Introduction

Because of its somewhat politicized nature and because adverse litigation can have more effect on stock price than does continued success, most estimates of litigation cost in this country are merely WAGs (that is to say guesses). These guesses are based upon little more than conjecture at times. At other times, they are based upon survey analysis and estimates made by experts based on incomplete data. Possibly the best estimate comes from the 2005 Litigation Trends Survey commissioned by Fulbright & Jaworski (Insurance Journal, 2005). According to the survey, roughly 40% of respondents could not even estimate their average litigation costs. Of those who could, 10% said that their litigation costs were equivalent to 5% of their revenue. Other surveys, such as a recent one commissioned by the American Justice Partnership (Engler and McQuillan, 2008), places the cost of excess litigation at over $500 billion per year. It is based upon assumptions that may or may not be valid.

Whether it is $500 billion or 5% of revenue, litigation costs pose serious problems to corporate America. Yet, corporate America appears to be doing little to curb or contain it. As this paper will show, even though litigation costs are accelerating faster than inflation, there are significant barriers to cost containment and litigation risk mitigation. First, there are accounting standards that encourage treating costs separately, instead of as an integrated whole. Second, there are institutional and cultural barriers to overcome. Finally, there is the problem of sizing risk management contracts to maximize benefits for both parties.

The Problem of Statistics

For most corporations in America, the rising cost of litigation is probably only secondary to the rising cost of health insurance. While inflation has been increasing at roughly 3% per year, litigation costs are probably increasing at roughly 10% per year. There is no definitive index as with inflation obviously, but there are indicators. One indicator is the American Lawyer’s annual list of the 100 largest law firms in America. This list is based upon the revenues of the largest law firms in the country. By tracking the change in average revenue from year to year, it is possible to obtain a proxy for the increase in litigation costs. The AmLaw 100 list also shows another interesting trend. The average profit margin of the 100 largest firms has consistently averaged around 40%, indicative of a stable pricing model throughout the entire industry.

One of the criticisms of using just the 100 largest law firms to compute the entire growth of an industry is that these firms may not, in fact, be indicative of the entire industry. Even with an apparently stable pricing model and the fact that these trends also hold true for the next 100 largest firms,[1] critics have a legitimate point. There is a world of difference between an AmLaw 100 firm with offices in every major American city and a sole proprietor working in Fargo, North Dakota. However, if additional indicators show the same trend, then we can begin to say that we have arrived at the best available proxy. Enter that second indicator. The Bureau of Labor Statistics (BLS) collects yearly data on various occupations. The BLS’ Occupational Employment Statistics (OES) survey contains granular information of salary and pay for virtually every occupation in the United States. Using the results of multiple surveys, it is possible to track increases in lawyer pay over time. As the OES survey is cross-sectional, it does not suffer from the same bias that might infect the AmLaw 100 indicators. A time-series analysis of the OES surveys shows that the growth in lawyer salary has grown along the same lines as the AmLaw 100 survey.

These trends are difficult to ignore. Moreover, it is important to remember that these statistics only show one side of the equation. The total cost of litigation is equal to the cost paid out to defend one’s self plus the cost paid to the plaintiffs when one loses. We already know, based on the evidence presented above what that defense cost is and we know that this defense cost is increasing at roughly double the rate of inflation every year. We also have some idea of the scale of total defense cost simply by noting the sheer scale of the defense dollars controlled by the top 200 law firms in the United States. However, we still have little, if any, idea just how much corporations are paying out to plaintiffs when they lose.

Barriers to Total Cost Management

While we have some idea of the size and scope of the legal problems facing corporate America today, it is difficult to nail down specifics. There are several reasons for this. First of all, according to the American Arbitration Association, only about 3% of all legal disputes go to court and only half of those ever reach a verdict.[2] This means that 98+% of all legal disputes never see the light of day. Put another way, for every one case that makes the pages of local and national newspapers, there are roughly 50 that do not. These cases are either settled out of court or else the case is dropped by the plaintiff. This makes tracking costs externally very difficult.

