped in the straitjacket of their current mindset and practices have a hard time lowering the package price of their heart bypass surgeries much below $60,000. Yet Dr. Devi Shetty makes a profit in India while charging just $2,000 per procedure. He is setting up a large hospital in the Cayman Islands to serve US patients at low prices. But why not make legislative and regulatory changes to allow such new hospitals in the US itself?
Mode 4 encompasses importing foreign doctors into the US. Even if the seriously flawed US policy responsible for acute doctor shortages is corrected, a big if, it will take more than a decade for the domestic supply to ease the imbalance. While these scarcities are a bonanza for US doctors in terms of inflated salaries and guaranteed over-employment they impose a huge cost on payers and patients. Extending coverage to the uninsured and swelling the ranks of patients exacerbates the crisis.
Allowing highly qualified foreign physicians trained in accredited international institutions to practice in the US after clearing board exams can ease shortages without compromising quality. Given the doctor pay disparities between the US and other such places (including Europe) and the benefit of broadened experience it will be easy to attract the right doctors even with temporary visas or limited US rotations. To ensure that such imported doctors fill the highest need, their visas and their permission to practice can even be made conditional on their working in designated under-served areas.
This easing of doctor scarcities will improve patients' access to health care and quality of care, while also helping rein in excessive salaries that are over twice the European average. While the CBO may refuse to factor all these benefits, one saving that it can quantify are the Medicare cuts of fees to physicians under the Sustainable Growth Rate (SGR). These never take hold in large part (other than lobbying pressures) due to the fear that then an insufficient number of physicians will agree to see Medicare patients.
The imported doctors can be expected to accept the reduced fees or agree to a fixed salary model that is more cost effective, and yet generous in comparison to their earnings in their home country. To make matters even more certain the admittance of these foreign physicians into the US can also be made contingent on their acceptance of such terms and fees as the administration sees fit. As the House bill passed on Nov. 19 shows, the cost of doing away with these cuts is $210B.
In sum the collective benefits and savings of trade in health care dwarfs the measures being considered by Congress now, and debated in the media. These options seem to have so far been studiously ignored or kept off the table, as lawmakers avoid antagonizing industry interests. But the huge social cost of neglecting this potential and a lack of good alternatives makes a strong case for lawmakers rethinking their stance.
Thursday, December 10, 2009
Saturday, November 21, 2009
Bad Medicare Data Thwarts Good Policy
In August 2006 even George Bush tried doing something right in health care. He asked his public health agencies to make pricing and payment to providers information transparent and publicly available.
Till then Medicare and the like kept such information secret or very hard to access, ostensibly to give them better negotiating leverage with providers. I think (having been in government) it's just the natural way of bureaucrats. The less information they put out there, the less vulnerable they are to any criticism, and more able to dispense favors or act arbitrarily.
But there are very good reasons to make Medicare rates and payment information freely available, especially when health reforms are such a priority:
$1.4 billion? This sum is ridiculously low compared to our own calculations mentioned in our Global HealthNet website and summarized in our May 2008 WSJ Op-Ed. There were $220 billion worth of 30 "exportable" medical procedures performed in 2006, and if 25% were performed abroad, $45 billion would be saved. And this does not factor in savings due to US hospitals lowering prices due to foreign competition. Mattoo looked at only 15 procedures and used a 10% participation rate, but that doesn't come close to explaining the difference between $1.4 billion and $45 billion.
The biggest culprit I see is the flawed Medicare payment data put out by CMS and relied upon by Mattoo. It leads to average payments being heavily under-estimated. Here's how CMS has slipped up:
The resources needed for this appear to be absurdly meager - I'd think a couple each of in house programmers, data base professionals and statisticians working for a few days. The directives have long been in place so it does not need any legislative, political or even top administrative clearance. In absence of this ready data we are paying a high price by mulling political options and policies in a vacuum. HHS or CMS shouldn't lose any more time correcting the situation.
Till then Medicare and the like kept such information secret or very hard to access, ostensibly to give them better negotiating leverage with providers. I think (having been in government) it's just the natural way of bureaucrats. The less information they put out there, the less vulnerable they are to any criticism, and more able to dispense favors or act arbitrarily.
But there are very good reasons to make Medicare rates and payment information freely available, especially when health reforms are such a priority:
- Hospitals have long maintained they lose money on Medicare patients and hence need higher private insurance and "list" rates as a cross-subsidy. The media and analysts have never properly verified these claims. They and policy makers can do so with more easily available data, and compare Medicare payments with those in Europe and other countries to evaluate their fairness.
- Doctors too complain about low Medicare rates and especially the cuts required in them by federal law. A cut of 10.6% was eliminated for 2009, and just two days back the 21.2% cut for 2010. Precisely knowing and assessing these rates will again better shape payment policy.
