Problems with the Tax on Cadillac Plans

Timothy Noah at Slate provides a detailed discussion about the problems that will plague that tax on "Cadillac" healthcare plans. Initially designed to tax plans with high costs, the tax is designed to reduce healthcare spending. Unfortunately, the tax is not likely to work to reduce overuse of healthcare services.

Noah points out some of the problems:

1. Plans do not cost so much because of fringe benefits or because unions demand extensive plans. Instead, geography, occupation, and age all add to the cost of plans.
2. Initially the tax will only affect 3% of all plans. But over time because the tax is designed to be indexed or adjusted to the Consumer Price Index (which measures inflation), while medical costs go up at 1.5 to 2 times the Index, more and more plans will be fit by the tax. That means the middle class will progressively get hit by the tax more and more as medical prices exceed inflation and healthcare insurance plans cost more.
3. Doctors and hospitals (the major healthcare providers) have no incentive under this tax to utilize fewer services. Noah argues that if insurers spend less to cut healthcare plan costs and doctors keep spending to provide services, patients will find themselves trapped between paying out of pocket for more services and getting less covered by their downsized plans.

We will have to wait and see if the public reacts against the encroachment of this tax in future years.

Michael Shusterman is the Editor in Chief of TuftScope (2009 - 2010).

Reform and Opposition in the Past

The New Republic has some interesting quotes regarding previous opposition to various reform movements. The quotes related to healthcare are reposted below:

“[I]t would make it practically impossible for any publisher in the United States to accept any food, drug, or cosmetic advertising without facing squarely into the doors of a jail.”

- Federal Trade Commission Chair Ewin L. Davis, in 1935, on the dangers of empowering the Food and Drug Administration to regulate the food, drug, and cosmetic industries

“It is socialism. It moves the country in a direction which is not good for anyone, whether they be young or old. It charts a course from which there will be no turning back.”

— Senator Carl Curtis (R-NE), in 1965, opposing Medicare

“The doctor begins to lose freedoms; it’s like telling a lie, and one leads to another. First you decide that the doctor can have so many patients. They are equally divided among the various doctors by the government. But then the doctors aren’t equally divided geographically, so a doctor decides he wants to practice in one town and the government has to say to him you can’t live in that town, they already have enough doctors. You have to go someplace else. And from here it is only a short step to dictating where he will go.”

- Ronald Reagan, in 1961, arguing against the creation of Medicare

Defending the Healthcare Reform Legislation?

Ezra Klein of the Washington Post defends the current healthcare legislation from a list of grievances posted by Jane Hamsher of Firedoglake:

1) Forces you to pay up to 8% of your income to private insurance corporations -- whether you want to or not.

"You," huh? For the 85 percent of the country already covered by health-care insurance, it doesn't force "you" to do anything at all. People on Medicare are not going to be paying money to private insurance. People with employer-based care will not see their situation change.

For the nearly 50 million Americans caught in the ranks of the uninsured, here's the deal: The bill expands Medicaid, a public program, to cover about 20 million of, uh, "you." Private insurance gets nothing. If you make more than 133 percent of the poverty line, but less than 400 percent, there's a huge system of new subsidies to help you afford private coverage. There are also new regulations on insurers forcing them to spend between 80 percent and 85 percent of every premium dollar on medical care, barring them from rejecting you or charging you higher premiums due to preexisting conditions, ensuring they can't place any annual caps on insurance benefits, and more.

But here's the catch: So long as insurance won't cost more than 8 percent of your monthly income, you have to buy into the system. You can't wait until you get sick or get hurt and and then buy insurance, shifting the costs onto everyone else. The cost of having a universal, or near-universal, system is that people have to participate. The promise is that, for the first time, participation will be possible.

Read the entire defense, here.

The Villians of Healthcare?