The biggest obstacle, however, to effective external decision-making are the accounting rules that govern the disclosure of these disputes. Legal defense cost is considered to be part of a company’s operating budget and, therefore, is rarely broken out in balance sheets and cash flows. Estimates can be obtained if the size of the legal department is known. Otherwise, guesses, like those we have seen above, are the best that we can do. Liability costs are generally charged to be individual business unit that incurred the case (and are likewise considered to be operating costs). FASB rules do not require a corporation to specifically declare legal issues or their value if, in the opinion of the executive leadership, these issues will have no material effect on the company. A 5% revenue impact is significant, but it is also the aggregate total of all legal costs incurred, some of which are routine. Since it very rare that a case could even claim a 1% impact on revenue, it is highly unlikely that any company will believe that any case will trigger FASB reporting requirements. Accounting rules, therefore, provide a lot of wiggle room for companies to hide their legal issues within the balance sheet. This tendency of rules-based accounting has been frequently noted in discussions of business ethics (see, for example, Albrecht et al. 2008).

The same accounting rules that make it difficult for outside observers to grasp a company’s financial exposure to litigation can often hamper internal control and decision-making. Until very recently, law firms and corporate legal departments lacked the sophisticated information management systems that allowed for effective and efficient tracking of litigation costs. However, since accounting rules do not require that a company manage for total litigation cost and, in fact, tend to fragment litigation spending over several departments, there has been little impetus to manage for total litigation cost. Where risk management strategies have been put in place, they to focus on avoidance and prevention of litigation rather than on cost containment measures. There are two notable exceptions to this which will be discussed later in this paper.

In addition to the accounting rules that create a fragmented (at best) cost control regime within a company, legal departments have other institutional and cultural barriers that must be overcome in order to effective manage litigation risk. First and foremost, attorney-client privilege and attorney work product privilege combine to create a highly insular corporate culture within the legal departments of most companies. Those outside the sphere of the legal bubble are seen as potential leaks, not as allies in a common cause. Even if a CEO or CFO wished to strictly comply with the requirements of FASB accounting rules, he would have to rely on the judgment of the legal department and it’s outside counsel. These two entities are likely to determine that such disclosure would violate the above-mentioned privileges.

Risk Management in the Legal Context

As stated above, corporations, large and small, do engage in loss mitigation for litigation; they just do not do it as effectively as they could. Most corporations engage in the usual loss mitigation tactics: specific policies related to human resources management, safety training programs to minimize injuries on the job, retraining programs for those who can no longer endure the physical hardship of their job, etc. These programs are obviously designed to prevent lawsuits from happening in the first place. Their secondary purpose is to provide a legal defense when a lawsuit does arise in order to mitigate loss payouts. Additionally, these programs serve other purposes, such as employee retention and the dissemination of the corporate culture. Therefore, while these programs do serve a risk management function, it is hard to call them dedicated risk programs.

Two other loss mitigation/risk management programs bear mention and a brief discussion here. The first such programs are collectively called alternative fee arrangements. Most commonly a corporation will negotiate a reduced hourly rate with its largest law firms, enjoying the advantages of reduced cost and cementing closer relationships with these firms. Since the corporate legal department controls the defense cost side of the equation, they can engage outside counsel to reduce the burden on their yearly fixed budget. However, the corporation is still not controlling for cost. Based upon eLawForum’s review of several thousand cases across a variety of litigation practice areas, I can state with a high degree of confidence that the average case lasts over two years with a standard deviation of one year. Therefore, even with rate discounts, the defense cost of a case can easily spiral out of control. From an accounting perspective, a case that costs $180,000 to defend will only have an impact of $90,000 on the annual budget. Furthermore, neither the law firm nor the legal department has any incentive to settle the case quickly. If that same case above were settled in half the time (one year), the entire $180,000 would hit the corporate books at once, appearing to be a far worse result than it truly is.

Even those arrangements are rare. According to Smith (2005), “just a third of the 100-plus-lawyer firms surveyed had recently engaged in any sort of alternative billing—and fewer than a quarter of those arrangements involved litigation.” Both corporations and outside counsel law firms obviously see litigation as inherently too risky and, therefore, too expensive to be contained by alternative fee arrangements. Corporations have, however, had greater success with Alternative Dispute Resolution (ADR). ADR refers to a series of less expensive methods of resolving litigious matters. Of particular interest to us is the use of arbitration. The other methods, such as negotiations and mediations are required by virtually every jurisdiction in the country and, so do not form an integral risk management system.