- The difference in rates and average payments across provider groups and regions can identify the outliers. Thus excessive prices and inefficiencies can be curbed while studying the most cost efficient providers for propagating best practices. Atul Gawande's Jan. 26, 2009 article in the New Yorker that so impressed President Obama shows one way to do this.
- US Medicare payments can be compared with prices charged abroad. This will highlight the achievable savings that are being studiously ignored in the current health care reforms debate. The Wall Street Journal's front page story today was of Dr. Devi Shetty's $2,000 heart bypass surgeries in India with quality and outcomes comparable to those in the US. But even top foreign providers serving medical tourists that charge $10,000 for a heart bypass offer enormous savings as they are a fifth of US prices.
$1.4 billion? This sum is ridiculously low compared to our own calculations mentioned in our Global HealthNet website and summarized in our May 2008 WSJ Op-Ed. There were $220 billion worth of 30 "exportable" medical procedures performed in 2006, and if 25% were performed abroad, $45 billion would be saved. And this does not factor in savings due to US hospitals lowering prices due to foreign competition. Mattoo looked at only 15 procedures and used a 10% participation rate, but that doesn't come close to explaining the difference between $1.4 billion and $45 billion.
The biggest culprit I see is the flawed Medicare payment data put out by CMS and relied upon by Mattoo. It leads to average payments being heavily under-estimated. Here's how CMS has slipped up:
- Foreign hospitals readily provide a consolidated estimate for standard procedures and a single final bill. But US treatments typically generate a flood of separate bills from providers (individual physicians, radiologists, therapists, device vendors, different hospital services, etc.) CMS inexplicably fails to list or specify all such components so researchers are very likely to miss major ones.
- Even the figures presented seem to be wrong. For instance, they show 42,000 heart bypasses (CABG) for Medicare recipients in 2006 with average hospital payments of $22,700 (or $33,100 for complex cases) that are only 30% of the charges. But the federal HCUP database itself shows 127,000 Medicare CABG cases and says payments average 55% of charges. (It can be about 46% for Medicare that typically pays 83% of private insurer rates but that's still a lot more than 30%.) Similarly, CMS shows under $12,000 Medicare payment to hospitals for knee or hip replacements, that again seems grossly understated at 30% of charges. Among other things it looks here that CMS omitted the sizable cost of orthopedic implants.
- To see how wrong data can skew savings calculations, consider a heart bypass that costs a total of $19,000 in a "5 star" Indian hospital including all treatment, travel and stay. If we take the US total payment to be $26,000 then the savings are $7,000 per case. But if total US payments are a more realistic $65,000 then the savings are $46,000, an over six-fold increase.
- CMS also makes it needlessly hard to find this supposedly very open payment information online. If you have a little time, visit their website and see if and how quickly you can find this before reading further. Of all places it is tucked away in "Research, Data,..." under "Health Care Consumer Initiatives."
The resources needed for this appear to be absurdly meager - I'd think a couple each of in house programmers, data base professionals and statisticians working for a few days. The directives have long been in place so it does not need any legislative, political or even top administrative clearance. In absence of this ready data we are paying a high price by mulling political options and policies in a vacuum. HHS or CMS shouldn't lose any more time correcting the situation.
Wednesday, September 16, 2009
Northern Myth Busting
We shouldn't generalize about the state of health care from individual anecdotal accounts. But these blog posts in part 1 and part 2 back from February of 2008 by Sara Robinson are good testimony from someone who has seen both the Canadian and US systems from up close. Moreover, in debunking and occasionally confirming claims about the Canadian system she cites facts and statistics that corroborate her first hand experiences. In a word she says Canadian care is at least B grade for every Canadian, while for much higher cost US care is A grade for some Americans, and C or D grade for many.
More recently on September 10, 2009 she described her efficient and worry-free hospitalization and treatment in Canada on the very day of President Obama's health care speech to Congress.
But if you've time and appetite to look up just one item I'd recommend this entertaining link sent to me by single payer advocate Jonathan Starr. It features Canadian Steven Lewis exposing US health care myths and deficiencies with music, sarcasm, facts and humor.
At the bottom of this clip is a link to a longer and more serious expose titled "Universal Health Care Message to Americans From Canadian Doctors & Health Care Experts." Canadian health care is overall better and more cost effective than that in the US, though I prefer private insurers to be allowed to offer competing choices as in many European countries. That private competition is what all serious US reform proposals envisage anyway, though private insurers rightly fear most people will opt for the the public option if they're allowed to do so.
What about opponents of changes in US health care? Here is a clip of town hall protests on 8/29/09 against health reform in Spring Valley, CA. As I commented to some friends it's scary if these are "ordinary Americans". They remind me of the 2006 movie "Idiocracy" where future generations become retarded.