Health insurance companies have faired poorly in the recent healthcare reform discussion, maligned for this obscure policies, highly salaried CEO's, and money saving tactics like avoiding clients with pre-existing conditions or rescinding policies of sick clients. But now the health insurance companies are fighting back, using employees to argue that they're really not the "villians" here. Some quotes from a recent NY Times article (August 27, 2009):

“I’m certainly not villainous or immoral in any way, shape or form,” said Mr. Shireman, 40, a project manager for Humana, the country’s fourth-largest health insurer.

Lisa A. Toombs, 40, a technology project manager and mother of three, said she had been taken aback by the attacks. “The way I see it,” she said, “the people who work for the insurance companies are average people. We’re not crazy lunatics running around trying to get at people.”

“Our industry gets blame for virtually everything that goes on in health care that people don’t like,” said Humana’s president, Michael B. McCallister, over a cup of coffee in the corporate cafeteria. “I commonly get letters from people that say, ‘Your doctor did this with me or to me,’ so I don’t think people understand the system really well.”

Mr. McCallister, whose annual compensation amounts to $4.8 million, said he worried about the impact of the rhetoric on staff morale. But he acknowledged that the industry bore some responsibility for its reputation. “Our industry has not done a great job of improving clarity and transparency,” he said.

And then there's Wendell Potter, a former Humana and Cigna executive, who after working in the insurance industry for twenty years developed a different perspective:

Mr. Potter says he liked his colleagues and bosses in the insurance industry, and respected them. They are not evil. But he adds that they are removed from the consequences of their decisions, as he was, and are obsessed with sustaining the company’s stock price — which means paying fewer medical bills.

One way to do that is to deny requests for expensive procedures. A second is “rescission” — seizing upon a technicality to cancel the policy of someone who has been paying premiums and finally gets cancer or some other expensive disease. A Congressional investigation into rescission found that three insurers, including Blue Cross of California, used this technique to cancel more than 20,000 policies over five years, saving the companies $300 million in claims.

As The Los Angeles Times has reported, insurers encourage this approach through performance evaluations. One Blue Cross employee earned a perfect evaluation score after dropping thousands of policyholders who faced nearly $10 million in medical expenses.

Mr. Potter notes that a third tactic is for insurers to raise premiums for a small business astronomically after an employee is found to have an illness that will be very expensive to treat. That forces the business to drop coverage for all its employees or go elsewhere.

All this is monstrous, and it negates the entire point of insurance, which is to spread risk.

Two perspectives on an increasingly politically complicated issue. Though it seems that one things is clear, as Nicholas D. Kristof writes:

The insurers are open to one kind of reform — universal coverage through mandates and subsidies, so as to give them more customers and more profits. But they don’t want the reforms that will most help patients, such as a public insurance option, enforced competition and tighter regulation.

Michael Shusterman is the Editor in Chief of TuftScope (2009 - 2010).

Worst Healthcare Reforms in the World

Foreign Policy Magazine recently published the four worst healthcare reforms in the world (July 22,2009).

The countries on the list:
1. Russia
2. China
3. Turkmenistan
4. United States of America

The article notes the following key points in terms of what makes reform turn sour:

- Do not create an unregulated insurance market
- Do not create a tiered system in which most of the poor cannot pay for insurance
- Do not radically redesign the public health and medical delivery sectors
- Do not create a system dependent upon employers, that spends more than any other system, and that provides health returns that are not substantially better than other systems.

Analysis of Healthcare Bills

 Humphrey Taylor, Chairman of The Harris Poll, provides an overview of the current positions of the American public on healthcare. The full article is available via The Healthcare Blog:

1. Most people are unhappy with the current health care system and favor reform. They want to have a system that gives them affordable access to quality care for the rest of their lives. International surveys show that Americans are more dissatisfied with the U.S. health care system than are people in all, or almost all, other developed countries.

2. Most people think that some kind of government intervention is needed to fix the system, to expand coverage, and to contain costs. However, support for government intervention does not, in most case, translate into support for a “government-run” system. (Though what people understand by that phrase is far from clear.)