Arbitration is essentially “court-lite.” Both sides present their case to an arbitrator, whose decision is final.[3] The two major advantages of ADR from a risk management standpoint are that it is cheap and it is private. According to Raynor (2006), many civil cases can cost upwards of $250,000 to defend. Arbitration clauses can greatly reduce that cost because discovery time is severely curtailed in favor of an expeditious ruling. Also, unlike most civil trials, arbitration is private. The proceedings are never made public and the ruling of the arbitrator need not be explained even to the participants. For many corporations, this privacy (they believe) reduces the likelihood that they will become litigation targets. It reduces the possibility of large awards based on sympathetic juries and makes it harder for a good trial lawyer to show a pattern of behavior.

All of the above solutions address only one side of the equation: defense cost. Since eLawForum’s internal analysis shows that the liability to defense cost ratio averages 3:1, corporations are missing out on an opportunity to employ a unified and integrated litigation risk management strategy.

Total Cost Management

Total cost management is akin to the total quality management processes first perfected by Japanese automakers in the 1970s. Originally used in construction project management, it is a methodology that encourages corporations to create project portfolios in order to streamline and optimize outcomes (Hollmann, 2006). Since it normally is used for assets, most corporations have not considered using it for large liabilities.

From a risk management standpoint, total cost management sets as its endpoint a reasonable and obtainable level of losses based on historic loss rates. In order to accomplish these reduced loss levels, a corporation would then partner with one outside counsel in order to develop a unified national (or international, where appropriate) strategy for litigation arising within one portfolio or another. Most lawyers will tell you that every case is unique and that is true insofar as it pertains to the particular circumstances of the case. However, all employment cases share many similarities, as do most personal injury cases, commercial disputes, and the like. That makes it possible to place them in portfolios that can managed independently by a few in-house lawyers tasked with ensuring results.

As eLawForum practices it, total cost management is only possible if metrics are established. This requires corporate legal departments to give up some information on these portfolios. Metrics, such as total cost per case (defense plus liability), are vitally important in order to measure the effectiveness of the implemented program. These metrics are also often the hardest to quantify. As we have previously seen, corporate legal departments have little incentive to track total case cost and so most do not even bother. Reconstructing these metrics can require hundreds of man-hours and can often be an arduous task for analysts and lawyers alike. However, once these metrics are constructed and agreed upon by all parties, it is possible to construct a portfolio of cases on which outside counsel firms can bid. These firms will provide an incentivized bid in order to reduce the cost of the overall portfolio to the company. Incentives can take many forms from bonus payments for hitting certain agreed-upon financial targets to opportunities to bid on more portfolios in the future. eLawForum found that the best combination was to use a fixed fee payment schedule with “profit-sharing” payments for reducing liability.

Conclusions

Using total cost management, eLawForum cut defense costs by upwards of 75% and liability cost by as much as one-third without compromising the quality of legal service provided.[4] The real challenge is to get corporations to see their liabilities in the same light that they see their assets: portfolios to be managed in order to optimize the outcome to the company. This risk management technique provides certainty to the corporation in the form of fixed defense costs and offers greater opportunities to control liability than any of the current loss mitigation programs used today. Total cost management has the potential to do for litigation risk management what its predecessor in manufacturing did for Toyota: radically alter the landscape of litigation in order to provide a competitive advantage to the companies that implement it thoroughly.

References

Albrecht, C., Albrecht, C.C., Dolan S., and Malagueno, R. (2008, Jan/Feb.). Financial Statement

Fraud: Learn From the Mistakes of the U.S. or Follow in the Footsteps of its Errors. Corporate Finance Review 12(4). ABI/INFORM Global, 5.

Engler, J. and McQuillan, L. J. (2008). Limiting lawsuit abuse lowers cost from litigation,

creates jobs in long run. Retrieved from http://americanjusticepartnership.org/wordpress/?p=46.

Hollmann, J. (2006.) Total Cost Management Framework. Retrieved from

http://www.aacei.org/tcm/.

Insurance Journal (2005, Nov. 7). Cost of Litigation Haunts U.S. Corporations More Than

Winning Cases. Insurance Journal. Retrieved from http://www.insurancejournal.com/magazines/east/2005/11/07/features/62312.htm.

Raynor, L. (2006, October). Litigation vs. ADR. Risk Management 53(10). ABI/INFORM

Global, 30.

Smith, H. The Fix Is In. 2005 Litigation Supplement to American Lawyer. Retrieved from

www.elawforum.com.

[1] The American Lawyer publishes both an AmLaw 100 and 200 list each year in April and May.

[2] Source: Internal marketing documents for eLawForum Corporation.

