The Opt-Out: A Poison Pill That Congress Mustn’t Swallow

So, at last, so-to-be-ex-Sen. Harry Reid has found the wedge that just might get him 60 votes in the Senate for the Democrats horrible idea of health care reform.  Yesterday, he and Senator Chuck Schumer introduced the “opt-out” public option, which, in theory, will allow states to not participate in the nationalization of the health care system.  I say, in theory, because there is absolutely no way that it can happen in practice!

First of all, the public option does not fundamentally alter the health care system where it matters most: cost.  Instead, the public option merely shifts money from the private sector to the public sector, giving the federal government more control and power over the level and quality of your health care.  That power still remains even if half of the United States “opts out.”  Remember also, that, while the public option is the most visible of the Democrats’ health care reforms, it is not the most important.  Far more important are the new federal mandates that will be placed upon the private sector to reduce competition and choice.  In other words, every insurance plan will look just like the public option, so you’ll have no real choice of coverage or even premium per se (assuming that the federal government retains the “right” to set doctor’s compensation, a proposal that was in the original version of the bill released in August).  Therefore, opting out has no practical impact!

Secondly, the health insurance system in this country will remain one that is fundamentally employer-based, rather than individual-based as it should be.  Why?  Because corporations are far easier to pressure and manipulate than individuals.  How will a state “opt-out” of the public option if say it’s three largest employers opt-in?  The beauty of the opt-out for Democrats is that it gives them a simple answer to Republican and conservative concerns about the nationalization of our health care system: if you don’t like it, don’t join!  However, Democrats in Congress are counting on America’s Fortune 500 companies (which have operations in virtually every state) to join the public option.  An 8% tax is probably cheaper than what they’re paying now!  It makes business sense to drop your private coverage and pay the tax, never mind that the 8% number was pulled out of thin air and does not reflect the realistic cost of providing health insurance to millions of Americans!  Businesses, especially large ones, tend to be focused on the short-term.

The result is that, even if a state were to opt-out, the citizens of that state would still effectively be paying the 8% tax on health care and getting nothing in return.  That’s not exactly a winning political move for most governors and state legislatures!  As the examples of Louisiana and South Carolina earlier this year with the stimulus prove, it is far harder to opt-out than to opt-in.  Democrats are counting on this to move their agenda forward!

The only way to stop the takeover of private health care in this country is to expose the Democrats’ “compromise” to the harsh light of day!  This is a poison pill that will deliver millions of Americans into the same caring government hands that produced:

• Medicare (the largest segment of medical-related bankruptcies are the elderly.  Every senior citizen in America is covered by Medicare!  Medicare payouts are so bad and so damaging for the elderly that nearly two-thirds have private supplemental coverage!)
• Medicaid (the artificially low payouts of Medicare and Medicaid have placed the U.S. Treasury some $60 trillion in debt!!!)
• S-CHIP (a program meant to cover poor children that has so exceeded its mandate as to become a laughing stock of the insurance world!)
• VA (a program with a long documented history of inadequate facilities, long wait times for routine procedures, and patients who fell through the cracks!)
• Tri-Care (military health insurance so bad that few, if any, private practice doctors will accept it!)

If you like the above programs and truly think that this is the best that we can do, then go ahead and vote for the public option.  Vote for yet another government program that claims: this time we’ll get it right!  As for me, I’ll keep working for real solutions to real problems in our health care system!

P.S. you can view my previous treatment of this topic here, here, here, here, here, and here.

Obama: Weakest Foreign Policy President since Carter?

That’s the argument that Michael Barone seems to be making here.  For myself, I’m not sure that I go that far!  Barack Obama has a mixed record so far when it comes to foreign policy.  I’ve even praised a couple of his decisions as related to the Middle East and North Korea.  Still, many of his decisions appear to be ill-considered and ill-focused.  To see how, let’s look at Barone’s examples:

Honduras.  On June 28, 2009, Honduran President Manuel Zelaya was seized by the Honduran military and forcibly exiled to Costa Rica.  Zelaya is a disciple of Hugo Chavez and had sought to conduct the same type of fascist coup that Chavez had pulled of to become dictator in Venezuela.  Unlike in Venezuela, Zelaya was opposed by both the National Congress (the Honduran legislature) and the country’s Supreme Court, who had two days earlier declared that Zelaya was in violation of the Honduran constitution.  Following his forcible removal by the military, power was immediately returned to civilian authorities in accordance with that same constitution.

Barone says that “[t]he White House immediately interpreted this as a military coup and decided that, this time, the United States would come out on the side of ‘the people.’ In fact, we find ourselves siding with a friend of the Iranian mullahs, Hugo Chavez, who swept aside similar constitutional limits in Venezuela, and opposing the elected congress, courts and civil society of Honduras.”  This strikes me as an overly harsh criticism of the Obama Administration.  The world has almost universally condemned the events that occurred in Honduras!  And they were all wrong for doing so, but countries tend to react instinctively and none more so than democracies (for whom the idea of using the military to deal with internal political issues is anathema)!

We could, however, blame the Obama administration for not changing its mind once the facts on the ground became known through the American media and our own diplomatic, military, and economic assets on the ground.  In this, Obama missed a prime opportunity to assert American support for democracy worldwide at very little cost to himself or the American people and to curtail the spread of Chavez-inspired fascism.

Grade: C. He did no better, but no worse, than any other world leader.  It is certainly unlikely that any other American president would have had a different initial reaction, though perhaps a couple (Reagan, Kennedy, perhaps Bush 43) would have had the fortitude to recognize the opportunity to oppose the rise of Chavismo in Latin and South America and taken the positive steps to do so.

Israel/Palestine.  Barone states that the “most important example of where this administration has come out on the side of our enemies and against our friends [is Israel]. Israel has been told that it must stop all settlement construction, even the adding of spare rooms for newly arrived infants, while nothing is asked of the Palestinians.”  While I agree with Barone’s sentiment, I disagree that this is the most important example.  I think the next one is a far better example of this administration’s bungling of relations with our allies.

Barone does have a somewhat valid criticism of the Obama administration.  While blaming Israel is not new, especially where Democratic administrations are concerned (Clinton and Carter come to mind), Obama had taken a hard line with the Palestinians in his Cairo speech earlier this year.  In that speech, Obama told the Palestinian leadership that if they wanted to be treated like a government, they had to act like one.  That meant combating, controlling, and/or otherwise disarming the terrorists that are attacking Israel. 

At first blush, I thought that distinguishing between the “legitimate” government of Palestine and the “terrorists” was a brilliant tactical move.  It forced Hamas to make a decision: are they a government or a terrorist group?  It’s an artificial distinction, I know, but one that theoretically gave the U.S. a powerful tool in controlling the violence in the West Bank and the Gaza Strip.  If Hamas proved to be a terrorist group, then the Israelis were justified in doing what they believed was necessary to safeguard their people.  If Hamas acted like a government, brought its terrorist arm under control, and generally behaved itself, the onus would be on Israel to act in kind.

Now, Obama has thrown the Cairo protocol out the window in favor of satisfying the “Blame Israel” crowd at the UN and within his own party.  To the best of my knowledge, the daily bombardment of Israeli cities with Katushya rockets by Hamas and Hezbollah has continued unmolested, Hamas gunmen still fire at Israeli civilians and Hamas terrorists still attempt to bomb Israelis.  In point-of-fact, Israeli defensive measures, such as the much-derided barricade between Israel and the Gaza Strip, is what has decreased the violence, not Hamas’ change of heart.

Grade: D-.  Obama has shown himself to be a fair weather friend of both the Palestinians and the Israelis, depending on his audience.  As such, the opportunity afforded by the Cairo protocol is gone and the violence in the Middle East will continue.  Moreover, Hamas’ backers in Tehran have learned that Obama isn’t serious about taking a stand in the Middle East.

Eastern Europe.  There are matters of foreign policy that often transcend politics.  One of these is our relationship with our allies.  The great Republican Senator Arthur Vandenberg once said that “politics stops at the water’s edge.”  That’s not to say matters of foreign policy aren’t politicized; they are, especially on the campaign trail.  One of the keys to Kennedy’s victory in the 1960 Presidential election was the so-called “missile gap.”  Reagan won election in 1980 with his tough rhetoric on the Soviet Union and his criticism of Carter’s handling of the Iran Hostage Crisis.  Foreign policy issues definitely are political, but our response to these issues usually reveals a great deal of thought and strategic judgment.

It should come as no surprise to anybody that the Obama administration is not keen on missile defense.  Using near-Clintonian logic, Obama has made clear to he believes it to be an enormously expensive system that has no strategic value to the United States.  (It was the Republican-controlled Congress that kept missile defense alive during the Clinton years over the objections of Clinton and many of his administration officials.)  Indeed, it came as a shock to no one when Obama publicly negated a Bush-signed treaty to install a missile defense system in Poland and the Czech Republic earlier this month.

What probably did shock Obama was the response from the countries with whom the United States had signed said treaty!  Since the incident, the Polish president has refused all direct communication with President Obama!  From an ally, that’s the equivalent of cutting off diplomatic relations and recalling your ambassador!  While I’m sure that Obama was shocked by this slap in the face response, he really shouldn’t have been.  The negotiations between Poland, the Czech Republic, and the U.S. were well publicized, along with several news articles describing the risks that these two Eastern European nations were taking in the face of renewed Russian aggression.

Grade: F.  Obama’s public announcement of his intention to cancel deployment of the missile defense system may play well amongst his base.  However, his decision lacks tact and any strategic forethought whatsoever.  The announcement was thoroughly unnecessary (see Kennedy and the removal of IRBMs from Turkey.)  It also reveals a huge gap in the administration’s understanding of the realities of international relations.  Much like with his domestic agenda, Mr. Obama is a lot more popular than his policies; unlike in America, those who dislike his policies can actually do something about it.

Russia and Nuclear Arms.  To his credit, Mr. Obama hasn’t looked into Mr. Medvedev’s soul and declared it good, unlike his predecessor.  The Obama administration seems to recognize that the Russians will pose a challenge for them.  However, they appear to lack a coherent strategy to deal with them.  (Are you noticing a pattern yet?)  In response to Mr. Obama’s announcement detailed above, “[t]he president of Russia … expressed his delight — and pointedly made no concessions in return.”  At least part of the Obama administration thinking in scrapping the missile defense shield in Eastern Europe was the appeasement of Russia.  As with the most appeasement strategies dating back to Roman times, it’s a weak move.

The second part of the appeasement strategy has fallen similarly flat.  “Neither has Russia made concessions in return for Obama’s announced plans to cut back sharply on our nuclear stockpiles,” according to Barone.  Barone reasons that the cuts were made so that “either that others will make similar cutbacks out of gratitude for our example or, more worryingly, that the possession of so many nukes by the United States is somehow a bad thing.”  I’ve dealt with the first half of the Barone’s reasoning.  So let me tackle the second half.

Barone is being a bit of a bomb-thrower with this particular comment.  The possession of nuclear weapons by the United States, whether 4, 40, or 40,000, has no moral relevance whatsoever.  The possession of these weapons by a stable, democratically-elected, peaceful government cannot constitute a moral negative.  However, from an amoral cost-benefit standpoint, maintaining so many weapons without a clear strategic purpose (other than the outdated Cold War formula of MAD) is pointless.  Many of these nuclear systems are over three decades old (older with you count the B-52, which originated in the late 1950s).  Their retirement is probably long overdue.