3. While most people believe that fundamental changes are needed in our health care system, only a minority wants to completely rebuild it. Most people favor building on the present system and the bits of it that seem to work well.

4. There is substantial support for health care reform not only among the public but from large majorities of almost all major interest groups. Only small minorities of doctors, employers or insurers think that the system works pretty well now. However, they also have different interests and tend to see very different problems and support or oppose different proposals.

5. Most people are at least reasonably satisfied with their own health insurance (if they have it) and with the quality of care that they receive. However, that does not mean that they like the system. Most people believe that the costs are too high and that everyone should be covered.

6. More people think that both the total cost and the out-of-pocket costs of care are too high, but their perceptions of why this is so are different from those of most health economists. They often blame greedy insurers and pharmaceutical companies and think there is a lot of fraud and abuse. But they are less likely to focus on over-utilization, the impact of fee-for-service incentives and the relatively (compared to other countries) high price of medical services.

7. Few people seem to worry much about the unfunded liability for Medicare that economists tell us is a huge problem.

8. Proposals that people believe will take away the health insurance they have now, or force them to change doctors, that “ration” care, or prevent them from getting the treatments they think they need are deeply unpopular.

9. There is no consensus on the appropriate roles of the government, employers and individuals. Half of the population thinks that health insurance and health care should be “an entitlement paid for by taxes,” while a third believes that it should be like other products and services, where you get what you can pay for.

10. Republicans and Democrats are highly polarized on many aspects of reform. Most Democrats think that this is a very important issue and focus on expanding coverage and limiting out-of-pocket costs. They tend to favor an expanded role for government. Most Republicans focus on cost containment and oppose a bigger role for government. Democrats are much more likely than Republicans to think that health care is a “right.”

11. There are many things that many people do not want. They do not want to pay much higher taxes and out-of-pocket costs. They don’t want to damage the economy or increase unemployment. They dislike the idea of rationing and oppose anything that they think might reduce the quality of their care or limit their choices.

12. Most people do not think or talk about the issues that are the focus of much debate among policy wonks, think-tanks, and legislators. They rarely mention health information technology, comparative effectiveness reviews, a health information exchange, reimbursement reform, pay-for-performance, quality measures, or outcomes research. When asked about these issues, the public’s replies vary dramatically, depending on whether the language used is that of the proponents or opponents of proposals. For example, a new agency to provide information on which treatments work better or worse sounds pretty good – but not if it is used to deny care that a doctor or patient wants.

13. Most people do not seem to see a conflict between giving patients every test and treatment they and their doctors want, however expensive, and containing costs.

Stay Away From My Medicare

The recent anger expressed at townhall meetings across the country over healthcare reform has been sparked by a rise in disinformation and misunderstanding regarding the healthcare system. The Washington Post reports (July 28, 2009),

At a recent town-hall meeting in suburban Simpsonville, a man stood up and told Rep. Robert Inglis (R-S.C.) to "keep your government hands off my Medicare."

"I had to politely explain that, 'Actually, sir, your health care is being provided by the government,' " Inglis recalled. "But he wasn't having any of it."

Most baby boomers have grown up in a United States in which services like Medicare have been a part of daily life. Some of these individuals likely do understand the nature of the program (essentially a single payer healthcare system). Other protest for different reasons.

In a recent NY Times editorial, economist Paul Krugman argued that certain feelings may be contributing to the 'outrage' (August 6, 2009):

That is, the driving force behind the town hall mobs is probably the same cultural and racial anxiety that’s behind the “birther” movement, which denies Mr. Obama’s citizenship. Senator Dick Durbin has suggested that the birthers and the health care protesters are one and the same; we don’t know how many of the protesters are birthers, but it wouldn’t be surprising if it’s a substantial fraction.
And cynical political operators are exploiting that anxiety to further the economic interests of their backers.
Does this sound familiar? It should: it’s a strategy that has played a central role in American politics ever since Richard Nixon realized that he could advance Republican fortunes by appealing to the racial fears of working-class whites.