Too bad that Democratic leaders like Senate Finance Committee Chairman Max Baucus seem to have heeded such sentiments. After wasting months seeking a bipartisan solution he came up with an ineffectual Senate bill without a public option that's a sellout to the insurance industry. Surprisingly he still didn't get any of the Republican members of the "Gang of Six" to sign on.
The only way I'd view Mr. Baucus' efforts positively (or even Mr. Obama's to date) is if this bill has been conceived just get something past the Senate including their own Blue Dogs. And then the plan is to introduce effective changes like a strong public option through the reconciliation process solely with Democratic support.
More recently on September 10, 2009 she described her efficient and worry-free hospitalization and treatment in Canada on the very day of President Obama's health care speech to Congress.
But if you've time and appetite to look up just one item I'd recommend this entertaining link sent to me by single payer advocate Jonathan Starr. It features Canadian Steven Lewis exposing US health care myths and deficiencies with music, sarcasm, facts and humor.
At the bottom of this clip is a link to a longer and more serious expose titled "Universal Health Care Message to Americans From Canadian Doctors & Health Care Experts." Canadian health care is overall better and more cost effective than that in the US, though I prefer private insurers to be allowed to offer competing choices as in many European countries. That private competition is what all serious US reform proposals envisage anyway, though private insurers rightly fear most people will opt for the the public option if they're allowed to do so.
What about opponents of changes in US health care? Here is a clip of town hall protests on 8/29/09 against health reform in Spring Valley, CA. As I commented to some friends it's scary if these are "ordinary Americans". They remind me of the 2006 movie "Idiocracy" where future generations become retarded.
Too bad that Democratic leaders like Senate Finance Committee Chairman Max Baucus seem to have heeded such sentiments. After wasting months seeking a bipartisan solution he came up with an ineffectual Senate bill without a public option that's a sellout to the insurance industry. Surprisingly he still didn't get any of the Republican members of the "Gang of Six" to sign on.
The only way I'd view Mr. Baucus' efforts positively (or even Mr. Obama's to date) is if this bill has been conceived just get something past the Senate including their own Blue Dogs. And then the plan is to introduce effective changes like a strong public option through the reconciliation process solely with Democratic support.
Wednesday, September 9, 2009
CDC Can Do More on Swine Flu
Looking up the CDC website on swine flu guidance reminded me of an old joke about a balloonist who was swept away by the winds and got lost.
He lowered himself next to a tall office building. He wrote "Where Am I?" on a placard and held it up for the people inside the building windows to see. Those people responded with their own placard that said "You Are in a Balloon 100 Feet Up in the Air." That answer was however enough for the balloonist to know that he was at the Microsoft headquarters in the Seattle suburb of Redmond. For going by its help feature in its products only Microsoft could provide an answer that was completely correct and yet so irrelevant and useless.
How's this related to swine flu? About two weeks ago I briefly came down with the sniffles and a mild fever that lasted less than a day. Then over this Labor Day weekend we drove to Pittsburgh where Anita's nephew had similar symptoms. We isolated the affected person (me and our nephew) and considered the obvious question of whether to seek testing, and if yes, where.
Testing would help the authorities to compile statistics and monitor the spread of the disease. Patients testing positive would know what to watch out for and be extra careful about exposing others. Recovered patients presumably acquire immunity, and needn't worry about subsequent exposure, or getting inoculated when the swine flu vaccine becomes available.
On the other hand, patients arriving in large numbers in medical facilities could put providers and other patients at risk, and strain scarce resources. Also, uninfected patients can acquire the H1N1 virus from others in the very clinic that they visit.
Weighing these pros and cons we looked at the CDC and other official websites for guidance. Despite all the other information crammed in there, we found nothing addressing these obvious questions. Countless other patients and American families may be similarly confused and frustrated.
The closest answer I got after clicking through links and menus was an indirect one, under "Home Care Guidance: Physician Directions to Patient / Parent." It said that you should see a doctor or seek medical help if you develop certain serious symptoms, presumably meaning that you shouldn't if these don't occur. It needs to be a lot more explicit and easy to find.
The new health care and CDC leadership under the Obama administration has been in place for quite some time, with Director Thomas Friedan confirmed in May 2009. They should have personally scrutinized their agency's website and confirmed there are no glaring omissions. They don't seem to have adequately done so, but this is fixable. Having worked in government these are the obvious added steps I would take in regard to swine flu were I directing CDC or the HHS in regard to the flu:
1) Prominently feature in the Frequently Questions (FAQs) and other parts of their website, as well as in briefs to the media
3) Engage and coordinate efforts with large providers and test labs to expand capabilities to handle swine flu patients. The CDC can also issue standard guidelines and practices (e.g., separate windows and rapid turnover waiting areas for flu patients in emergency rooms with proper signage, to limit cross-infections) that help providers and patients alike. The CDC can even use its power to disseminate information to have "suggested prices" for testing and treatment. Coupled with inviting providers to include their prices in the links on the CDC website as at (2) above, this will encourage lower prices.