Grade – Russia: C.  Obama has pursued a weak strategy vis-a-vis Russia, so the fact that it has yielded no results doesn’t hurt him very badly.  Without a much more aggressive campaign involving our NATO allies, the UN, and other NGOs, it is unlikely that Russia will be persuaded by these non-concession concessions.  The Obama administration does deserve some credit for recognizing that the Russians have thus far been part of the problems plaguing U.S. foreign policy.

Grade – Nuclear Arms: B.  Reducing our nuclear arsenal makes sense in light of the lack of a clear mission and purpose for these weapons.  So long as the Obama administration retains the most advanced systems (our naval SSBN fleet), he will get good marks from me in this area.  Of course, his marks would be better if he would commit himself to ballistic missile defense.  It would add a stick to his carrot with Russia and put Iran and North Korea back on the defensive.

Afghanistan.  Ten months into the his first year as President and Obama is still unable to communicate a clear policy on Afghanistan.  “In March, Obama said we must persevere in the struggle there to protect ourselves against terrorists and installed a new general, ahead of schedule, to come up with a counterinsurgency strategy. That general delivered a report on Aug. 30 strongly implying that we must increase troops commitments. But as of Sept. 21, Obama has held only one meeting on the subject, according to The Washington Post’s Bob Woodward.”

Obama’s unwillingness to implement this new strategy might be based less on the merits of the strategy and the goals of the U.S. in Afghanistan and more to do with the President’s own dangerous association with the radical anti-war wing of his party.  On Meet the Press recently, Obama stated, with regards to Afghanistan, that “[he's] certainly not one who believes in indefinite occupations of other countries.”

First off, his very indecision on an Afghan strategy risks creating the indefinite occupation that he doesn’t want.  Of greater concern to me, however, is that Obama doesn’t appear to have had a strategy for Afghanistan going into the Oval Office.  Certainly, it was a problem that he inherited from the Bush administration, but it was also a problem that he wanted (at least if you believe his rhetoric during the campaign).

Grade: D+.  Obama gets credit for not reflexively reversing the Bush administration standing policy and strategy.  However, his failure to have a clear direction upon entering the Oval Office compounded with his unwillingness to overcome his own internal prejudices mark him down heavily.  There is no excuse for not being prepared for the foreign policy challenges that you know you will face.

North Korea.  His most brilliant foreign policy decision to date in my opinion.  By letting former President Bill Clinton negotiate the release of two U.S. reporters being held by the North Korean government, Obama demonstrated that he is capable of tact in diplomatic situations.  Clinton is well-respected in Asia and his wife is the Secretary of State, which tacitly means that negotiating with him is tantamount to negotiating with the United States government. 

At the same time, Clinton had no official status as an envoy and the Obama administration has continued to play dumb where Mr. Clinton’s trip was concerned.  (Does anyone truly believe that the White House had no clue what was going on?)  That allows the U.S. maximum flexibility.  Since it was never actually involved, the U.S. can honor or disown Mr. Clinton’s agreement with North Korea (whatever it might have been) at its own discretion.

Grade: A.  All-in-all, a brilliant coup d’etat for Obama.  His problems on foreign policy lie elsewhere.

Summary

Obama’s first year in office has been characterized by indecision, a lack of vision, and a dangerous adherence to Democratic dogma.  As such, it is hard to see how he will ever be a great President.  But, will he be a Jimmy Carter? 

At the end of his first year (assuming that the world doesn’t blow up suddenly), he has received the following grades:

Honduras	C (2.0)	5% of total grade
Israel/Palestine	D- (0.7)	15% of total grade
Eastern Europe	F (0.0)	20% of total grade
Russia	C (2.0)	20% of total grade
Nuclear Arms	B (3.0)	5% of total grade
Afghanistan	D+ (1.3)	30% of total grade
North Korea	A (4.0)	5% of total grade

On a weighted average,  Mr. Obama receives 1.3 out of a possible 4.0.  That’s a D+!  If we consider Jimmy Carter to be an F and a Reagan or Kennedy to be an A, then, yes, Obama is the next Carter.  It’s still early and it always possible that Obama could turn his foreign policy around.  However, I don’t see that happening!  When he’s playing with house money (e.g. nuclear arms), he is capable of making good decisions.  That’s largely because these decisions, whether right or wrong, are largely meaningless.  But, when the decision has strategic, long-range and long-term implications, Obama seems to be paralyzed by indecision (or, perhaps worse yet, given his “involvement” in policy decisions on the domestic side, indifference).  I’m reserving judgment for now, but I don’t like what I see.

The Health Care Coverage Challenge: My Solutions

I have been asked increasingly over the past few weeks to provide my solutions for health care reform.  They are just that multiple, independent reforms that by themselves will have an incremental effect of health care, but, if implemented smartly and as a package, could have an immediate and long-lasting effect.

I have divided my solutions up as follows:

1. Rethinking the Delivery of Health Care
2. Rethinking How Government Interacts With Health Care
3. Rethinking How We Pay For Health Care
4. Rethinking Medical Malpractice, Licensure, and Training of Doctors

What follow is my rather lengthy commentary on the state of the American health care system and my solutions to fix it.

Rethinking the Delivery of Health Care

Problem: Emergency room care needs to be improved.

The average waiting time in an America ER is over three and a half hours, according to NBC’s Tom Costello. What happens when you go to the emergency room?  Well, you see a lot of people sitting around.  Patients, orderlies, nurses, all seem to be waiting on the doctor.  Why is this?  Because only a doctor has the imprimatur (deriving from tradition more than anything) to remove the splinter from your daughter’s finger. However, what is usually ignored is the fact that, in any emergency room, there are two or three times as many nurses or physician’s assistants as there are doctors.  Yet, a doctor’s signature is necessary to discharge a patient, resulting in a long wait until the doctor can get around to seeing the patient.  No wonder modern health care seems to move at the same glacial pace as the old Soviet army!  The officers are doing all the fighting and the enlisted men are just standing around!

Simple or routine procedures are a waste of a doctor’s time and do not use his education or training effectively.  Registered Nurses (RNs) and PAs have all the training necessary to handle routine illnesses and injuries, from the common cold to simple fractures.  Additionally, PAs have the pharmacological knowledge to dispense medications without a doctor’s say-so (i.e. they can write prescriptions).  Therefore, I suggest that we implement nurse-centered emergency room care.  How does this save money?  Utilizing nurses and PAs to handle routine care without needing a doctor’s approval should reduce wait times in the emergency room, reduces the chances of expensive medical errors made by overworked doctors, and allow hospitals to see more patients quickly.  Utilizing nurse-centric care in the emergency room should also reduce the costs of routine procedures to the patient (or the patient’s insurance company).  Why?  Well, a nurse costs roughly half of what a doctor does, so you (as the health care consumer) don’t need to pay for the doctor’s overhead.  Also, because waiting times are reduced, hospital emergency rooms should be able to conduct more procedures in the same amount of time, meaning that supply has outstripped demand from the hospital’s perspective.

Problem: The care of chronic conditions is an enormous burden on the health care system

It is estimated by the CDC that 75% of all heath care dollars are spent on treatment related to chronic conditions.  88% of Medicare dollars are spent by patients with three or more chronic conditions.  It is in this area that the greatest possibilities lay.  And interestingly enough, the pharmaceutical industry has already pioneered a system that might well solve many of the issues related to the care of chronic conditions. 

It’s called community-based pharmaceutical care services and it has been successfully demonstrated under the moniker “The Asheville Project.”  The Asheville Project began in 1996 as an effort by the City of Asheville, North Carolina to provide education and personal oversight for employees with chronic health problems, such as diabetes, asthma, hypertension, and high cholesterol.  You can read more about it here.  The results have been promising.  According to the Journal of the American Pharmacists Association, a diabetes study concluded that patients’ diabetes control improved markedly, along with other indicators, such as cholesterol and flu vaccinations.  Moreover, direct per-patient medical costs dropped by almost $1200, a 40% reduction.

By using the community pharmacist to coordinate chronic care and ensure patient compliance with chronic care standards, Asheville and several other large companies and cities across ten other states have seen large improvements in the quality of care coupled with significantly reduced cost. 

Implementing Nurse-Centric Emergency Care and Pharmaceutical Care Services

We have two revolutions in health care delivery waiting to happen.  How do we get there?  The answer was already suggested above.  Medicare and Medicaid control vast sums of money related to hospital and chronic care.   These two programs could be used to incentivize hospitals to adopt nurse-centered hospital care by penalizing hospitals for using doctors to treat routine medical problems.  For instance, the Medicare and Medicaid reimbursement rates could drop for simple procedures like treatment of a simple fracture, while simultaneously increasing the reimbursement rate for treatment of more complex procedures, like heart attacks or strokes.

In terms of implementing community-based pharmaceutical care services, the federal government need only dictate that this is the new standard of care for those covered under Medicare.  As Medicare covers by far the largest percentage of chronic care patients, medical providers would have little choice but to adopt it for everybody.

Rethinking How Government Interacts With Health Care

Problem: Government mandates drive the poor out of the insurance market.

According to the Council for Affordable Health Insurance, there are roughly 1900 health insurance mandates in this country that add between 20% and 50% to the cost of basic health insurance premiums.  What are these mandates?  Well, a mandate is a demand from a state or federal government that insurance companies provide coverage for certain providers, certain benefits, or certain populations.  Further, many states have begun to two new mandates, called guaranteed issue and community rating, that can have a massive impact on the cost of insurance.  For instance, the state of Maryland requires insurers to not only provide mental health coverage, but the same level of coverage, adding between 5% and 10% to insurance premiums for all Marylanders.  Maryland also requires health insurance coverage for massage therapists and marriage counselors.  These mandates have a lower impact since the company only pays if you use the benefit (around 1% each), but not everybody with insurance is married and thus they could save a few dollars by dropping marriage counseling from their policy. 

Mandates, in and of themselves, are not necessarily bad or evil, but each one adds to cost of providing insurance coverage, sometimes a little, sometimes a lot.  Furthermore, many of these mandates are beneficial things that for which people might want coverage.  What makes mandates bad is the cost that the sum total of all state mandates place on each individual.  Our elected officials act as though a mandate has no cost … and it doesn’t to them.  They come across as kind and compassionate people and improve their election chances.  However, if each mandate only raised insurance premiums 1% and you went ahead and passed 20 or 30 of them, you’ve just priced a significant number of individuals out of the market.  CAHI puts it best: health mandates create a situation where everyone must by a Cadillac, but, of course, not everyone can afford a Cadillac, so we do without.  If you were a poor Marylander, you would gladly give up coverage for mental health services in exchange for … say … coverage for chronic or acute medical conditions, but the mandates won’t allow that and so you go without coverage of any kind. 

Eliminating State and Federal Mandates on Coverage

Given that mandates have a disproportionate impact on the neediest in our society, it is important that we eliminate their impact on health insurance coverage!  If we can agree that everyone needs health insurance to cover de minimus life-threatening illnesses and injuries, then we, as a society, must demand an end to insurance mandates on coverage.  This can be accomplished by penalizing states that continue to mandate coverage instead of letting the consumer choose what coverage is best and most affordable to him.  This can accomplished in several ways: limiting Medicaid block grants, providing additional pools of money to states that eliminate their mandates for things like road construction or improving public health services.  The most elegant solution I think would be a requirement that the state must cover the increased cost of each mandate, thereby linking a discrete cost to legislative choices.  As many (if not most) states have a requirement to balance their budget, a mandate would now involve a trade-off between the ideal and the practical.  Indeed, this has already been done on a limited basis in several states through a requirement that a cost-benefit analysis be performed.