The protesters conflate racial fears, market ideology, and personal feelings. Even as economists have demonstrated that the healthcare marketplace cannot fulfill the basic requirements of a competitive market, voters continue to support the status quo.

Ironically most healthcare is paid for by the taxpayer. The Centers for Medicare and Medicaid Services demonstrate:


As in 1994 the healthcare debate has become less about significant policy change and reform of a broken system than about politics, unfounded fears and anxieties (though more insidious now than then), and a desire to ignore reality.



Michael Shusterman is the Editor in Chief of TuftScope (2009 - 2010).

Obama's Health Insurance Consumer Protections

Speaking at a town hall in Raleigh last week, Obama outlined his core "health insurance consumer protections" that he considers essential to effective health reform. Here is the list:

No Discrimination for Pre-Existing Conditions: Insurance companies will be prohibited from refusing you coverage because of your medical history.



No Exorbitant Out-of-Pocket Expenses, Deductibles or Co-Pays: Insurance companies will have to abide by yearly caps on how much they can charge for out-of-pocket expenses.



No Cost-Sharing for Preventive Care: Insurance companies must fully cover, without charge, regular checkups and tests that help you prevent illness, such as mammograms or eye and foot exams for diabetics.



No Dropping of Coverage for Seriously Ill: Insurance companies will be prohibited from dropping or watering down insurance coverage for those who become seriously ill.



No Gender Discrimination: Insurance companies will be prohibited from charging you more because of your gender.



No Annual or Lifetime Caps on Coverage: Insurance companies will be prevented from placing annual or lifetime caps on the coverage you receive.



Extended Coverage for Young Adults: Children would continue to be eligible for family coverage through the age of 26.



Guaranteed Insurance Renewal: Insurance companies will be required to renew any policy as long as the policyholder pays their premium in full. Insurance companies won't be allowed to refuse renewal because someone became sick.

These principles target the unfair practices that insurance companies use to maximize profits- in general, avoiding sick people and skimping on benefits. As the Republican party works to galvanize opposition with warnings of dire consequences for the average citizen, let's hope the nation hears these Consumer Protections and recognizes the spirit of public good underlying Obama's plan.

Uwe E. Reinhardt Describes the Healthcare Reform Wishlist

Uwe E. Reinhardt, professor of economics at Princeton University and one of the leading health policy experts in the world, recently wrote a biting weblog post about what Americans want from healthcare. He has proposed the ideal wish-list (NY Times, Economix Blog, July 31, 2009) :

The All-American Wish List for Health Reform

1. Only patients and their own doctors should decide what clinical response is appropriate for a given medical condition, even if that response involves unproven clinical procedures or technology.
2. Neither government bureaucrats nor private insurance bureaucrats should ever refuse to pay for whatever patients and their doctors have decided to do in response to a given medical condition. An insurer’s refusal to pay for a medical procedure is tantamount to rationing health care.
3. Rationing health care is un-American.
4. Cost-effectiveness analysis should never be the basis of any coverage decision by public or private third-party payers in health care, for to do so would put a price on human life — which, in America, unlike everywhere else, is priceless.
5. Government should not require individuals to purchase health insurance. Such a mandate would violate the constitutional rights of freedom-loving Americans.
6. Americans have a moral right to life-saving and potentially highly expensive medical care, should they fall critically ill, even if they are uninsured and could not possibly pay for that care with their own financial resources. (Why else would God have created hospitals and their emergency rooms?)
7. Government should stay out of health care. Specifically, government should not control health care prices, nor should it increase its spending on health care, which is out of control.
8. Even small reductions to the future growth of Medicare spending — called “cuts” in Washington parlance — unfairly burden the elderly, along with the doctors and hospitals that serve them and the manufacturers of health products, lest the pace of technical innovation be impaired.