4) Orchestrate a system to enable healthy family members to get sterile vials or containers from labs, collect patients' samples like nasal swabs, and submit these for testing. This way patients being tested get to stay at home and again limits inconvenience and the spread of infection.
5) Encourage or help set up a system of home visits to patients by health workers. Such workers should have either already contracted and recovered from H1N1 infections, or have been vaccinated after this treatment becomes available, so that they are immune.
Similar steps can be taken to disseminate detailed information about the swine flu vaccine which is expected to be widely available very soon. The CDC and the HHS are large organization with multiple responsibilities. So ideas like these may not have been considered. I hope they are responsive once they see them. Since H1N1 flu has now spread worldwide, other countries can also adopt similar practices.
He lowered himself next to a tall office building. He wrote "Where Am I?" on a placard and held it up for the people inside the building windows to see. Those people responded with their own placard that said "You Are in a Balloon 100 Feet Up in the Air." That answer was however enough for the balloonist to know that he was at the Microsoft headquarters in the Seattle suburb of Redmond. For going by its help feature in its products only Microsoft could provide an answer that was completely correct and yet so irrelevant and useless.
How's this related to swine flu? About two weeks ago I briefly came down with the sniffles and a mild fever that lasted less than a day. Then over this Labor Day weekend we drove to Pittsburgh where Anita's nephew had similar symptoms. We isolated the affected person (me and our nephew) and considered the obvious question of whether to seek testing, and if yes, where.
Testing would help the authorities to compile statistics and monitor the spread of the disease. Patients testing positive would know what to watch out for and be extra careful about exposing others. Recovered patients presumably acquire immunity, and needn't worry about subsequent exposure, or getting inoculated when the swine flu vaccine becomes available.
On the other hand, patients arriving in large numbers in medical facilities could put providers and other patients at risk, and strain scarce resources. Also, uninfected patients can acquire the H1N1 virus from others in the very clinic that they visit.
Weighing these pros and cons we looked at the CDC and other official websites for guidance. Despite all the other information crammed in there, we found nothing addressing these obvious questions. Countless other patients and American families may be similarly confused and frustrated.
The closest answer I got after clicking through links and menus was an indirect one, under "Home Care Guidance: Physician Directions to Patient / Parent." It said that you should see a doctor or seek medical help if you develop certain serious symptoms, presumably meaning that you shouldn't if these don't occur. It needs to be a lot more explicit and easy to find.
The new health care and CDC leadership under the Obama administration has been in place for quite some time, with Director Thomas Friedan confirmed in May 2009. They should have personally scrutinized their agency's website and confirmed there are no glaring omissions. They don't seem to have adequately done so, but this is fixable. Having worked in government these are the obvious added steps I would take in regard to swine flu were I directing CDC or the HHS in regard to the flu:
1) Prominently feature in the Frequently Questions (FAQs) and other parts of their website, as well as in briefs to the media
- Advice to persons with typical symptoms and parents on whether and when to get tested for swine flu, and when not to
- Similar advice on when to seek medical help or visit a doctor, and when to hold off out of concerns of spreading or contracting infection
- Some information about the cost of testing, the best places to go to (doctor's office, clinic or hospital emergency room?) and the reliability of the tests. Add more "layman" information about the benefits - and the downside or risks - of anti-viral treatments like Tamiflu and Relenza.
3) Engage and coordinate efforts with large providers and test labs to expand capabilities to handle swine flu patients. The CDC can also issue standard guidelines and practices (e.g., separate windows and rapid turnover waiting areas for flu patients in emergency rooms with proper signage, to limit cross-infections) that help providers and patients alike. The CDC can even use its power to disseminate information to have "suggested prices" for testing and treatment. Coupled with inviting providers to include their prices in the links on the CDC website as at (2) above, this will encourage lower prices.
4) Orchestrate a system to enable healthy family members to get sterile vials or containers from labs, collect patients' samples like nasal swabs, and submit these for testing. This way patients being tested get to stay at home and again limits inconvenience and the spread of infection.
5) Encourage or help set up a system of home visits to patients by health workers. Such workers should have either already contracted and recovered from H1N1 infections, or have been vaccinated after this treatment becomes available, so that they are immune.
Similar steps can be taken to disseminate detailed information about the swine flu vaccine which is expected to be widely available very soon. The CDC and the HHS are large organization with multiple responsibilities. So ideas like these may not have been considered. I hope they are responsive once they see them. Since H1N1 flu has now spread worldwide, other countries can also adopt similar practices.
Wednesday, September 2, 2009
Another Red Herring
This cover story in the current Atlantic "How American Health Care Killed My Father" by David Goldhill has attracted a lot of attention. David Brooks in the NY Times in a September 2 column even calls it "brilliant." But I find its conclusions about required steps to be misleading and adding to the confusion about health care reforms.