Rethinking How We Pay For Health Care

Problem: The uninsured conundrum

As we’ve seen from the discussions above, both the delivery of health care and coverage mandates placed on insurance companies by the states have combined to drive up the cost of insurance.  The result is roughly 50 million Americans lack insurance at the some point during the year.  There are three basic reasons why this occurs, some of which has already been hinted at.  First, since health insurance is linked to employment, unemployment essentially means uninsured.  Health insurance is not portable and that’s a major concern.  Second, our system of state coverage mandates results in Cadillac coverage at a Cadillac price, even though most people don’t need Cadillac coverage.  Therefore, they elect to do without.  This is especially prevalent amongst young people.  When the young and the healthy opt out of health insurance, it robs the insurance pool of its cheapest to cover members, increasing costs for everyone else.  Finally, within this uninsured cohort, there are the “uninsurables,” a small but significant group of individuals with pre-existing conditions.  Basically, when one is uninsurable it means that the cost of coverage for the insurance company is so extreme (or the pool is so small) that it does not make economic sense to provide insurance to that person. 

For the most part, both the federal and state governments have focused on the problem of the uninsurables through mandates such as guaranteed issue and community rating.  Guaranteed issue means that an insurer must accept all applicants, but it does not preclude the insurer from charging premiums based upon the cost to cover a person with pre-existing condition.  Effectively, guaranteed issue merely makes a policy so expensive as to be unaffordable for persons with expensive medical issues.  States then tried to correct this problem through the community rating mandate, which means that an insurer cannot charge premiums based upon risk.  Since premiums must by definition be based upon risk factors, such as age, sex, race, medical history, etc., states with community rating mandates often see insurers flee the state and premiums for everyone increase dramatically.  These “solutions” do absolutely to solve the problem and, in fact, only make it worse.

Reintroducing choice to health insurance

Many of the above proposed solutions alone would go a long towards making health insurance more affordable and, thus, provide insurance to more people.  However, that insurance still wouldn’t be portable.  Eliminating mandates would allow insurance to be sold across state lines for the most part, but decoupling health insurance from employment would introduce true competition into the health insurance (and ultimately health care) market.  We can do this by eliminating corporate tax deduction for health insurance.  This deduction is not really understood and it is unique among corporate benefits in its tax treatment.  Essentially, a corporation is allowed to “write-off” the cost of providing health insurance to their employees; not just the cost paid by the company, but the portion paid by the employee as well.

How does this work?  Let’s assume that your employer pays 50% of the premium and you pay the other 50%.  The employer’s portion provides no special tax benefits to him as it is an corporate expenditure and companies are taxed on income received after expenditures (i.e. before tax profits).  However, a company does receive an additional tax benefit on your portion of the premiums as well.  As you are no doubt aware, if you are a W-2 employee, your employer pays half of FICA and all FUDA and SUDA (federal and state unemployment tax) on your income.  Health insurance premiums are not pre-tax for you, but for your employer as well.  If you make $1500 per paycheck and pay insurance premiums of $300, your employer pays FICA, FUDA, and SUDA as if you make $1200 per paycheck.  That’s money that flows back to his bottom line.  You, however, still have to pay taxes as if you made $1500 on that paycheck (your W-2 will reflect $1500 per paycheck, even if you’re paycheck doesn’t)!

Problem: Health insurance is not really insurance

Having health insurance is more like belonging to Costco or a labor union than State Farm.  Unlike virtually any other type of insurance, health insurance typically does not have discrete limits.  When you purchase insurance for your car, for instance, you are buying a specific amount of coverage.  There are different types of coverage with automobile, such as collision and liability (or comprehensive when you buy both).  You might have $25,000 of collision coverage and $100,000 of liability.  You also have a deductible; a certain amount of money that you must pay prior to your insurance company paying for your claim.  So if you own a $40,000 car and only have $25,000 in insurance on it, you will be responsible for the other $15,000 if you total it in an accident.  In the same way, if you have $100,000 in liability coverage and the other driver has $250,000 in medical bills, you might be responsible for the other $150,000.  Of course, you may never get into an accident that is your fault and may never need insurance.  The point is that insurance is meant to minimize your risk of paying lots of money in the event of an accident or unforeseen emergency.  Furthermore, even though you might want the best insurance possible, only you can decide how much you’re willing to spend on coverage.  That’s what ultimately determines what you kind of coverage and how much you can afford.

Health insurance, however, normally cannot restrict how much coverage you have.  If you have health insurance, then the insurer must pay for your treatment, be it ten cents or $10 million.  Since health insurers cannot put an upper limit on how much they’ll pay for, they attempt to control their exposure in other ways.  One way is to create different networks of health care providers.  Providers within these networks have negotiated a discounted payment with the insurer for care.  Typically, an insurer will also designate a primary care doctor whose job it is to ensure that you are provided only with the medical care you need through a referral process.  This further ensures that you remain with an in-network doctor at all times and helps the insurer controls costs.  This is how an HMO works.  A PPO doesn’t have a referral system necessarily and their networks are usually much less strict, but you also pay a lot more for that freedom.  Most PPOs add an extra layer of coverage for out-of-network doctors where you must a deductible plus 20% of the overall bill for your care.

Making “insurance” insurance

Obviously, eliminating coverage mandates will help bring competition and innovative thought back to the health insurance industry.  However, it does not necessarily flow that concepts such as discrete (or finite) coverage will follow.  But, it is important that such coverage exist.  Defining the limits of coverage accomplishes two things: first, it limits the insurer’s exposure, which lowers premium costs.  Secondly, it entices competition amongst doctors.  This has been visible in the dental and vision insurance fields for a long time.  While individual consumers may not be conscious or aware of the limitations of discrete insurance, dental and vision providers are!  They know that if a filling or a crown costs significantly more than insurance will cover, then the patient will opt not to perform the treatment.  So dentists and vision specialists (especially Lasik surgeons) are constantly trying to find new and innovative methods to keep overhead low and quality of care high.  For the most part, they succeed using a long-term model of relationship development and customer service to get and keep patients.

The biggest argument against a discrete model (and it’s a very valid one) is that, unlike a car or a house, medical care can be uncertain!  With property and casualty insurance, the concern is almost always having too much.  In the health care realm, it’s not having enough!  How do we balance this concern and still implement a discrete system?  There are two ways to address this concern.  One is to adopt a concept that often used in disability or long-term care insurance: the rider.  In disability insurance, the rider works something like this.  Say I buy a disability policy right out of college when I’m 22 years old.  The policy is going to be based on my current salary, which is probably the least that I will ever make.  If I need more as I get older, I would have to purchase a new policy, which will cost a significant amount more because I am older and, therefore, statistically more likely to need it.  Or, for a slightly (and I do mean slightly) higher premium I can look in my age forever and purchase more coverage as I need it.  In other words, when my salary has doubled at age 35 and I need more coverage, I can purchase it as if I were still 22. 

Applied to health care, the rider would look something like this.  I could purchase a basic, cheap policy (say one that provides a total of $10,000 of coverage per year) to cover my routine medical costs.  For a little more premium, I could buy a rider that would allow me to either purchase more coverage at a locked-in rate or provide a one-time exception to the coverage limit for a catastrophic illness.  This would be an ideal policy for a young person who is relatively healthy, but would be difficult to manage as you got older and needed higher levels of insurance.  Nevertheless, it’s utility to the young “invincible” should not be underestimated!  If the premium were cheap enough, basic coverage should be an easy sell, particularly if the insurance is portable as young professionals will change jobs several times over the course of their first decade after college.

The longer-term, and I think, more enduring idea is one that is around right now: catastrophic health insurance.  At it’s most basic, a catastrophic policy requires that you pay for your medical care up to a certain dollar amount, usually between $5000 and $10,000.  After that, the insurer covers your medical expenses.  This requirement that you pay for what amounts to routine care provides moral hazard protection to the insurer.  In other words, the insurer has some assurance that you will not “waste” or squander your coverage with needless medical procedures.  There are two other advantages to a catastrophic insurance policy.  One is that virtually all of the policies out there cover and, indeed, require a yearly check-up.  When you stop and think about it, it’s in an insurance company’s best interest to require this because they don’t want to pay out if they don’t have to and they want to pay as little as possible.  A ounce of prevention is worth a pound of cure as they say!  By the way, the results of the check-up typically (except in very limited circumstances) cannot be used to cancel or preclude coverage.

The second advantage is that these policies require you to set aside a certain amount, typically $2500 to $5000, in a health savings account.  This isn’t a flexible spending account where if you don’t use the money, you lose it!  This is an interest-bearing (typically money market) account just like any other FDIC-insured account at a bank!  The great advantage of this is that once the balance in the account reaches your deductible level, you typically only need to refill what you take out.  This means that you might high short-term costs, but in the long-run you will save a lot of money.  Another advantage is that you don’t have to stop making deposits simply because you’ve reached the deductible limit.  You can continue paying into the account forever if you want.  A doctor friend of mine with one of these accounts suggests that if a healthy person had one of these accounts their entire lives, they would reach retirement age with roughly $3 million in the account and would no longer have need for insurance.  The account is also a tool for retirement, since any money in the account past retirement age can be used for anything, not just medical needs.

Seeing these advantages, it is imperative that we encourage every American under the age of forty to purchase a catastrophic health insurance plan.  As an incentive, we should provide a tax credit worth $5000 over five years for the purchase of said coverage.  This will help to defray some of the up-front costs, which frankly may already be lower than what we have in place now (a catastrophic policy costs between $50 and $250 per month).  Those unable to afford such a policy should be required to purchase a basic coverage policy with a one-time rider.  These policies should not be available to anyone making over 200% of the poverty level.

Problem: The government-run health insurance system is bankrupt.

As you have no doubt already noticed, I am using the government’s influence as the single-largest health insurance provider to apply pressure to adopt new delivery practices and end state mandates!  So, it might seem illogical that I would propose to retard that power by back on Medicare and Medicaid spending, but the simple fact is that we must!  These two programs are currently running a $50 trillion deficit if we change nothing.  Furthermore, Medicare’s actuaries warn us that the period of no-return is rapidly approaching.  That is to say, we are swiftly reaching the point where the options to balance Medicare and Medicaid will become politically unfeasible.  If we adopt all of the reforms that we have presented so far, we should be able to buy ourselves a little more time, but the system is is dire need of long-term reform.