He ends his post about the "common sense" approach of most Americans to healthcare with:

To be acceptable in America, health reform should not create winners or losers, but only winners. It is de minimis.

The Root of the Healthcare Problem

In a recent letter to the editor of the NY Times, Dr. Arnold S. Relman (former editor-in-chief of the New England Journal of Medicine) comments on the idea of placing a tax on healthcare, such as by removing the tax exclusions granted to employers for providing healthcare plans (a 10,000 dollar plan provided to a worker is 10,000 dollars excluded from employer taxes). Dr. Relman argues that the heart of the problem lies in the way that doctors currently practice medicine:

To the Editor:

David Leonhardt (“Health Care and the T-Word,” Economic Scene, July 29) is quite correct in identifying the growth in health care spending at a rate far greater than the growth in the United States economy as the critical health care problem. He is also correct in noting the waste and unnecessary expense in our health system. But he is quite mistaken in believing that tax reform will eliminate the perverse incentives in the system and deliver the kind of system we need.

The “root of the problem,” to use his language, lies in the way doctors are organized and the way they practice and are paid. Doctors are, and should be, the most important factor in determining how clinical resources are used in the diagnosis and treatment of illness and injury. Neither insurers nor government administrators can make the medical care decisions in a given case. Only doctors and their patients can do that.

The solution to our problem is to cap total national expenditures through an earmarked, graduated health care tax, provide universal coverage on a prepaid basis and encourage physicians to practice in private, not-for-profit multispecialty groups, where they would work for salaries rather than fee-for-service.

That kind of reform will not be easy to achieve, but it should be the ultimate goal of our legislative efforts, because it would be the best — maybe the only — way to make the medical care system work efficiently for the benefit of patients, at a cost we can afford. Tinkering with taxes on private insurance isn’t going to do the job.

Arnold S. Relman
Boston, July 29, 2009

The writer is professor emeritus of medicine and of social medicine at Harvard Medical School and a former editor in chief of The New England Journal of Medicine.

New Humana Health Education Website

The health insurance company Humana recently launched a website called “Stay Smart Stay Healthy” designed to present the complex questions of healthcare in accessible video presentations to consumers. The videos can be an excellent introductory tool for those interested in a basic overview of healthcare topics, but one should be careful to remember the source. Humana is a major health insurance corporation that is interested in pursuing reforms that will beneficially affect its own profit margin. For example, the video on healthcare costs attributes only 11% of every healthcare dollar to administrative costs and another 3% to insurer profits. Yet studies have repeatedly shown that administrative costs account for nearly 1/3 of all healthcare spending. [1] Nevertheless, the “Why do we need healthcare reform video?” is something to watch:



Notes

1. “Costs of Health Care Administration in the United States and Canada” (2003) Woolhandler S., Campbell T., Himmelstein D. NEJM; 349: 768-75. A free version is available here. Take note that the authors are involved with the PNHP initiative for a single payer system and therefore may have their own biases.

Michael Shusterman is the Editor in Chief of TuftScope (2009 - 2010).

Healthcare Humor of Cartoonist Clay Bennet

Distinguished editorial cartoonist Clay Bennet has produced some of the wittiest cartoons regarding important issues that I have read. Recently he has been creating a cartoon on health issues nearly every week and some of his work is shown below. For more cartoons, see his page on the Chattanooga Times Free Press. Click the cartoons for larger versions.

The Ambulance (Saturday, July 25, 2009)

Hospital (Thursday, July 16, 2009)

Health Care Reform (Sunday, June 21, 2009)

Notes
1. Cartoons are property of Clay Bennet and under copyright of the Chattanooga Publishing Company.

Challenges to a Bold Health Reform Campaign

Challenges to a Bold Health Reform Campaign
by Jordana Laks

President Obama will address the nation tonight in a prime-time news conference at 9 pm EDT, in a speech that will likely focus on his push to overhaul the health care system. Obama’s health reform campaign has rocked the nation in recent months, stimulating both great enthusiasm and powerful debate among legislators and interest groups.