[3] In most jurisdictions, arbitration decisions cannot be appealed in a court of law, except under very specific circumstances.

[4] Source is internal eLawForum documents gathered from dozens of clients between 2004 and 2008, when the author left the company.

In 1953, former GM CEO Charles Wilson was nominated by President Eisenhower to be the U.S. Secretary of Defense. Then, as today, confirmation hearings could be intense and Mr. Wilson had no military background to recommend him for the office. Therefore, many Senators saw the nomination as a political pay-off to Mr. Wilson for his support of Eisenhower and were desperate to tarnish him. So, when Mr. Wilson was asked a question about whether or not he could make a decision as Secretary of Defense that was adverse to GM, he is reported to have famously replied: “What’s good for General Motors is good for America!”[1]

This arrogant statement has long been used to trash and besmirch the scions of industry as being out-of-touch with the common man. However, on its face, Mr. Wilson’s supposed statement is not all that far-fetched. Consider the following statistics: General Motors (GM) was the largest corporation on the planet. It’s only real competitors were the other American automakers: Ford and Chrysler. According to historian John Steele Gordon (2009), the three companies had a combined market share of 95% (50% for GM, 30% for Ford, and 15% for Chrysler). What competition existed was relegated to either the high-end market (sports cars, limousines, and the like) or the exotic (the VW Beetle)! As such, there seemed to be little impetus for change or innovation.

Compare those numbers with the situation today. As recently as 2004, GM, Ford, and Chrysler (known collectively as the Big Three) controlled just 58.6% of the market (GM 27.3%, Ford 18.3%, and Chrysler just 13.0%. (Venkatakrishnan 2005). When you excluded their foreign-owned nameplates (like Jaguar and Saab, for example), that market share fell to below 50% (Associated Press 2007). The top three Japanese automakers, Toyota, Honda, and Nissan, on the other hand, controlled 26.2% of the domestic auto industry (Toyota 12.2%, Honda 8.2%, and Nissan 5.8%). Even today, the Big Three still hold a dominating 2 to 1 advantage over their nearest foreign competition: the Japanese auto industry. Even Chrysler, the most ailing of the three automakers, is larger than its competition individually. It would, therefore, be logical to conclude that the loss of market share (which has been fairly gradual) should not have been devastating. Nonetheless, it is General Motors and Chrysler that are filing for bankruptcy and Ford that is struggling to survive, while the Japanese are still flush with cash despite the recession.

How the Big Three automobile manufacturers arrived at this state is the subject of this paper. Using Five-Force analysis, I will show how the domestic auto industry in the United States bred a monopolistic arrogance between the four main actors: the Big Three and, of course, the United Auto Workers, which represented the line workers of those companies. I will also discuss the forces that opened the domestic auto industry to competition and how the Japanese automakers were poised to take advantage.

A Monopoly in All but Name

Michael Porter’s Five-Force model allows an analyst to describe an industry and a company’s place within it in terms of the forces and influences acting upon it. These forces can affect both the short-term and long-term planning of an organization. As we shall see, the state of the domestic automobile industry in the United States during the 1960s and 1970s was a virtual monopoly shared by the three main auto companies based in Detroit, Michigan: General Motors, an amalgamation of several formerly independents brands, such as Pontiac, Cadillac, and Oldsmobile, Ford Motor Company, and Chrysler Motor Company. Into this mix, we can throw the United Auto Workers, an offshoot of AFL-CIO, and the single largest union organization in the country at the time.

Graphically, the Five-Forces model can be represented as such:

Figure 1. Porter’s Five-Forces Model (Adapted from QuickMBA.com)

The above chart describes the interaction of the five forces that determine an industry’s competitiveness, both within and without. Using the above chart as a sign post, let’s see where the Big Three were between the end of the Second World War and the 1970s.

· Rivalry – With control of the 95% of the market concentrated between just three companies, there was little, if any, true competition for customers. The three manufacturers did what they could to widen the market, as with the introduction of the muscle car in the late 1950s and early 1960s, but any advantage was temporary. With no competition, the three companies felt it a wiser use of their time to cement long-term deals with union leadership to forestall work stoppages and strikes.

· Supplier Power – Each company controlled its own proprietary parts chain (most still do), so there was little threat of forward integration. In fact, with many of the workers at the parts manufacturers being represented by the UAW as well, there was a great deal of pressure to not rock the boat.