Here is my idea of a what long-term reform would look like.  The emphasis is on turning Medicare and Medicaid into a de minimus social safety net, instead of the end-all and be-all of government health care policy.  First of all, we must admit that anyone 55 years or older must receive the benefits promised to them at the current level they are now.  By cutting the overall cost of care through new delivery practices and ending state mandates, we should be able to reduce the overall impact of this age cohort.  For the second cohort, those 40 to 55 years old, their benefits will be means-tested and they will be expected to pay the equivalent of 6%-10% of their income towards their medical treatment up to 400% of the poverty level.  Over this, they will not be eligible for coverage under Medicare.  This can be accomplished simply by adding a new line of the standard 1040 form.  Again, this will lessen the impact of this age cohort.  The final cohort (anyone under 40 years old) will not receive Medicare or Medicaid except under certain very particular circumstances.  For this cohort, the government-run insurance programs will form a backstop to the health insurance industry by becoming an “insurer of last resort.”  Under this program, you will have to prove that you have been denied insurance or that the insurance premiums were too much of a burden to qualify.  At this point, the government can do three things (preferably in this order): negotiate a more affordable rate with a private insurer, offer a subsidy for you to purchase your own insurance, and, finally, provide a basic coverage policy with rider with premiums equivalent to 6%-10% of your salary.  Hopefully, this will eliminate the long-term insolvency of Medicare and Medicaid by limiting coverage.  Within 20 to 30 years, Medicare as we know it will not exist (Medicaid even sooner).  It will have been replaced by a sustainable system.  Instead of FICA, I would propose a 10% sales tax on health care services, which could be adjusted downward as less federal tax dollars were needed to support Medicare and Medicaid.

Rethinking Medical Malpractice, Licensure, and Training of Doctors

By the time he is certified to practice medicine, a doctor has undergone on average fourteen years of training.  By the time this training is complete, he has more than likely wracked up between $500,000 and $750,000 in student loans, according to CNNMoney.com.  Add the ever-increasing premiums associated with malpractice insurance to that and you get a staggering debt load, even before your doctor has made a single penny to live on!

There is a great deal of controversy over what the true cost of medical malpractice is.  The Tillinghast study maintains that in 2003 the cost of medical malpractice was $233 billion.  Other sources dispute Tillinghast saying that it arrived at its number only by measuring premiums paid for medical malpractice, not actual payouts to plaintiffs.  The critics say that the GAO numbers place the actual payouts much lower.  The Government Accounting Office has maintained that the payouts account for only 2% of the total spent on health care in this country.  Using the generally accepted total spending number of $2 trillion that comes to $40 billion.  These critics maintain that the insurance industry is padding its premiums because their investments are going south and they want greedy profits!

My take: the critics suffer from a fundamental misunderstanding of how insurance works (as usual).  Both the Tillinghast and GAO numbers reflect reality.  The GAO numbers are raw numbers paid out in that year.  However, many (if not most) malpractice suits involve multi-year and sometimes lifetime payouts.  Therefore, $40 billion could very easily a small piece of a much larger pie.  Insurance company premiums are based on a term called an accident year.  When underwriters calculate your premium, they are attempting to estimate the chance that you will injure (or kill) someone this year.  Since medical malpractice claims have no statute of limitations, it is entirely possible that you might be sued in twenty years over something that you did this year.  The actuary must take this into account when configuring your premium.  Furthermore, the longer you practice the more patients you will see and the greater the chance of a claim (in fact, the chances of a claim approach 100% after only a few years in medical practice).  Therefore, your premiums will increase every year you practice, even if you don’t have a claim!  Therefore, I tend to believe that the Tillinghast numbers, while probably inflated, are far more reflective of reality.

The critics are right on one point: 5% of doctors are responsible for more than half of all medical malpractice claims.  Some of those claims are bound to be baseless and many are probably based on debatable medical evidence, but, even if only half are legitimate, that is still a staggering statistic.  And it largely results from the lack of oversight and enforcement from state medical licensing boards.  These licensing boards are a lot like teacher certification boards.  They rarely discipline because they are rarely independent of political influence.  The members are often political appointees or members of the AMA (the largest doctors’ union in the country).  They have vested interest in not rocking the boat.  Further, even when a doctor loses his license to practice in one state, he can get another one in another state as individual state licensing boards rarely do background investigations.

Enforcing Accountability, Reducing Training Time, and Compensating Fairly

Malpractice reform is obviously necessary to combat the $200 billion spent every year on insurance premiums.  But, so is accountability for the profession itself.  Doctors will make mistakes, probably more than once.  It is asking too much that any human be right and accurate 100% of the time.  Therefore, we must acknowledge that malpractice claims are a necessary evil for our health care system.  However, we need to limit punitive damages and compensate victims for real damages.  Limiting punitive damages might reduce a trial lawyer’s compensation as he gets paid off these damages, but it also incentivizes him to be realistic and give his clients an honest opinion, instead of hoping for a big payday.

Possibly the easiest method to reduce medical malpractice would be to remove these cases from the state court system to the federal system.  However, this is neither necessary nor prudent.  Instead, we must approach reform on a two-pronged approach.  First, states should set-up either a special malpractice court or a pre-hearing panel to certify the validity of the medical evidence in each case.  Only cases certified by this expert court would proceed through the court system.  The federal government could simply make it an unfunded mandate, much like speed limits and seat belt laws.

The second prong of reform is to give licensing boards teeth or to force them to use the ones they have to keep bad doctors from practicing medicine.  The federal government can assist this process in two ways.  First, they can set-up a centralized database to track the licensure status of every doctor and require states to check it prior to issuing or renewing a license.  States whose licensing board is autonomous (i.e. run by the local chapter of the AMA) could be threatened with RICO prosecutions for operating a conspiracy to defraud.  I believe that the RICO statute is broad enough to support such an interpretation and the very threat of an expensive investigation should be enough to make recalcitrant licensing boards enforce reasonable standards of conduct.

Finally, there is no good reason why a doctor needs to study for 14 years.  A Doctorate of Medicine is a professional degree, like a law degree or an engineering or architecture degree.  Unlike other professional degrees, however, an M.D. requires you to get a Bachelor’s degree first and sometimes even a Master’s degree.  Most doctors I know consider these degrees to have been superfluous to their medical training.  Indeed, many future doctors don’t even necessarily have an undergraduate or graduate degree in science.  Therefore, it would be possible to cut between four and seven years off the educational burden for a doctor.  How do we get there as most medical schools are unlikely to change and fourteen years worth of tuition probably sounds great to a university!

The best way would to conduct a pilot program using grant money from NIH at several prominent medical schools.  Once it is proven that the pilot program doctors are equal to those twice as much debt, there should be a great deal of impetus for change from prospective medical students.  Since competition amongst universities is cutthroat, it would only be a matter of time before some university decided to use the prospectus of less debt and a quicker time to saving lives as a recruitment slogan!

Conclusion

Reforming our health care system is less about handing more control of our lives over the federal government and more about using smart regulations and the existing influence of the government to propel change.  Many of the solutions above are not novel or even new, but there is an enormous ideological divide between the parties that seems impossible to bridge.  Conservatives see government interference as the biggest problem and it is a problem, but only one of many!  Liberals see corporate greed as the biggest issue and while it may play a role in our ballooning health care costs, it is clearly dwarfed by the costs imposed by government on “private” health care.  What I have attempted to do is provide evidence and a reasonable solution to solve each problem.   The beauty of the solution is that it can implemented as a unified program or on an ad hoc basis.  It satisfies what in my mind are the key requirements of health care reform: reduce the cost of health care itself where appropriate, reduce the cost of insurance coverage and make it possible for everyone who wants to insurance to get it, and increase competition and choice within the health insurance and health care industries.

REVISED!!! What Ricci v. DeStefano Tells Us About Discrimination

On Monday, the Supreme Court found that the City of New Haven, CT was guilty of “intentional discrimination” in throwing out the results of a promotion exam because of the lack of diversity of those passing.  Namely New Haven placed the demands of unspoken minorities ahead of the seventeen whites and one Hispanic who passed.  It is, to my mind, the first ever case of intentional reverse discrimination to win favor before the high court.

Brief History of the Case

Ricci began winding its way to the Supreme Court almost immediately upon completion of the examinations for Captain and Lieutenant issued by the New Haven Fire Department in November/December 2003.  The passage rate was 53% overall for the Captain’s exam and just 44% overall for the Lieutenant’s exam.  Due to the prevailing civil service regulations within New Haven, not a single one of the nine black firefighters who passed the test would be eligible for promotion as there simply were not enough vacancies.

At the hearings of the Civil Service Board in January-March 2004, despite the fact that most speakers at these hearings (including the firefighters themselves, the representatives of the company that designed the test, and even a competitor of that company) stated that the test did not create a disparate impact as defined by Title VII of the Civil Rights Act, the board split 2-2 on the vote to certify the test and promote those who passed according to the civil service rules of New Haven. 

Firefighter Frank Ricci and seventeen others filed suit against the City of New Haven and Mayor John DeStafano, claiming that, in denying them promotion, the city had intentionally discriminated against them solely because of their race.  The city, of course, continued to defend their actions by saying that the certification of the exams and promoting under the civil service rules would leave them vulnerable to lawsuits from the black firefighters passed over for promotion.

Amazingly, and without so much as a hearing, both district court judge Janet Bond Atherton and a panel of three appellate judges found in favor of the city, issuing summary judgements for New Haven.  While the appellate court later withdrew the summary order, their per curiam decision in favor of New Haven was hardly any better, being only eight sentences long and referencing no case law whatsoever.

After a hearing by the full appellate court was denied, the plaintiffs appealed to the Supreme Court, which granted certiorari.

The Supreme Court’s Ruling

Given the dearth of arguments and case history up to this point, it is a wonder that the Supreme Court was able to make heads or tails out of the mess left them by the Second Circuit.

In order to legally do what New Haven did, Justice Kennedy states that they would have to show strong evidence of disparate impact.  In other words, the city must show that the test itself was rigged to eliminate black candidates from achieving promotions.  Yet the city never disputed that the tests were fair and business related.  The record of the Civil Service Board and earlier records related to the design of the test show that New Haven believed that these tests provided a fair measure of the knowledge that senior management must have.  That is until New Haven got unexpected results!

New Haven also contended that alternatives existed that were less-discriminatory, and that the presence of these alternatives justifies their intentional discrimination.  They maintained that the 60/40 weighting of the written exam was arbitrary.  Yet, this weighting, Justice Kennedy points out, was the result of negotiations between the city and the firefighter’s union.  So, obviously, at some point, someone reasonably believed that this weighting was reasonable and appropriate.  (Indeed, the city’s contention that a 30/70 weighting of the written examination was necessary before a black candidate would be eligible for promotion strikes me as an arbitrary weighting based on after the fact results; much like the practice of grading on a curve).  New Haven further maintains that it could have “banded” the results to make more blacks eligible under the “Rule of Three” provisions of the civil service codes.  However, banding would also have been a violation of Title VII and, therefore, would not have been a valid solution. 

Justice Kennedy’s conclusion puts it best: “The record in this litigation documents a process that, at the outset, had the potential to produce a testing procedure that was true to the promise of Title VII: No individual should face workplace discrimination based on race. Respondents thought about promotion qualifications and relevant experience in neutral ways. They were careful to ensure broad racial participation in the design of the test itself and its administration. As we have discussed at length, the process was open and fair. The problem, of course, is that after the tests were completed, the raw racial results became the predominant rationale for the City’s refusal to certify the results. The injury arises in part from the high, and justified, expectations of the candidates who had participated in the testing process on the terms the City had established for the promotional process. Many of the candidates had studied for months, at considerable personal and financial expense, and thus the injury caused by the City’s reliance on raw racial statistics at the end of the process was all the more severe.”