It has some nuggets of insight. Like health insurance is currently not just insuring against unforeseen events as other kinds typically do, but generally paying for almost all care however routine or minor. Or that patients don't concern themselves with expenses or limit needless treatment, when someone else (the insurer) is picking up the tab. Or that hospitals restrict competition by lobbying against new entrants and through consolidation, and deliberately overprice emergency room care to inflate their charitable services component. Or that for hospitals and providers, the real customer is not the patient - it's the payer of their bills.
Goldhill summarizes at one point: "A wasteful insurance system; distorted incentives; a bias toward treatment; moral hazard; hidden costs and a lack of transparency; curbed competition; service to the wrong customer. These are the problems at the foundation of our health-care system, resulting in a slow rot and requiring more and more money just to keep the system from collapsing. "
Goldhill then suggests starting completely afresh, taking a lot more time to think and plan, and "to move away from comprehensive health insurance as the single model for financing care. And a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system." His outlined solution is to essentially tweak the marginally successful system of individual consumer health savings accounts (HSA) coupled with catastrophic insurance that has been in place since 2005.
Even some smart and logical people seem to have been swayed by Goodhill's logic. Here for example is the reaction of Hari, a seasoned Silicon Valley engineer:
"Despite some flaws in the solution the author proposes, I actually agree with his description of the fundamental problem of why medical costs are so high, medical care is not commensurate with cost and all solutions from insurance to government will eventually lead to cost overruns. I actually think that a combination of private HSA savings account, catastrophic-only insurance and government maintenance of Medicaid is the way to go..."
Why is this HSA approach so deficient? Jonathan Starr, also an engineer and a single payer advocate, gave this apt response to Hari that captures a lot of my thinking as well:
"The author identifies some important concerns regarding cost-control, good-practice, and accountability. But, I do not agree with the solutions he offered, such as the ones you mention.
Regarding reliance on HSA accounts as a major part of paying for health care:
1) Assuming these are tax-deductible accounts, they are inherently regressive. The higher a person's income, the more that person can afford to put into such a tax-sheltered account. The higher the person's marginal tax-bracket, the larger the tax-deduction that person receives for any amount put into that account.
2) For most people, it is impossible to predict future medical needs, and how much they will cost, so it is impossible to determine how much any particular person should put into an HSA account.
3) Insurance, single-payer or otherwise, pools risk to make coverage available when some members of the pool need it. By pooling the financial resources of a large group, most of whom at any one time are healthy enough not to need to draw significantly on those resources, those who do need to draw heavily on the pooled resources are able to do so. With HSA accounts, there is no pooling of risk. Resources are distributed in as fragmented a manner as possible. So, financial resources in most accounts may sit around unused, while those people who need health care service exhaust their own little financial pool quickly. Pooling of risk through some type of insurance is a great innovation with enormous public benefit, all of which relying on HSA accounts forgoes.
4) Individual customers, with just their own HSA accounts, have little leverage, or expertise, for negotiating for favorable prices and rates for pharmaceuticals, medical equipment, and health care. Large aggregations of resources, such as in insurance plans (again, single-payer or otherwise), can have far greater expertise and leverage in negotiating and pressuring for such cost-reductions.
5) Fragmenting the customer pool reduces the capacity for aggregating information about health care outcomes and for advocating and enforcing best-practices.
In short, there is great power in numbers for controlling costs through bulk-purchasing and negotiation, and for gathering, evaluating, and distributing information and requirements about best-practices to control costs and improve outcomes. This is increased with large insurance programs, and maximized with a single-payer program; in contrast, it is minimized through reliance on individual HSA accounts, which maximize the fragmentation of the pool of end-users.
Also, the low-hanging fruit reducing health care costs is in reducing administrative overhead. Hospitals and other care-providers must pay large costs to handle the billing of innumerable insurance policies. If instead, they have to bill an exponentially larger number of individual people and HSA plans, that makes this administrative overhead even higher. Furthermore, care-providers must build into their price-structure higher fees to those who do pay in order to cover those who do not. If every person is being billed individually, the number who ultimately do not pay undoubtedly will increase. This not only increases the costs for collection, it also inevitably raises the fees that must be paid by those who do pay.
In a single-payer system, the need for such billing overhead is drastically reduced. There is a single program to deal with, instead of innumerable policies, or even more innumerable individuals. Furthermore, payment by single-payer systems are reliable, so that fees do not need to be padded to cover those who do not pay. In practice, one of the reasons doctors and other care-providers have been willing to accept the lower-than-market-rate fees paid by Medicare is precisely this reliability of payment.
If the HSA-based system still includes reliance on, or even just availability of, private insurance, then not only is there the administrative overhead that must be built into healthcare costs, there is also the profit, marketing, billing, lobbying, and administrative costs of the insurance companies themselves. This is more money that is paid nominally for healthcare, but actually goes to something else, which adds to the cost of the system.