· Buyer Power – Consumers are the end purchaser of the automobiles produced by any car company. During this time period, there were no credible alternatives to the Big Three. British roadsters and other imports generally competed for the high-end buyer, a market in which the Big Three never seriously tried to compete. Japanese imports and even many German cars of the period were of inferior quality to their American counterparts and so posed little threat to the average consumer. With the Big Three dominating the market, consumers paid whatever price was asked.

· Threat of Substitutes – The only available substitutes to cars would be public transit (subway, taxi, bus, etc.), train, or airplane. For the most part, these pose little, if any, threat to this day. Public transit is only cost-effective when running on short, well-timed routes in heavily urbanized areas. Trains and airplanes suffer from the opposite problem. They are only cost-effective on longer range routes, such as the Northeast corridor or LAX to BWI. As there is also a high convenience cost to these modes of transportation, the automobile industry has never had a true rivalry from a substitute industry.

· Barriers to Entry – The high cost of competing with the Big Three presented a formidable barrier to smaller car companies hoping to do business in America.

This analysis would seem to present a case where the Big Three control a virtual monopoly and there is little, if any, chance of a new competitor gaining traction. With some justification, therefore, the Big Three each independently concluded that their biggest threat came from work stoppages and strikes. Flush with money and with total control of the market, they cut long-term deals with the UAW that radically increased worker pay, provided generous retirement benefits, and, in many cases, provided cradle-to-the-grave health insurance. However, by the 1980s and 1990s, new competitors were gaining significant market share and radically changing the calculus for the Big Three. How did they do it?

Upheaval and Innovation: The Auto Industry in the 1970s

The answer to that question lies in three political and social events. These phenomena set the stage for a technological advancement that produced the first true threat to American corporate dominance of the domestic auto market.

The first social phenomenon was the rise of the yuppie. A shorthand for young, upwardly-mobile professional, the term first came to prominence in the 1980s (Budd and Whimster, 1992). These young men and women were at the forefront of the consumer-driven culture that shaped the next two decades. Yuppies were the first generation to have large amounts of disposable income. There have been numerous studies that have shown the correlation between per capita GDP and car ownership, as well as a corresponding increase in the number of miles driven per person (see, e.g., Schwartz 2006 and Schipper, Marie-Lilliu, and Lewis-Davis 2001). The second social phenomenon was the increase of two-income households. From 1970 to 2005, the number of two-earner households increased 16% (Pew Report 2008). These two phenomena combined to create a larger and broader car market. All things being equal, the Big Three probably could have continued to maintain their mastery over the domestic auto industry. However, all things were not equal.

The third phenomenon of the 1970s fundamentally altered the calculus of the domestic auto industry. That event was the oil crisis. Gordon (2009), for one, identifies this moment as one of change for the auto industry. I feel that he does not go far enough, however. It is entirely possible, perhaps even probable, that the oil crisis would not have produced any significant changes to the domestic auto industry in the United States. After all, without the social trends identified above driving more and more people into automobiles (thus reducing the number of occupants per vehicle and increasing the family gas budget), it is entirely possible that: a) the oil crisis never happens, or b) it merely drives Americans back to carpooling and public transportation. It is the presence of the yuppie and the increasing number of two-earner households that makes the oil crisis so devastating for the American automakers.

Japanese Automakers Gain a Foothold

Into this perfect storm came three Japanese motor companies: Toyota, Honda, and Nissan.[2] Actually, all three had had some presence in the American market since the post-World War 2 era (Toyota, for instance, had come to America in 1957), but had been relegated to niche status by the behemoths of Detroit. Since the Japanese automakers did not focus on sports cars, muscle cars, or trucks, they had virtually no radar signature for the Big Three (or anyone else participating in the American market, for that matter) to track.

For years, the Japanese automakers had been perfecting the practices of lean manufacturing. By focusing on total quality management, just-in-time (JIT) inventory control, and less labor intensive construction processes, the foreign automakers were able to produce a smaller, lighter, more fuel-efficient vehicle that was superior in quality to what Detroit was producing at exactly the right time (White, 2009). American consumers were finally given a clear choice between American cars with their gas-guzzling engines and crude machining and Japanese cars whose fine-tuned, though somewhat utilitarian designs, achieved better gas mileage and had a lower cost of maintenance. Faced with both rising incomes and rising gas costs (and, perhaps, no longer viewing an automobile as a luxury purchase), Americans began to shift towards the Japanese automakers.