Scalia’s Concurrence

Justice Antonin Scalia’s concurring opinion takes his colleagues to task for their refusal to rectify Title VII’s disparate impact discrimination with the Fourteenth Amendment, requiring equal treatment.  Indeed, it is obvious from this case that New Haven was willing to apply a different, harsher, and openly discriminatory standard to white candidates in the name of equality.  As Justice Scalia points out Title VII not only allows, but, indeed, actively requires racial discrimination by telling employers that they must consider the racial consequences of their actions.

Indeed, if you ask me, Scalia’s showing a great deal of sympathy for New Haven.  He seems to be saying that New Haven correctly interpreted Title VII as requiring them to openly discriminate against the best candidates for promotion.  In doing so, New Haven would run afoul of the Fourteenth Amendment.  Scalia points out that Title VII quite possibly creates several equal protection violations: first, it is obvious that Title VII’s disparate impact provisions create a de facto quota system since the system is rigged to produce a racially acceptable result.  Second, the Fourteenth Amendment requires that government treats citizens as individuals.  However, Title VII overlooks the individual in favor of group definition based on race, gender, etc. 

What The Decision Says About Anti-Discrimination Policy

I believe that Justice Scalia is right to point out we, as a country, may have moved the pendulum of discrimination too far in the wrong direction.  It is hard to see how Title VII’s apparent endorsement of discrimination comports with the Constitution or, frankly, how it has not become the My Lai of the litigation world (“we had discriminate in order to destroy discrimination”). 

The absurdity of current discrimination laws is shown in Ricci.  Consider New Haven’s predicament.  I do not doubt that they believed that they had a legitimate concern over lawsuits, but it is hard to see how this concern justifies active discrimination not in favor of minorities per se, but in favor of one group of minorities in particular!  Consider further that in discrimination lawsuits, the defendant is considered guilty until proven innocent.  In other words, had New Haven been sued under Title VII disparate impact provisions, the burden of proof would be on New Haven to prove that it did not discriminate, not on the plaintiff to prove otherwise!  This is ass backwards of how our judicial system is supposed to run!

Therefore, is it any wonder that New Haven risked the wrath of white firefighters who, it must be admitted, are far less likely to sue historically than the onslaught of not only black firefighters “passed over” for promotion, but potentially the entire black civil rights industry and a fair portion of the citizenry of New Haven?  Of course not!  What is surprising is that the Supreme Court granted certiorari on a reverse discrimination case in the first place!

For years, the Right has passed along anecdotal tales of qualified white candidates being passed over for promotion by less qualified minority candidates.  These tales are used as proof that the Left means to destroy liberty through the promotion of victimization and vengeance.  At the same time, the Left has vilified these tales as apocryphal tripe meant to incite and inflame a fundamentally racist party!  Both caricatures have some merit; the tales are meant to incite and the Left does promote a culture of paternalism.  But, conservatives are certainly no more racist than liberals are honestly trying to destroy liberty itself.

With Ricci, the Right has, possibly for the first time, hard evidence that reverse discrimination is occurring!  They have evidence that even the most race-neutral test known to mankind will be thrown out if the results are either a)not predetermined to provide the “correct” racial outcome or b)thrown out when the unexpected happens (i.e. the “correct” racial outcome does not occur).  Ricci opens up a whole Pandora’s Box of nightmares for conservatives, especially with a liberal Congress and President in power!

For the Left, it presents a different set of issues.  First off, a total of eleven liberal judges not only failed to stop blatant racial discrimination, but actually appeared to endorse it through their collective failure to seriously consider the plaintiffs’ arguments in Ricci.  Secondly, I think that it seriously harms the judicial activist bent of the Democratic Party, which is currently veiled in the polite sounding term “sympathy for the common man.”  One could argue that Scalia’s concurrence fires a huge shot across the bow of judicial activism.  Title VII, as interpreted by the courts, is extraconstitutional.  By taking what was a legitimate Constitutionally-valid reform of American society and twisting it into what has become legalized racism, Title VII has gone beyond anything that our Republic envisioned.

But, what about for the average American?  I think that most of us try to live up to Martin Luther King’s challenge to judge each individual by the “content of their character, not the color of their skin.”  However, discrimination law, particularly in employment and education, has become so convoluted that it is difficult to imagine that we are not judged (positively or negatively) to some degree by the color of our skin!  New Haven judged both sides by the color of their skin.  Imagine what it must feel like to know that your promotion was not earned, it was given solely on the basis of what you looked like on the outside.  On the other hand, would you want to work for an employer who refused to promote based on merit!  I sure as hell wouldn’t.

But, this is the system that Title VII (and Title IX in the education realm) has apparently put in place.  How can anyone not feel a little resentful and angry when they are passed over for promotion or denied entry into a top flight college or university!  In our quest for racial harmony, our government has stated that judging people by the color of their skin is not only permissible, but actively encouraged provided that the skin color is a darker shade than white!  In doing so, our government has inadvertently prolonged racism in our society!  It is no longer the overt racism of burning crosses and public lynchings, but the soft racism of quotas and preferences designed to emphasize not quality of character but race itself as if race, not character, is something to be valued above all else!

And Ricci does nothing to correct these flaws.  Instead, it now places employers in the untenable position of being able to be sued by everyone and anyone who feels slighted!

The Health Care Coverage Challenge: A Different Perspective

Peter Weiss offers a different perspective on the health care challenge.  I will paraphrase the article, but here is the link if you want it from the horse’s mouth.  Also, as I’ve written extensively on this issue lately, here are the links to my health care related posts:

In Defense of Statistics and Private Health Care, Sept. 23, 2008

The Health Care Coverage Challenge: Can Obama Solve It, May 3, 2009

The Health Care Coverage Challenge: An Update on Massachusetts, June 12, 2009

The Health Care Coverage Challenge: Some Questions from the Conservatives, June 24, 2009

Let’s begin with the facts asserted by Mr. Weiss:

1. Health care spending in this country is equivalent to 16% of our GDP.  For the average family of four, that means that $29,680 is spent by them or on their behalf (either by their employer or federal government) to provide them with the standard of health care to which we have become accustomed.  Incidentally, according to a recent Rasmussen poll, as a group, Americans think that health care in this country sucks (only roughly 30% rate our health care system as excellent or good).  However, individually, we are quite satisfied with the quality of care that we receive through our current system (70-plus% rated their own coverage as excellent or good).  There is an enormous disconnect somewhere!

2. The Congressional Budget Office predicts that by the year 2025, the U.S. will be spending 25% of its GDP on health care. In 1960, it was only 4.7% of the GDP. I’d love to see the background on that number because around 2025 is when our Medicare and Social Security liabilities completely overwhelm the federal budget.  I don’t see how the real number can’t be closer to 50% when we add Medicare and Medicaid into the mix!

3. If one includes Medicare and Social Security obligations, the federal government’s unfunded liabilities are $455,000 per U.S. household.  With an average household income of just over $50,000 per year, we’re talking about a 100% tax rate to close that gap for the next nine years!

Mr. Weiss rightly accuses both parties of failing to fix the underlying problem of health care in this country, though he does point out that “[w]hile the proposed Republican solutions for health care, by and large, will be ineffective and are off point, they are on point in identifying the crux of the problem. The core issue is cost, not coverage.”  His argument is a simple one: reforms that aim to increase the number of Americans with coverage are bound to fail because they miss this key fact.  In fact, it shouldn’t require a degree in advanced economics to realize that reducing the cost of health care itself will enable more Americans to afford it.  Wow!  What a novel idea!

Obama understands the mutual exclusivity of coverage vs. cost in the policy debate and, so, he has attempted to fudge by talking about preventive care and streamlined administrative processes through the greater use of IT.  I’ve already discussed at length the myriad problems with the Obama Plan, but I have given relatively short shrift to the notion of preventive care.  Preventative care involves two interconnected notions.  First, that early detection of many serious diseases makes them easier to treat.  Secondly, a focus of lifestyle changes will make healthier and, hence, more productive individuals.

Only the first part of this is really susceptible to public policy.  But, as Weiss points out “… cholesterol screening, blood pressure measurements, colonoscopies, pap smears, mammograms, etc., are standard medical practice and their savings already are built into the system.”  There are little to no savings left to be achieved through an early detection model.  Even were we to adopt such a model (who says we haven’t, but we’ll go with it for now), early detection of breast cancer, for instance, lowers a women’s risk of death from breast cancer, but cannot eliminate it.  Indeed, the vast majority of breast cancers deaths (80-plus%) would still occur.  This is a marginal improvement in health for no cost savings at all.

As for second part of the equation, it is true that living a healthy lifestyle can add a decade to your lifespan.  “But short of prohibiting alcohol, banning tobacco and taxing red meat etc., we have likely reached the public health limits of the benefits of lifestyle modification,” according to Weiss.  As Americans, we are warned from the moment that we can understand words that smoking will eventually kill us.  It can cause numerous forms of cancer and COPD/emphysema.  We tax it beyond any reasonable limit.  We ban smoking in public places and quarantine smokers into dark street corners.  And yet, it is estimated that some 43 million Americans still smoke, despite more than three decades of education about its dangers.

So what is Weiss solution?  It is one that is certain to be universally hated by both sides of the political spectrum.  Here it is in three bullet points.

• The doctor is placed at the center of medical decision-making process.  Insurance companies answer to him, not to stock holders, pharmaceutical companies market to him, not to consumers, and government leaves him alone to practice medicine, instead of hamstringing him with a myriad of idiotic mandates. 
• The tort system will be reformed to ensure that victims of malpractice are compensated for their injuries and no more (i.e. a cap of punitive damages).  Individuals will be required to carry catastrophic coverage insurance (as opposed to the full coverage mandate of ObamaCare).  The government will provide subsidies (or vouchers) to those who cannot afford such insurance, which will be privately-run, not government-operated.  Insurance will become an individual choice, not an employer’s mandate.
• Medical education will be revamped through restructuring, eliminating several wasteful years.  Tuition will be reduced, possibly even eliminated, in exchange for a “Teach for America” style program in the medical field.  Finally, nurses, physicians assistant’s and other non-physician medical personnel will be tasked to handle routine check-ups and procedures, such as pap smears and cholesterol screenings.

Weiss’ plan places the emphasis back where it belongs on the doctor-patient relationship.  It reduces cost by subrogating insurers, pharmaceutical companies, trial lawyers, and the government to subordinate, supporting roles, not equal players on the stage.  It also properly utilizes medical personnel for routine, non-emergency procedures.  Just as it makes no sense for a lawyer to draft a simple letter of understanding when a paralegal can do the same job just as efficiently for half the cost, it makes no sense to utilize doctors in routine medicine when PAs and nurses are equally capable and cheaper!

The Health Care Coverage Challenge: Some Questions from the Conservatives

The Republican Study Committee has put out a list of questions that they would like President Popeil aka Barack “Barry” Obama to answer in his ABC primetime infomercial to the nation tonight.  I’m going to attempt to provide some possible answers for the Great Salesman to give as well as the pertinent facts.

1)     During the debate on the so-called stimulus package, your estimates on future unemployment and economic recovery proved to be wildly off-base.  Why should Americans now believe you that they will not be forced out of the private coverage they enjoy, as basic economics would dictate?

His answer: This administration has made a promise to the American people that we will provide health care to all Americans.  This plan accomplishes that.  It says that if you like your current insurance arrangement, you can keep it.

The facts: According to the Lewin Group, almost 32 million Americans will lose their current health insurance coverage under the Obama Plan.  Obama’s Plan will reduce the net number of uninsured by a little more than a quarter … at a cost of well over a trillion dollars.