Also, providing insurance, or even just administering HSA accounts, is a competitive burden on American companies. With a single-payer system, this burden is relieved; with everyone having HSA accounts, it instead could be increased."
President Obama is (finally) set to exercise leadership and press his own specific proposals for health care reforms for Congress to pass, rather than passively let a bill bubble out for him to sign. That's the good news. But he has already failed to strongly speak out for a strong public option (if not an outright single payer system) so that public support has eroded due to the propaganda and misinformation by reform opponents. There are signs that he's willing to drop insistence on this option that is vital to cost containment. If that happens it may be a big indicator not only of his success on health reforms, but of his vision and overall ability to lead.
It has some nuggets of insight. Like health insurance is currently not just insuring against unforeseen events as other kinds typically do, but generally paying for almost all care however routine or minor. Or that patients don't concern themselves with expenses or limit needless treatment, when someone else (the insurer) is picking up the tab. Or that hospitals restrict competition by lobbying against new entrants and through consolidation, and deliberately overprice emergency room care to inflate their charitable services component. Or that for hospitals and providers, the real customer is not the patient - it's the payer of their bills.
Goldhill summarizes at one point: "A wasteful insurance system; distorted incentives; a bias toward treatment; moral hazard; hidden costs and a lack of transparency; curbed competition; service to the wrong customer. These are the problems at the foundation of our health-care system, resulting in a slow rot and requiring more and more money just to keep the system from collapsing. "
Goldhill then suggests starting completely afresh, taking a lot more time to think and plan, and "to move away from comprehensive health insurance as the single model for financing care. And a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system." His outlined solution is to essentially tweak the marginally successful system of individual consumer health savings accounts (HSA) coupled with catastrophic insurance that has been in place since 2005.
Even some smart and logical people seem to have been swayed by Goodhill's logic. Here for example is the reaction of Hari, a seasoned Silicon Valley engineer:
"Despite some flaws in the solution the author proposes, I actually agree with his description of the fundamental problem of why medical costs are so high, medical care is not commensurate with cost and all solutions from insurance to government will eventually lead to cost overruns. I actually think that a combination of private HSA savings account, catastrophic-only insurance and government maintenance of Medicaid is the way to go..."
Why is this HSA approach so deficient? Jonathan Starr, also an engineer and a single payer advocate, gave this apt response to Hari that captures a lot of my thinking as well:
"The author identifies some important concerns regarding cost-control, good-practice, and accountability. But, I do not agree with the solutions he offered, such as the ones you mention.
Regarding reliance on HSA accounts as a major part of paying for health care:
1) Assuming these are tax-deductible accounts, they are inherently regressive. The higher a person's income, the more that person can afford to put into such a tax-sheltered account. The higher the person's marginal tax-bracket, the larger the tax-deduction that person receives for any amount put into that account.
2) For most people, it is impossible to predict future medical needs, and how much they will cost, so it is impossible to determine how much any particular person should put into an HSA account.
3) Insurance, single-payer or otherwise, pools risk to make coverage available when some members of the pool need it. By pooling the financial resources of a large group, most of whom at any one time are healthy enough not to need to draw significantly on those resources, those who do need to draw heavily on the pooled resources are able to do so. With HSA accounts, there is no pooling of risk. Resources are distributed in as fragmented a manner as possible. So, financial resources in most accounts may sit around unused, while those people who need health care service exhaust their own little financial pool quickly. Pooling of risk through some type of insurance is a great innovation with enormous public benefit, all of which relying on HSA accounts forgoes.
4) Individual customers, with just their own HSA accounts, have little leverage, or expertise, for negotiating for favorable prices and rates for pharmaceuticals, medical equipment, and health care. Large aggregations of resources, such as in insurance plans (again, single-payer or otherwise), can have far greater expertise and leverage in negotiating and pressuring for such cost-reductions.
5) Fragmenting the customer pool reduces the capacity for aggregating information about health care outcomes and for advocating and enforcing best-practices.
In short, there is great power in numbers for controlling costs through bulk-purchasing and negotiation, and for gathering, evaluating, and distributing information and requirements about best-practices to control costs and improve outcomes. This is increased with large insurance programs, and maximized with a single-payer program; in contrast, it is minimized through reliance on individual HSA accounts, which maximize the fragmentation of the pool of end-users.
Also, the low-hanging fruit reducing health care costs is in reducing administrative overhead. Hospitals and other care-providers must pay large costs to handle the billing of innumerable insurance policies. If instead, they have to bill an exponentially larger number of individual people and HSA plans, that makes this administrative overhead even higher. Furthermore, care-providers must build into their price-structure higher fees to those who do pay in order to cover those who do not. If every person is being billed individually, the number who ultimately do not pay undoubtedly will increase. This not only increases the costs for collection, it also inevitably raises the fees that must be paid by those who do pay.