As the introduction showed us, even Toyota, the largest of the Japanese automakers, only controls half of the market that GM does, but it does so at a far lower cost. For one thing, the previously mentioned construction principles result in a higher quality product for a lower cost than most American manufacturers. But, those barriers could be (and eventually were) overcome. Every major automobile manufacturer on the planet now uses total quality management and JIT inventory control. Virtually all have streamlined their production processes to reduce manpower requirements. And yet, Toyota and the other Japanese automakers have remained flush with cash and in a much better competitive position vis-à-vis their American competitors than vice versa.

Ultimately, there is one reason above all else that this remains true: the legacy costs of unionization. To a large extent, Japanese automakers have avoided unionization as they have moved their operations to the United States. Toyota, Hyundai (the major South Korean automaker), Honda, and Nissan all have major assembly plants located in right-to-work states where unionization is next to impossible. While union advocates are quick to point out that these non-unionized workers do not make as much as their unionized brothers, they also do not place as large a burden on their parent companies. GM has estimated that the sticker price of its union legacy costs is $1500 per vehicle (Venkatakrishnan, 2005). Ford and Chrysler, meanwhile, have slightly lower estimates. What this means realistically is that even if the cars and light trucks made by American automakers were of the same quality and virtually indistinguishable from their foreign competitors (and one can make that argument), the American car must still necessarily cost more.

The virtual monopoly of the post-war period fostered a corporate culture of arrogance; one that blinded the American auto industry to technological improvements being made around them. This monopoly caused the domestic auto industry to lose its focus; the companies were transformed from innovative corporations into union-friendly jobs machines. Social and political pressures combined to provide an opening in the domestic auto market for the new innovations made by the Japanese. These technological innovations also provided them with an enormous head-start, one that the American companies could have eroded faster if not for the continued lack of focus. Until, and unless, American automakers are able to find or create new innovations that allow them to undersell their foreign competitors, it is likely that the market share of the Big Three will continue to slide.

Conclusion and Implications

This paper has analyzed the status of the domestic auto market before and after the oil shock of the 1970s. It suggests that, even though a near monopoly fosters arrogance and apathy, it will take some extraordinary game-changing event to break open these industries. Even then companies seeking to compete in them must have the right innovations in the right place at the right time. Even a cursory reading of history, however, will show that this confluence of events is not so difficult to achieve as it sounds at first. A recent article in The Economist (2005) has shown how this pattern has been repeated over and over again in heavily unionized industries, such as the steel industry and the airline industry. Faced with new improvements and new methods of conducting business, the unionized companies in these industries refuse to adapt, preferring to rest on their laurels, ignoring the threat until it is too late.

A longer paper would allow for a far more intensive study of this pattern. Issues, such as reaction from the monopolistic partners and a more in-depth study of labor relations would flesh out the concepts presented here. Comparative studies of the steel, airline, and domestic auto industries should be conducted in order to establish a cycle of dominance. A cursory review of the literature would seem to reveal that this cycle does in fact exist and that most industries proceed on a natural path from disciplined monopoly towards fragmented competitiveness.

The implications for government policy are equally stunning. The single greatest sector where unions are organizing heavily and steadily increasing membership is the public sector. The number of union members employed by public sector agencies has recently exceeded those employed by the private sector. As the public sector is monopolistic by nature (and design), it stands to reason that the pattern identified above will hold true. Already, we see evidence in this recession that the public sector must increases its “prices” (in the form of taxes) in order to pay for its bloated bureaucracies. As the growth of the public sector must necessarily come at the expense of private sector growth and as tax revenue from public sector employees does not really count as revenue per se, it is foreseeable that what befell the auto industry will also befall the public sector as well. Unfortunately, while we could all turn to alternatives for the Big Three’s bloated corporate largesse (i.e. Toyota, Honda, and Nissan), it is difficult to see what alternatives exist for deconstructing the union legacy of the public sector when that bill finally comes due.

References

Associate Press (2009, August 2). Big 3 market share drops below 50%.

Retrieved from http://articles.moneycentral.msn.com/Investing/Extra/Big3FallBelow50Percent.aspx.

Budd, L. and Whimster, S. (1992). Global Finance and Urban Living: A Study of Metropolitan

Change. Routledge.

Gordon, J.S. (2009). G.M.’s fall a case of “creative destruction.” Marketplace Commentary.