2)     Despite your assertions that health care reform will save money, the reality is that plans proposed by Democrats would cost taxpayers between $1 trillion and $2 trillion.  How does this save money and how will you pay for this?

His answer: This plan will be paid for by efficiencies created in the provisioning of care, such as electronic record-keeping and other IT initiatives that will streamline care and reduce administrative cost.  Beyond that, the individuals partaking in the plan will pay for it through much the same system we use now.  Both employer and employee will contribute a set percentage toward the purchase of a government-provided plan.

The facts: Even leading Democrats, such as Max Baucus, Chairman of the Senate Budget Committee, admit that they cannot pay for the Obama Plan through greater efficiency alone.  A cost of between one and two trillion dollars over the next 10 years is both reasonable and realistic.  One way that Democrats have sought to pay this bill is by taxing the health insurance premiums of all non-union households.  This would not only accelerate the Lewin Group’s projections, but it was also the same idea presented by John McCain that the Great Salesman criticized as being too heartless and cruel.

3)     If, as you claim, a government-run option is essential to maintaining honest competition in the health insurance market, why is it not also true that we need a government-run competitor in the fast food industry, neighborhood babysitting, or Major League Baseball?

His answer: Because these industries are not hurting Americans.  They are not putting profit ahead service to the customer.  They are not industries run amok with no oversight by the federal government.

The facts: I guess that it depends to a certain extent on what your definition of “honest competition” is.  There is no evidence that the Obama Plan will increase competition in the private sector.  If anything, it will drive people out of the private sector and into the public insurance market being created out of thin air by the Obama Administration. 

In Massachusetts, where a plan similar to Obama’s has been implemented, there is no evidence of increased competition.  In fact, it is just the opposite! The Urban Institute’s Sharon Long and Paul Masi find that Massachusetts is facing a growing physician shortage and ever increasing rationing of care.  Where is the increased competition?  Some 20% of those surveyed were told that doctors or clinics were either not accepting new patients or not accepting patients with their type of coverage.

4)     Proponents of a government-run option, you included, claim that it will compete on a level playing field with private insurance providers.  In that case, will your government-run plan operate under a for-profit model and be forced to pay all applicable state, federal, and local taxes?

His answer: This plan envisions that the government will pay rates comparable with those paid by other forms of insurance out there.

The facts: Obama envisions a Medicare-style public insurance plan that will pay rates slightly higher than the current level of Medicare reimbursement.  There is no evidence presented that the Obama Plan intends to pay on par with private insurers.  What is currently envisioned is a plan that would pay reimbursement rates that are around 20% less than what private insurers pay to providers now.

The Lewin study concludes that Obama’s plan would mean up to a 5% decrease in revenue for hospitals and 7% for physicians.  According to the American Hospital Association, in 2005, roughly one-quarter of all the hospitals in the nation operated in a negative revenue margin (meaning that they spent more than they were earned).  Overall, a hospital’s operating margin was roughly 3%, while their patient margin (the difference between reimbursements versus expenses) is about -2%.  The Obama Plan will literally bankruptcy the entire health care industry.

5)     How do you expect to meet the growing need for physicians and medical professionals if the government-run plan pays lower than market rates to physicians while forcing them to participate or lose a majority of their patients and their livelihood?

His answer: This plan will free doctors and medical professionals to be true healers for their patients.  By eliminating inefficiency and administrative waste, we will enable medical providers to give their patients quality care at a reasonable price for everyone.

The facts:  See answers to Questions 4 and 5.  Massachusetts has already run into the problem of primary care doctors and clinics refusing to take insurance provided under a similar scheme there.  Obviously, Obama could mandate acceptance of his insurance scheme, but that still ignores the fact that if a doctor can’t make a living under the Obama Plan it won’t matter what mandates are in place.

6)     If the government mandates that all Americans purchase health insurance, it must also define what qualifies as health insurance.  Can you provide us your definition (with details please) and explain how this definition will not limit innovation and choice in health care?

His answer: We are working with Congressional leaders and stakeholders in the health care and other fields to come up with an appropriate definition of what constitutes a de minimus acceptable level of coverage.

The facts: The current legislation repeatedly refers to “qualified health insurance plans” without providing a definition of what that means.  In fact, the legislation as it stands today basically leaves that definition for the bureaucrats in the Department of Health and Human Services and the Treasury Department (!!!) to decide at some future point after the legislation is passed.  There is no guarantee that the majority (or even any) health insurance plans (outside of those provided to union households, which are exempted from virtually any new obligations under this legislation — this is what Obama will mean when he says “other fields.”) will qualify under the new legislation.

7)     According to the House Democrats’ plan, a family of four with an income of $88,200, four times the federal poverty level, would qualify for health insurance subsidies.  In your view, is this a subsidy for low-income Americans or an effort to use taxpayers to put more health care under the purview of the federal government?

His answer: More than a third of those currently unable to afford insurance make between $50,000 and $100,000.  This plan must provide those individuals with the ability to afford coverage if we are to tackle the issue of health care reform in this country.

The facts: Of the roughly 46 million American without health insurance at some point throughout the year, nearly 17.5 million earn over $50,000 per year.  However, there is little evidence to suggest that they cannot afford to purchase insurance coverage.  It quite frankly depends on where you live.  $50,000 is an excellent income in North Dakota and most parts of the Midwest, but it won’t buy you much if you happen to live on one of the coasts (which strangely enough is where Democrats seem to live).  In areas such as these, where the cost of living is extremely expensive, publicly subsidized insurance is still unaffordable for most families making between $60,000 a year and $110,000 a year.  Therefore, even if you do need the coverage, there is very little evidence to suggest that the Obama Plan will make getting it any easier.

8)     The new Federal Coordinating Council for Comparative Effectiveness Research is charged with determining what treatments should be offered to patients.  Do you believe that these personal medical decisions should be made by patients in consultation with their doctors, or by unaccountable bureaucrats?

His answer:  As this administration has previously stated, this council will will not recommend clinical guidelines for payment, coverage or treatment. The council will consider the needs of populations served by federal programs and opportunities to build and expand on current investments and priorities.

The facts:  This is actually double talk for the Federal Coordinating Council for Comparative Effectiveness Research will determine what treatments should be offered to patients.  While many of the members are medical doctors, they are almost uniformly bureaucrats that have been involved with the provisioning of health care services and treatment, either currently or in the past.  Consider the some of the members if you don’t believe me:

Dr. Anne Haddix, Chief Policy Officer for the CDC.  Her claim to fame: She established the first set of guidelines for cost-effectiveness analysis of public health treatments. 

Dr. Thomas Valuck, Sr. Advisor for Centers for Medicare & Medicaid Services.  His claim to fame: He advises CMS leadership on policy issues related to Medicare’s payment systems. 

Dr. David Hunt is the Chief Medical Officer in the Office of Coordination.  His background includes a stint as the Medical Officer in the Office of Clinical Standards and Quality at CMS.

None are practicing physicians and, at least from their bios, it is apparent that none of them have seen actual patients in years! Far from being clinicians interested in duplicating the work of NIH (which is essentially what they’d be doing if you buy Obama’s explanation), these are policy wonks with specialization or expertise in the provisioning of health care access and treatment, and the payment thereof!

9)     Why are there no actively practicing physicians included in the membership of the Council for Comparative Effectiveness Research?

His answer: These are individuals who are recognized as clinical experts in their relevant fields.  They have authored hundreds of peer-reviewed articles on issues of health care reform, hold dozens of patents, and are recognized as innovators in the health care field.

The facts: This is largely true.  However, it is also true that not a single member of the council is currently a practicing doctor.  Many of the council members are not even medical doctors.  Several are lawyers or economists, while others approach health care from the relative safety of academia or the research lab.  It is hard to see how they have any real world understanding of the populations that they are serving.  Seeing as there is at least one member of Congress who is a practicing doctor in the state of Oklahoma, surely it couldn’t have been to difficult to find at least one person with real world experience to serve on a committee!

10) If the final reform proposal is controversial enough that it will not receive the necessary 60 votes in the Senate, Democrats have left open the possibility of using a procedural move to pass it with only 51 votes.  Do you believe massive changes to such a vital area of American life should be pushed through in this manner with only 51 votes?

His answer: I won!

The facts: I’m sorry, but it is hard to envision any answer that Obama can come up with here that should satisfy Americans.  The truth of the matter is that Democrats control a filibuster-proof Senate, yet they may not have 51 votes, let alone the 60 that is needed to shut down a filibuster!  It is hard to see how a plan that is not supported by a majority of the Democrats in Congress is going to be supported by a majority of Americans!  And, surprise, surprise, it’s not!  Only 41% of Americans support the creation of a public insurance plan similar to one Obama is pushing.  43% of Americans believe that government-based health care reform will make the quality of care worse, not better.  Moreover, 61% oppose even the requirement of mandatory coverage! 

With the odds for passage of ObamaCare getting longer by the day, it should come as no surprise that the Great Salesman has enlisted the help of a trusted friend, ABC News, to make one last attempt to cram this foul-tasting, smelly mess down our throats!  He’d better be at his best because if he stumbles tonight, the jig is up on ObamaCare.

The Health Care Coverage Challenge: An Update on Massachusetts

Joseph Rago reports in the Wall Street Journal’s Political Diary that the future of Obamacare may be quite similar to the problems that Massachusetts is having today (bold is mine):

Democrats have seen the health-care future, and it looks a lot like Massachusetts. Everyone else should take a look too, given that another wheel has fallen off the liberal vision of “universal” coverage.

In a new study published in the journal Health Affairs, the left-leaning Urban Institute’s Sharon Long and Paul Masi find that the Bay State is now facing a growing physician shortage and residents are enduring lengthening waiting times and other restrictions on care. “Paradoxically,” the authors write, “the increases in health care use . . . were coupled with the indications that some adults were having more difficulty obtaining care.”

But there’s no paradox at all. Of course people will flood any “free” insurance program financed by taxpayers. RomneyCare (the plan was spearheaded in 2006 by then-GOP Governor Mitt Romney) entailed no effort to think through the likely consequences, such as the stresses on available medical resources now being witnessed. But then, every mainstream idea of “reform” seems to insist the solution is to extend “free” care to more people, even though health care that appears “free” to the recipient is exactly the source of our long-running troubles. As the Urban Institute authors dryly note: “Although major expansions in coverage can be achieved without addressing health care costs, cost pressures have the potential to undermine the gains.” No kidding.

In Massachusetts, some 20% of surveyed adults seeking care were told doctors or clinics were not accepting new patients, or not accepting patients with their type of coverage. The rejection rates were concentrated among those enrolled in the “public plan” option — no surprise, given that government coverage pays far lower rates to doctors, clinics and hospitals.

Massachusetts is a high-wage economy with a wealth of health-care providers. If it can’t handle universal coverage without restricting patient choice, what state can? Yet the key features of the Massachusetts plan (a mandate requiring health insurance for every individual combined with a subsidized public option) are the emerging elements of ObamaCare. Look for exactly the same problems to be exported to the rest of the country.

We should carefully consider whether our President has bitten off more than the rest of the country can chew.