The stakes are high: Obama has insisted that both the House and the Senate pass health legislation before the August recess. But time is running out, and the House bill, which two committees have passed and a third is considering, is being attacked from all sides. Republicans and conservative Democrats reject the surtax on high-income households and the huge cost of expanding coverage to the uninsured- a little over $1 million over the next ten years. On the other hand, some liberal groups insist that the bill does not do enough to reward quality care and eliminate wasteful spending. The Mayo Clinic, the largest non-profit medical group practice in the nation, which has been praised by Obama as a model for health care delivery, criticized the House bill on Monday," saying, “The legislation misses the opportunity to help create higher-quality, more affordable health care for patients.”

The main concern on everyone’s mind is cost. Health care costs are ballooning out of control and now consume one-sixth of the United States economy, yet approximately 47 million people are uninsured and health outcomes are mediocre at best. Obama recognizes these symptoms of a broken health care system and has emphasized urgency,stating that if we do not act now, “then families will spend more and more of their income for less and less care.”

But experts have declared that the House health reform bill will not save money, as Obama claims. And the general public has contradicting opinions about the need for change in our health care system and the burden that citizens should bear for that change. David Leonhard’s article in today’s New York Times gives a great overview of the major challenges facing Obama’s efforts to galvanize support for health reform:

On the subject of health care reform, most Americans probably don’t have a good answer to the question. And that, obviously, is a problem for the White House and for Democratic leaders in Congress.

Current bills would expand the number of insured — but 90 percent of voters already have insurance. Congressional leaders say the bills would cut costs. But experts are dubious. Instead, they point out that covering the uninsured would cost billions.

So the typical person watching from afar is left to wonder: What will this project mean for me, besides possibly higher taxes?

Barack Obama was able to rise from the Illinois State Senate to the presidency in large measure because of his ability to explain complex issues and then to make a persuasive argument. He now has a challenge worthy of his skills.

Our health care system is engineered, deliberately or not, to resist change. The people who pay for it — you and I — often don’t realize that they’re paying for it. Money comes out of our paychecks, in withheld taxes and insurance premiums, before we ever see it. It then flows to doctors, hospitals and drug makers without our realizing that it was our money to begin with.

The doctors, hospitals and drug makers use the money to treat us, and we of course do see those treatments. If anything, we want more of them. They are supposed to make us healthy, and they appear to be free. What’s not to like?

The immediate task facing Mr. Obama — in his news conference on Wednesday night and beyond — is to explain that the health care system doesn’t really work the way it seems to. He won’t be able to put it in such blunt terms. But he will need to explain how a typical household, one that has insurance and thinks it always will, is being harmed.

Leonhard goes on describe our extreme health care expenses compared to other developed countries, the solutions offered by the House health reform bill, and criticisms of these proposals. He accurately captures the rising national tension as Obama’s pledge to achieve affordable coverage for all faces harsh critics and competing interests. Tonight’s news conference will play an important role in setting the tone for the next few weeks as Obama’s deadline for health legislation approaches.

A World of Health Reform Charts

Representative John A. Boehner (R - OH) recently released a chart detailing what he and his staff believe to be the structure of the healthcare reform bills being proposed by the Democrats and President Obama's staff. The chart presents a dizzying array of agencies, connections, and regulations that can confuse even the most ardent health policy expert (click the chart below to expand).

The chart is reminiscent of the one used by Bob Dole to refute President Clinton's proposed 1994 healthcare reforms and that helped to prevent the passage of those reforms. This time the Democratic leadership has produced another chart in response to the one above (click the chart below to expand):

In the midst of the current political infighting New Republic editor Jonathan Cohn in conjunction with the Henry J. Kaiser Family Foundation produced yet another chart, perhaps the most informative of this set regarding what our current healthcare system looks like (click chart to expand):