Retreived from http://origin-marketplace.publicradio.org/display/web/2009/06/01/pm_gm_historic/.

Pew Report (2008). Inside the Middle Class: Bad Times Hit the Good Life. Retrieved from

http://pewsocialtrends.org/charts/?chartid=537&topicid=5.

Schipper, L., Marie-Lilliu, C. and Lewis-Davis, G. (2001). Rapid Motorisation in the Largest

Counties in Asia: Implication for Oil, Carbon Dioxide and Transportation. Retrieved from http://www.iea.org/papers/2001/rapmot.pdf.

Schwartz, J. (2006). Social Benefits and Costs of the Automobile. Retrieved from

http://joelschwartz.com/pdfs/Schwartz_UCD_102006.pdf.

The Economist (2005, October) Special Report: Now for the reckoning – Corporate America’s

legacy costs. The Economist, 377(8448), 91. 

Venkatakrishnan, K. (2005). The Big Three: Cracked Rear View Mirror. Retrieved from

http://www.frost.com/prod/servlet/cif-econ-insight.pag?docid=45053431.

White, J. B. (2009, May). How Detroit’s Automakers Went from Kings of the Road to Roadkill.

USA Today, 137(2768), 28.

[1] For the record, Mr. Wilson actually said the opposite; that what was good for America was also good for GM. Placed in proper context, it presents an entirely different perspective on his answer.

[2] Datsun is often considered to be the third car company, but was, in fact, a name plate for Nissan. Nissan eventually discontinued this brand and merged it into the main company.

I must say that I was disappointed in The Gazette’s recent coverage of the Board of Elections decision to not attend closed-door meetings ["Open meeting squabble in county leads to new policy," Oct. 28]. Far from being a pitched political battle waged between two political parties, as your paper portrayed it, the issue at stake was one of good policy: Should the body that is charged with ensuring basic equity and fairness in our election process be caucusing with the Democratic Party?

Let me set the record straight. First off, Mr. [Terry ] Speigner is the chairman of the county Democratic Party, not some elected official. For him to be meeting with any public body behind closed doors sets a bad precedent, which I’m sure he’d point out if the situations were reversed! Second, the idea that the Prince George’s County Senate delegation is not a public body just because the General Assembly is not in session is ludicrous. If it looks a duck and quacks like a duck, it’s a duck, even if it calls itself a chicken!

I don’t know where Mr. Speigner’s engraved invitation to attend the board meeting went. It’s obvious, however, that he was a little upset about not receiving one. Seriously, is this what is expected? An invitation?

Mr. Speigner, despite his title, is not an elected official. Outside of the Democratic Party, he is merely a private citizen and, as such, is entitled to no special treatment. The information regarding the board’s meeting was available on its Web site, which is where I found it. Furthermore, in an e-mail that I wrote to state Sen. Jim Rosapepe on Oct. 24, I personally invited him to attend the meeting. I felt that it was important to reach across party lines to resolve this situation in an amicable way, which the county Democrats are apparently unwilling to do! Finally, a member of the general public also attended the meeting. I wonder how he found out about it. The charge made by Mr. Speigner and repeated by The Gazette that we Republicans somehow had a closed-door meeting with the Board of Elections is preposterous!

As for the meeting itself, during its deliberations, more than one board member stressed they had problems with the idea of attending a closed-door meeting! Furthermore, the board’s counsel believed that even if the Senate delegation didn’t violate the law, it might be possible for the board to do so by attending the meeting. All of the participants at the meeting agreed that, regardless of the legality of meeting with Mr. Speigner and the delegation, they had a special obligation to ensure they remain neutral in their dealings with the public and with all political parties in the county. This was the basis for the board’s decision to create an explicit policy regarding closed-door meetings. I, for one, thought it to be good policy and was, frankly, shocked that such a policy did not already exist!

Shame on Mr. Speigner for his outright lies! Shame on the county delegation for meeting behind closed doors and for hiding behind a loophole! Finally, shame on The Gazette for not having their facts in order before publishing!

What I witnessed Oct. 26 was an exercise in good public policy. Instead of condemning the Board of Elections as Mr. Speigner has, we should stand up and cheer. Honesty and integrity won out over cloak and daggers! That is something to be proud of, no matter what your political persuasion is.

Jason W. Papanikolas, Laurel

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.

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.

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!

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!

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.

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.

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