Letter to the Editor, Laurel Leader, June 11, 2009

Moving library to Main Street isn’t enough to revitalize city

In her letter of May 21, Ms. Lubienicki made the case for moving the library into the old police station. Ms. Lubienicki claimed that moving the library further into Old Town would bring about a revitalization of the area, bringing not just visitors, but new shops and restaurants, and would provide a real town center.

Not to disagree with Ms. Lubienicki, but it will take more than a library to revitalize Old Town. It will take a commitment from a city government that seems more concerned about strip mall development along the Route 1 corridor than it does people less than a mile from city hall.

I may be selling the City Council and the mayor’s office short, but there simply does not appear to be a desire among our elected officials (or, frankly, the citizens of Laurel) to engage in a redevelopment project of Old Town that would emphasize boutique shops and restaurants over law offices and orthopedists.

Old Town Laurel is a lovely place. That’s why I chose to live here when my family moved to Laurel four years ago. But, we shouldn’t kid ourselves. It will take more than a library to return Old Town to its glory. It requires a transformative vision of what this city should look like. It also would require a commitment not just from city officials, but county and state officials who will ultimately be responsible for integrating Laurel’s vision into the greater fabric of Prince George’s County and Maryland. Maybe the library should be spurring this debate about our future, instead of our past. That is truly a debate worth having.

Jason W. Papanikolas

Laurel

The Health Care Coverage Challenge: Can Obama Solve It?

Arguments in Favor of Universal Coverage

The most fundamental argument put forward in favor of universal coverage is that medical care is a basic right.  In this, I find that I cannot argue, except that we’re not talking about gaining access to health care.  Everyone in this country has access to medical care when they need it by federal law.  Federal, state, local, and even non-profit public health services provide basic medical (and even dental) care to indigent populations.  Universal coverage might make it more convenient to pay for such services, but coverage itself (whether government-provided or private) does not confer health care.  Advocates for universal coverage use words like care, coverage, and insurance interchangeably as if they all mean the same thing.  But, they don’t!

Another argument is that ensuring the health of all citizens provides an economic benefit to a nation because the uninsured forgo basic health care.  Therefore, universal coverage is economically beneficial.  Again, this argument is, on its surface, true.  The healthier that your workforce is, the more productive they will be!  However, Helen Levy of the University of Michigan’s Economic Research Initiative on the Uninsured, and David Meltzer of the University of Chicago, were unable to establish a “causal relationship” between health insurance and better health.  There was simply no evidence to support the conclusion that expanded coverage leads to better health outcomes.  That conclusion has been backed up by a New England Journal of Medicine article that stated “health insurance status was largely unrelated to the quality of care.”

Why is this?  Well, there is a distinct grammatical difference definitionally between ensuring health and insuring payment of health care.  To ensure is to make certain.  To insure is to provide for.  It might not sound like a huge difference, but consider this: just because you have insurance does not mean you’ll be healthy.  The only way to ensure health is to mandate healthy living practices, which reeks of totalitarianism.  Therefore, the economic benefit does not apply.

Thirdly, advocates argue that America spends a far higher percentage of GDP on health care than any other country but has worse ratings on such criteria as quality of care, efficiency of care, access to care, safe care, equity, and wait times.  A recent article cited by advocates from the OECD makes many of these same points on a surface perusal.  However, an in-depth analysis reveals a great deal of hedging on the part of the authors themselves.  For instance, one measure used to measure quality of care was infant mortality rate (IMR).  While the authors note that the U.S. IMR is higher than that of countries with “universal health care,” they also provide two enormous caveats.  First, the U.S. uses a very liberal definition of live birth (literally moment of birth), whereas most universal care countries require an infant to live for two days before it is considered “alive.”  Second, they point out that the more advanced medical techniques available in the United States make it possible for infants with fatal diseases to be born alive.  These infants generally die within their first year of life, inflating the statistic further.  So, you can see that any comparison between countries is severely limited by definition difficulties as well as societal and cultural mores (i.e. attitudes toward therapeutic abortion).  This limitation is so severe in my opinion as to be utterly useless.

Arguments Against Universal Coverage

The most often cited argument against government-run universal coverage is rationing of care.  Ramesh Ponnuru puts it succinctly: “If you can’t get an operation because your country’s national health insurance system has you on a long waiting list, in what sense have you enjoyed ‘universal coverage’?”  Advocates say that Ponnuru is wrong and blinded by bias, but the evidence points to him being right.  Michael Cannon of the Cato Institute provides three examples: first, even the Canadian Supreme Court has noted long waiting lists for medically necessary treatments.  Secondly, advocates say that many universal coverage countries don’t have waiting lists.  Well … that’s not entirely true.  It turns out that those countries are playing games with their statistics.  There is no waiting list because the government says so.  Apparently, only those being treated for a condition have coverage for it.  Therefore, since nobody else has “coverage” for it, you can’t be waiting for it.  Finally, there are studies that note that you are far more likely to survive a catastrophic illness, such as cancer, in the United States than in most universal coverage countries.  (For more, see here.)

Next, many critics of universal coverage point out that coverage doesn’t equal universal access or even universal outcomes.  For instance, Britain maintains two systems, much like Obama is contemplating (and Massachusetts has implemented).  Evidence gathered by the National Health Service in Britain suggests that the private health care system provides better access to medical treatment and better patient outcomes.  Furthermore, even in these systems, money talks!  Many folks in the northern United States have noted those Canadians who can afford it go to private doctors in Canada or else come to the United States for treatment.  There is no way to guarantee universality in “universal coverage.”

Finally, critics of universal coverage point to Medicare as proof that universal coverage does not solve for the basic problem: cost.  The Cato Institute, and even the United States Senate, have noted that Medicare does not compare well with market-based solutions.  For example, Cato’s Sue Blevins demonstrates that the advocates of universal coverage understate the cost of said coverage.  It is also virtually impossible to control costs in the Medicare system.  Because doctors are paid on a “fee-for-service” basis, there is no incentive to curb costs.  Medicare also does not balance the benefits of a particular treatment against it’s cost (i.e. Medicare does not ration care).

This final point leads to the central problem with universal coverage.  The goal of universal health care is to allow every single person to access health care at a reasonable price.  Therefore, the system has to balance access and cost, which turn out to be mutually exclusive.  Unfettered access means skyrocketing costs, while cost-containment means rationing of care, which in turn means lack of access.  The private insurance market in the United States does a good job of cost-containment (insofar as this is possible), while Medicare excels at providing access to care.  That’s not to say that both systems don’t attempt to do both, only that their efforts are directed at one or the other.

The Obama Plan

Barack Obama’s health care reform plan aims to split the difference.  Use government resources to provide “universal” coverage, while allowing the private insurance market to keep costs under control.  Obama has proposed a three-prong plan: provide high quality and affordable health coverage to everybody, modernize the U.S. health system in order to reduce costs and improve efficiency, and, finally, strengthen the public health system.

He claims that we cut by $2500 a year the cost of the average families health care by:

• Investing in health IT systems aimed at reducing paperwork and preventing medical errors;
• Improving prevention and management of chronic health conditions, such as diabetes;
• Increase competition within the health insurance industry;
• Providing reinsurance for catastrophic conditions (the phrasing is somewhat redundant, since reinsurance by definition is for worst-case scenarios) to reduce premiums;
• Making health insurance universal through a new Medicare-like entitlement program that will complement private insurance, Medicare, Medicaid, and S-CHIP.

How credible are those claims?  Well … some, like the IT initiatives enjoy near-universal bipartisan appeal, but that’s no guarantee of success.  Obama’s key reform is guarantee quality, portable, universal coverage for all.  So how does he do on this measure?  Again, his quality initiatives didn’t vary greatly from John McCain’s during the campaign or the Republicans’ now.  Of course, these improvements are already happening without anyone’s help, so one really can’t credit Obama with this!

A Medicare-style government-provided health insurance program is certainly portable, and some of Obama’s other proposals, such as a National Health Insurance Exchange, should improve portability.  However, portability of insurance, like improved quality of care, is a secondary concern to the cost of the insurance.  It’s great to say that you are improving the quality of health care and making it’s insurance more portable, but if people still can’t afford it, then you’ve done nothing!

On the surface at least, Obama’s proposal does make health insurance more affordable.  He does this by shifting the costs of health insurance onto the federal government and away from consumers through a Medicare-style insurance program and other subsidies.  Of course, the real question is whether or not the entire system of health care is more affordable by this shifting of burdens.  If the lowered cost of health care is offset by new taxes to provide these subsidies, then you really can’t say that health care is any more affordable.

In structure, the Obama health insurance plan is similar the Massachusetts initiative launched by Gov. Romney.  If Obama’s plan were judged by it’s results, then his plan will not reduce costs or provide universal coverage for all.  The Massachusetts plan has fallen short of covering everyone for an affordable cost. It’s second-year costs look to be coming in 50% higher than were projected when the plan became law in 2006 and it’s insurance is still unaffordable for most families making between $60,000 a year and $110,000 a year.

Will It Work?

The Lewin Group conducted an interesting study that evaluated this proposal.  It found that:

• Assuming Obama’s reimbursement were similar to Medicare (a reasonable assumption), then physicians and hospitals would their revenue cut by almost $70 billion in 2010 alone.
• Medicare-level reimbursement could also reduce premiums by up to 30%.  This is assumed, of course, because Medicare reimbursement levels are 20-30% lower private insurance reimbursement.  Lewin assumes that this money would flow to the bottom line; not necessarily an unrealistic assumption.
• Under the President’s plan, as it is envisioned, the new plan would enroll up 42.9 million people.  This would seem to be good news, considering that the number of uninsured is roughly 45 million people.  (This isn’t entirely true, however.  For a breakdown of this statistic, see here.)  This would appear to insure nearly 95% of those currently without insurance.  However, Lewin also projects that 32 million would lose their private coverage.  So the net effect is that perhaps a little less than 11 million people would become insured (or 25%).

Lewin has two other concerns about this plan.  First, Medicare-level reimbursement policies would cut into hospital and provider revenue.  And it would across the board, not targeted.  As the study points out, doctors that provided unnecessary and wasteful care would see their reimbursement cut 20% to 30%, but so would doctors providing delivering appropriate care.  In other words, the plan will cut out not only the bad stuff, but some of the good stuff as well. 

The Lewin study concludes that Obama’s plan would mean 5% decrease in revenue for hospitals and 7% for physicians.  That may not sound too bad to the advocates of universal coverage, but consider that, according to the American Hospital Association, in 2005, roughly one-quarter of all the hospitals in the nation operated in a negative revenue margin (meaning that they spent more than they were reimbursed).  Overall, a hospital’s operating margin was roughly 3%, while their patient margin (the difference between reimbursements versus expenses) is about -2%.  So, we are talking about literally wiping out what little profit providers make now; profit that acts as a safety buffer in bad years.  It’s hard to see how wiping out profit (and more likely actually forcing hospitals and doctors to operate on red ink) is not going to force a government bailout over the long-term.

Using this data, it is possible to see how Lewin concluded that the Obama plan could easily create a two-tiered health system, similar to Great Britain’s, with all of the problems that are inherent in the system.  One of the many problems with Medicare is government’s refusal to means-test benefits or perform cost-benefit analyses on medical procedures.  Medicare controls costs by controlling reimbursement rates with medical care providers.  In other words, the government dictates, like an HMO but with far more clout, how much the government will pay for a certain procedure.  Currently, doctors (but not hospitals) can refuse to accept Medicare and Medicaid payments.  It’s hard to see how the Obama reforms would not cause an acceleration of that trend.  So, we’ll be left with one system that caters to private insurance policyholders and one that handles government policyholders. 