In a single-payer system, the need for such billing overhead is drastically reduced. There is a single program to deal with, instead of innumerable policies, or even more innumerable individuals. Furthermore, payment by single-payer systems are reliable, so that fees do not need to be padded to cover those who do not pay. In practice, one of the reasons doctors and other care-providers have been willing to accept the lower-than-market-rate fees paid by Medicare is precisely this reliability of payment.
If the HSA-based system still includes reliance on, or even just availability of, private insurance, then not only is there the administrative overhead that must be built into healthcare costs, there is also the profit, marketing, billing, lobbying, and administrative costs of the insurance companies themselves. This is more money that is paid nominally for healthcare, but actually goes to something else, which adds to the cost of the system.
Also, providing insurance, or even just administering HSA accounts, is a competitive burden on American companies. With a single-payer system, this burden is relieved; with everyone having HSA accounts, it instead could be increased."
President Obama is (finally) set to exercise leadership and press his own specific proposals for health care reforms for Congress to pass, rather than passively let a bill bubble out for him to sign. That's the good news. But he has already failed to strongly speak out for a strong public option (if not an outright single payer system) so that public support has eroded due to the propaganda and misinformation by reform opponents. There are signs that he's willing to drop insistence on this option that is vital to cost containment. If that happens it may be a big indicator not only of his success on health reforms, but of his vision and overall ability to lead.
Monday, August 24, 2009
Easily Conned?
Last Friday I traded in our ancient minivan to buy a new SUV under the highly popular "Cash for Clunkers" program.
As I was signing the final papers, the manager at the GM dealership lamented the bureaucratic wringer and technical glitches that have plagued the program. The government website (for uploading claims) would remain unavailable or keep crashing. Paperwork was tedious and claims were rejected for trivial reasons. Four weeks after filing the first claims the dealership had yet to receive any money.
"The government messes up everything, and now it's trying to take over our health care," said the auto manager. I asked him what he thought of the public option, and he said he is dead set against it.
That stopped me short. Here was someone who was (a) not a health provider or insurer, (b) not a $250K+ earner who would see taxes hiked up, and (c) not a lawmaker (Republican or Blue Dog Democrat) bribed by the industry to safeguard its interests. Moreover, he is in the business of selling new and used cars. That's someone who should be savvy enough to tell facts from fiction.
Yet even he swallowed the industry claims and counter-arguments against reform. He objected to the public option because his employer may then drop his private insurance (why should it matter if the public plan is better, or he can still see the same doctors?) When asked about the popular Medicare for seniors, and why not offer it to all Americans, he said Medicare will be out of funds (if it's cheaper, the funding is just a matter of allocating enough to it.)
This underscores just how easy it can be for reform opponents to confuse (or sucker) the average Joe about changes to the system. The Obama administration certainly hasn't helped with its mixed and conflicting messages on its commitment to the public option.
It doesn't have to be this way. Here's a link I received from Jonathan Starr of an MSNBC "Morning Joe" discussion between Republican host Joe Scarborough and Congressman Anthony Weiner (D - NY). Weiner advocates a single payer system and his logic for it even gets Scarborough (to his credit) thinking hard and admitting he's impressed "and speechless." Why isn't Mr. Obama making this case?
Paul Krugman has criticized Obama in today's Op-Ed in The Times. He also repeats that "Reaganomics has failed to deliver what it promised, yet people still believe that government intervention is bad, and leaving the private sector to its own devices is good."
A remarkable national survey result also shows that a majority of Americans believe most of the 19 myths floated by reform opponents.
Republicans also have some (a few, I wish they had more) good ideas on health reforms that are being ignored by Democrats. Chief among these is the need for malpractice reforms. It may bring down some health care costs, or at least remove one major reason (or excuse) advanced by providers for high costs.
Then there are reforms that neither party stresses, like vastly expanding the supply of doctors and other providers, and curbing hospital market power. A reason reforms are so difficult is that each interest group has powerful leverage and lawmakers protecting them. Strong public demand can pressure the politicians to do the right thing. For this to happen President Obama needs to stop being so passive and overlearning from the Clintons' 1993 experience. He should instead imagine how Hillary would act now if she were in his place.
And Americans like my auto dealer need to better judge industry claims.
As I was signing the final papers, the manager at the GM dealership lamented the bureaucratic wringer and technical glitches that have plagued the program. The government website (for uploading claims) would remain unavailable or keep crashing. Paperwork was tedious and claims were rejected for trivial reasons. Four weeks after filing the first claims the dealership had yet to receive any money.
"The government messes up everything, and now it's trying to take over our health care," said the auto manager. I asked him what he thought of the public option, and he said he is dead set against it.
That stopped me short. Here was someone who was (a) not a health provider or insurer, (b) not a $250K+ earner who would see taxes hiked up, and (c) not a lawmaker (Republican or Blue Dog Democrat) bribed by the industry to safeguard its interests. Moreover, he is in the business of selling new and used cars. That's someone who should be savvy enough to tell facts from fiction.