So, the answer appears to be: yes, in the short-term, the Obama plan will produce greater coverage (though still far short of the universal coverage goal).  It will take advantage and possibly accelerate QC and IT trends that are already being introduced to the industry.  And it will do so for a reasonably manageable cost.  However, as a consequence, we may produce a two-tier system that produces quality care for one group and adequate care for another.  Further, the plan does not address the ultimate drivers of cost: the cost of care (i.e. paying for diagnostic tests and treatments).  Obama’s looking for a surgical strike on the health care problem.  What he may end up doing is firebombing innocent civilians, but leaving the health care problem looming over our economy.

How Sustainable Will This System Be?

Nearly everyone agrees that in the short-term this proposal will accomplish its stated goals.  The problem will come in the long-term.  Barack Obama is a shrewd politician.  Unlike most of the Left, Obama understands that Americans are not prepared to accept a single-payor system of truly universal coverage.  He further understands (though he cannot admit) that cost-containment is truly not possible under his plan.  The lesson that he (and other Democrats) learned with Hillarycare is that you must get buy-in from the key stakeholders or you’re dead in the water.  To cap costs, you must actually cap costs!  That requires doctors, hospitals, insurers, and even the trial lawyers who sue them getting less money.  It might also require patients to accept a lower standard of care than they are prepared to accept.  By emphasis efficiencies based upon “magic bullets” like IT improvements, wellness, and prevention, Obama avoids making any meaningful cost-containment cuts in the short-term.

However, it is not enough to just introduce a stopgap measure to will prove to enormously costly and unsustainable over the long-term, especially if your stopgap blows up the existing structures and makes it impossible to make a U-turn.  This may in fact be Obama’s plan!  Destroying the existing system now will make it far easier for the government to assert a need to fully nationalize (or socialize, if you prefer) the entire health care industry at a later date when costs continue to rise.  It’s the sort of government creep that conservatives and civil libertarians hate, but which they can do very little to stop.  If this is actually Obama’s plan, then it’s politically astute and brilliant.  It’s also quite wrong-headed and ignores the 700-lb. gorilla in the room.

That gorilla is the ever increasing federal debt.  As of April 2009, the national debt stood at $11.1 trillion dollars.  We are adding an average of $1 trillion a year to the national debt, so that by 2015 we may well have closed in on the $20 trillion dollar mark, especially since the current recession does not appear to be conforming to Obama’s plans.  This number doesn’t even include the unfunded Social Security and Medicare mandates of $41 trillion.  Of that, $34 trillion belongs to Medicare.  This is the present value of the mandate, meaning this is how much money we’d need to add to the system today to fully fund our future obligations.  Each year that goes by drives this number upward at an almost exponential rate.

In fact, long-term solvency for Medicare depends a great deal on the private insurance market remaining the way it is today.  The only reason that the government can continue making lower payments through Medicare is because the market share of privately insured persons under 65 is so large.  In other words, one of the primary drivers of cost in the private health insurance system is the public insurance system.  But, the Obama plan would theoretically place two-thirds of American under the aegis of the public insurance umbrella, eliminating providers ability to recoup their losses through the private insurance system.  In fact, the loss of market share would force most private insurers to charge higher premiums to make up for the increased risk of a smaller market.  Eliminating the last stone in the Medicare ponzi scheme would force the government to focus seriously on cost-containment in public insurance for the first time.  The cuts would be severe because the obligations would be so enormous.  In fact, the obligations would likely be so enormous as to be impossible to meet even with 80-90% benefit cuts.  It is projected that by 2030 (D-Day) the entire federal budget will consist entirely of Medicare and Social Security obligations and interest to service the debt.  Obama’s plan might destroy what little ability Medicare has to control costs and, thereby, balloon the obligations of the federal government.  In other words, focusing on universal coverage instead of cost-containment may well cause D-Day to come sooner, say in 2025 or 2020.  That may seem like a long way off, but consider that in 2020, your 5-year old will be just 16 years old.  Is this really the world that you want him to inherit?

Final Thoughts

The irony of the entire situation is that the Left in this country has opposed proposals that would create a two-tiered system for Medicare, yet they are suddenly in favor a proposal that will do just that!  The Left has opposed a two-tiered Medicare system (done either through means-testing or greater privatization and competition) because they claim that it will create one system for the rich and another for the poor.  However, the Left’s acceptance of this proposal would seem to indicate to me that their arguments were a sham; a cover to hide a bald-faced fact!  The Left does not trust private enterprise; they do not believe that market capitalism can produce socially beneficial results without government interference (or preferably control).  In the case of health care, the Left does not seek control of the system in order to contain run away costs.  Most analysts don’t believe that’s possible over the long-term and the preponderance of evidence agrees with them. 

No, the Left seeks to control health care because they seek to have government control all aspects of social interaction; not because they are inherently evil, but they because they are engaged in the ultimate utopian experiment.  Despite thousands of years of human history that shows us that government’s true face is not one of altruism but power, they simply refuse to accept it.  In the face of evidence that the Left’s intellectual ancestry produced two of the most totalitarian and destructive regimes on the planet, the Left doesn’t believe that can happen to them!  I wish them luck in their experiment and only hope that in doing so, they don’t drag off the cliff them when their time comes.

Volunteerism, National Service, and the “Obama Youth”

Here’s an editorial from the San Francisco Examiner on the expansion of Americorps.

The expansion of the Americorps program from 75,000 slots to 250,000 may indeed have some merit.  Unfortunately, there were a few other things included in the bill that reek of totalitarianism.  For instance,

[T]he legislation threatens the voluntary nature of Americorps by calling for consideration of “a workable, fair and reasonable mandatory service requirement for all able young people.” It anticipates the possibility of requiring “all individuals in the United States” to perform such service, including elementary school students.

[T]he new program should “combine the best practices of civilian service with the best aspects of military service,” while establishing “campuses” that serve as “operational headquarters,” complete with “superintendents” and “uniforms” for all participants. It allows for the elimination of all age restrictions in order to involve Americans at all stages of life. And, it calls for the creation of “a permanent cadre” in a “National Community Civilian Corps.”

The bill also calls for “youth engagement zones” in which “service learning” is “a mandatory part of the curriculum in all of the secondary schools served by the local educational agency.” … This updated form of voluntary community service is also to be “integrated into the science, technology, engineering and mathematics curricula” at all levels of schooling.

Several questions arise from these disturbing paragraphs.  First, why do we need coerced volunteerism?  Secondly, can community service be compelled and what does that say about us as a people?  Finally, among many other issues that could be explored, what does volunteerism entail?

That question is probably the easiest.  Over 150 years ago, Alexis de Tocqueville noted a quintessential trait of Americans was our sense of service.  Our sense of service “prompts [Americans] to assist one another and inclines them willingly to sacrifice a portion of their time and property to the welfare of the state.”  There are two keys there: time and property.  Thus, volunteerism is freely giving of one’s time, money, or property for the betterment of the community in general.  Statistics show that Americans are among the most generous people on the planet.  According to the Charities Aid Foundation, Americans gave the equivalent of 1.7% of our Gross Domestic Product (GDP) to various charities in 2005.  That doesn’t sound like a lot, until you realize that it’s more than double the next nearest country (the UK at 0.73% of GDP).  If that number doesn’t impress you, consider the raw numbers.  1.7% of U.S. GDP is nearly $300 billion. 

It’s even more impressive when you consider that the national savings rate for 2005 was negative 0.5%.  What this seems to indicate is that Americans would rather do without savings for a rainy day than not give to their fellow man!  That’s pretty goddamn impressive, if you ask me!!!  But, that’s apparently not good enough for Team Obama!  Time is all that counts!  Well, what about time?   According to the 2005 Current Population Survey, 30% of the American population volunteered time to a charitable organization.  The volunteers gave a median average of 50 hours of work to charity.  So, every American gives up $1000 and nearly 17 hours per year to help his fellow man.  Amongst the average family of four, that’s nearly 10% of our income and probably half of our vacations.

Why, then, do we need coerced volunteerism?  As de Tocqueville mentioned, the American service ethic is a three-legged stool.  Some of us give of our time, some our money, and some others their property (i.e. clothing or food donation).  To emphasize one over the others would seem to make our stool wobbly and invite the destruction of the service ethic as we know it.  What’s the point?

Three possibilities spring to mind.  First, maybe younger Americans aren’t volunteering like they should.  That would certainly be consistent with the narrative of the “Me-First” Generation and public perception.  What’s the evidence say?  According to National Service.gov, the proportion of high-schoolers (aged 16-19) who volunteer has increased since 1974 from 20.9% to 28.4%.  This tracks closely with the percentages from society at large.  So, it’s hard to say that teenagers are less likely to volunteer and thus need to be coerced by the government.  In fact, the same statistics only show a drop off in volunteerism amongst college students, with increases in volunteerism in all other age cohorts.

So, if there has been no decline in volunteerism over the last thirty years, then maybe it’s the amount of time and money that has decreased.  Alas, there’s no evidence at all to suggest that we valuing civic service any less than we did previously.  In fact, research seems to confirm that these levels of spending and time are a baseline for American volunteerism.  That leads inexorably to the third option: government control.

To a very large extent, charitable organizations are untouched by the hand of the federal government (or state and local governments for that matter).  Sure, these organizations may receive some government funding, but they do not depend upon it for their survival.  In fact, the growth of the non-profit sector outpaces the economy at large.  According to the Urban Institute, the non-profit sector is growing at roughly the twice the rate of the economy at large.  Furthermore, government has little, if any, say in how that money is used. 

If government wants more of a say in the non-profit industry, they have to control the flow of resources.  That’s difficult to do monetarily (especially for Democrats)!  Any reduction or elimination of the charitable donation deduction would have to be coupled with a complete overhaul of the American tax system, which is not a favored Democratic policy preference.  That leaves controlling the flow of volunteers.  Hence, the creation of the “National Community Civilian Corps,” or, as some critics have dubbed it, the “Obama Youth.”

Of course, the idea is immensely popular with politicians!  Today’s “Obama Youth” become tomorrow’s “Palin Youth” or some such thing.  The ability to create a permanent cadre of government employees whose only job is to “volunteer” to serve organizations whose goals are compatible with the goals of the party in power is simply too tempting.  The thought that this might somehow go very badly never seems to have occurred to either side.

And the term “Obama Youth” is apt.  President Obama has the largest organization of volunteers in the country right now (three million strong, according to some estimates).  What if he used these volunteers to form his permanent cadre of the National Community Civilian Corps?  He would now have a personally loyal, fully committed (in the sense that volunteering for Obama is no longer a side job, but a permanent occupation) group of individuals in a position to implement his policy preferences and train an entire generation of young Americans in the ways of Obamanism.  The comparison with the formation and history of the Hitler Youth is worthy of greater study.

America is the greatest country on Earth and Americans are some of the most generous and kind people on the planet.  Our emphasis on volunteerism is such that we willingly sacrifice a large amount of money and time to create a better world for ourselves and our community.  There is no crisis of volunteerism in America and hence no need to create tomorrow’s “Obama Youth.”  The principles of liberty and freedom are greatly wounded by these proposals, especially since these concepts reach their pinnacle in our spirit of volunteerism.