Yet even he swallowed the industry claims and counter-arguments against reform. He objected to the public option because his employer may then drop his private insurance (why should it matter if the public plan is better, or he can still see the same doctors?) When asked about the popular Medicare for seniors, and why not offer it to all Americans, he said Medicare will be out of funds (if it's cheaper, the funding is just a matter of allocating enough to it.)
This underscores just how easy it can be for reform opponents to confuse (or sucker) the average Joe about changes to the system. The Obama administration certainly hasn't helped with its mixed and conflicting messages on its commitment to the public option.
It doesn't have to be this way. Here's a link I received from Jonathan Starr of an MSNBC "Morning Joe" discussion between Republican host Joe Scarborough and Congressman Anthony Weiner (D - NY). Weiner advocates a single payer system and his logic for it even gets Scarborough (to his credit) thinking hard and admitting he's impressed "and speechless." Why isn't Mr. Obama making this case?
Paul Krugman has criticized Obama in today's Op-Ed in The Times. He also repeats that "Reaganomics has failed to deliver what it promised, yet people still believe that government intervention is bad, and leaving the private sector to its own devices is good."
A remarkable national survey result also shows that a majority of Americans believe most of the 19 myths floated by reform opponents.
Republicans also have some (a few, I wish they had more) good ideas on health reforms that are being ignored by Democrats. Chief among these is the need for malpractice reforms. It may bring down some health care costs, or at least remove one major reason (or excuse) advanced by providers for high costs.
Then there are reforms that neither party stresses, like vastly expanding the supply of doctors and other providers, and curbing hospital market power. A reason reforms are so difficult is that each interest group has powerful leverage and lawmakers protecting them. Strong public demand can pressure the politicians to do the right thing. For this to happen President Obama needs to stop being so passive and overlearning from the Clintons' 1993 experience. He should instead imagine how Hillary would act now if she were in his place.
And Americans like my auto dealer need to better judge industry claims.
Sunday, August 16, 2009
Sell-Out By Obama?
In the past day or so I've been struck by three news items about health reforms.
First, former DNC Chairman Howard Dean flatly stated in a TV interview that health reforms without a public option were not worth having.
Second, the New York Times today carried an Op-Ed by President Obama himself on the need for health reforms. He seemed to want everyone on board with it, touting support by provider groups including the AMA. But that may just be the problem.
Third, as also reported in the NYT the White House in its anxiety to pass any type of health reform package seems ready to compromise by dropping the call for a public insurance option. “The public option, whether we have it or we don’t have it, is not the entirety of health care reform” Mr. Obama said. “This is just one sliver of it, one aspect of it.”
Actually, the public option is a huge deal, given that the government buying clout is needed to counter the market power of providers controlling scarce resources or facing little competition. Without it the cost-containment component of health reforms suffers a severe setback even if we manage to expand coverage of the uninsured. Howard Dean realizes this, as does Paul Krugman who reiterated this view in his Op-Ed today in the NYT.
President Obama could have used his speeches and town hall meetings to expose the special interests and their misinformation about the public plan. This could also have deterred Democratic senators like Ben Nelson and Kent Conrad who have apparently been bought over by industry interests. Instead, Mr. Obama seems anxious to pass a reform plan that placates the opposition, even if it is weak and ineffective at reining in costs, and then calling this a victory for his administration (and of course "the American people.") Let's hope I'm wrong.
First, former DNC Chairman Howard Dean flatly stated in a TV interview that health reforms without a public option were not worth having.
Second, the New York Times today carried an Op-Ed by President Obama himself on the need for health reforms. He seemed to want everyone on board with it, touting support by provider groups including the AMA. But that may just be the problem.
Third, as also reported in the NYT the White House in its anxiety to pass any type of health reform package seems ready to compromise by dropping the call for a public insurance option. “The public option, whether we have it or we don’t have it, is not the entirety of health care reform” Mr. Obama said. “This is just one sliver of it, one aspect of it.”
Actually, the public option is a huge deal, given that the government buying clout is needed to counter the market power of providers controlling scarce resources or facing little competition. Without it the cost-containment component of health reforms suffers a severe setback even if we manage to expand coverage of the uninsured. Howard Dean realizes this, as does Paul Krugman who reiterated this view in his Op-Ed today in the NYT.
President Obama could have used his speeches and town hall meetings to expose the special interests and their misinformation about the public plan. This could also have deterred Democratic senators like Ben Nelson and Kent Conrad who have apparently been bought over by industry interests. Instead, Mr. Obama seems anxious to pass a reform plan that placates the opposition, even if it is weak and ineffective at reining in costs, and then calling this a victory for his administration (and of course "the American people.") Let's hope I'm wrong.
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