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POLICY: Fuchs’ proposal re-emerges

I’ve been engaging in some comments over at DB’s Medrants on some articles by the Hoover Institution’s Thomas Sowell in which he has been essentially defending the status quo (albeit in what I think is an intellectually weak manner that ignores economic reality and lies about other countries’ systems). So it’s good to have an innovative solution to our health care crisis proposed by America’s greatest health economist–and it’s a bonus that he used to practice right around the corner from Sowell at Stanford’s economics department. In an article called The Universal Cure, Vic Fuchs and Harvard medical ethicist Ezekiel Emanuel propose a way to get to universal health insurance while maintaining the pluralism and innovation in the current system.

On a personal note, I had my first health economics class with Victor Fuchs (a bit like having Tiger Woods give you your first golf lesson) and I was actually at a presentation of the first version of this proposal, which he gave some ten years ago. He has been advocating common sense in health economics for ever, but had been loathe to develop a systemic solution–after all he saw his friend Alain Enthoven having to defend his managed competition theory for his whole career. Finally around the time of the Clinton plan, Fuchs did come up with a policy solution. The way he talked about it was that America held two values:

1) Everyone deserved a basic health insurance plan.
2) You should be free to buy what you want.

His solution was what he called the Ford Taurus plan.  He asked the crowd if anyone had bought a Ford Taurus recently. Someone had.  "How much was the basic model?" $15,000 was the answer. "How much did you pay?" $19,000. "What was the most you could have paid with all the extras, the new stereo and the biggest engine?" Perhaps $24,000. Fuch’s conclusion then? Have a dedicated (sales)-tax that gave everyone a voucher for the health insurance equivalent of a Ford Taurus, and let those who wanted more services pay up with after-tax dollars. (Here’s a brief interview he gave about it at the time)

That’s essentially the same as the plan proposed in this article. Employer-based insurance would end. Instead all under-65 year olds would get a voucher and then choose a health plan.  If you want more services you pay up out of pocket. In a nod to the political process, Fuchs & Emanuel argue for phasing out Medicare very slowly by keeping those who "age-in" with the voucher system. They would also force all plans to offer the same basic insurance package for the price of the voucher, and would have a national board certifying that no games were played over risk-selection.

As an (amateur) economist, I like the dedicated tax idea, because it puts a visible real cost on health care for everyone, and allows us to have a rational debate about how much that tax should be. I also like the concept of keeping innovation and dynamism in the system by keeping health plans and providers competing. It’s also worth mentioning that a private system with multiple actors would be very hard to defraud as opposed to having a straight single payer like Medicare.

Most importantly Fuchs and Ezekeil believe it might actually work politically, as with some touching faith they point out:

    Vouchers hold the promise of securing wide support. Democrats have long favored the notion of universality, while Republicans instinctively favor voucher plans and have longed for the demise of Medicare and Medicaid. Businesses want to stop providing health insurance, and Americans want guaranteed health coverage with choice.

Unfortunately I can’t share their confidence.  The same arguments that the Democrats are using about turning Medicare into welfare might be true under this system, as over time the value of the voucher might fall to the extent that only the very poor got the "basic" plan. Meanwhile the inside health-care business Republican lobby would dislike the notion of having so much of their income based on a tax that was visible and, in the end, controlled by the public–even though in other countries the electorate has often voted to increase the level of government spending on health care. And of course, the getting "to" vouchers "from" employment-based insurance would be a huge bun-fight.

But what Fuchs does present is a rational solution for overcoming the objections to universal health care, without extending Medicare to everyone. As such it deserves to become part of the debate–much more so than Sowell’s ramblings.  But such a solution will be bogged down in details if it’s proposed by a politician. So sadly, I think we’ll see this great idea sink without trace.

POLICY: Just in case you thought the AARP endorsement sealed it…

The AARP’s endorsement is supposed to have sealed the Medicare Bill–but just take a look at this message board which spews vitriol towards AARP from its own members! Hundreds of messages here are all opposed to the Bill. I picked this one at random:

    Who can we turn to for help when AARP stabs us in the back?  How can you support a proposal that enriches only private insurance and pharmaceutical companies, leaving seniors with a broken Medicare program?  Shame on you.

Meanwhile, despite a down day on the stock market the drug stocks and the PBM stocks held steady, consolidating their gains of last week.  So Wall Street is convinced that the bill will get by.  To be fair, the "non-controversial" part of the bill–the new drug benefit–is fabulously loaded towards pharma companies and PBMs, for now.  And as a separate package that would pass on its own.

POLICY: Medicare agreement-is it a charade?

So while the news says that the bill is out of conference on Friday and has enough backing to get through, Ted Kennedy basically said  on Sunday that the Medicare bill wasn’t going to make it past him in the Senate. Frist and Hastert meanwhile are trying to broker a bill, without upsetting their conservative wing who (correctly) believe that this bill is a recipe for more cost-unconscious spending in Medicare.  On the other hand as explained at length already here and here, the liberal Democrats and some liberal Republicans like Olympia Snowe are opposed to (or at the least very wary of) the introduction of cost controls or competition/premium support. Jeanne Scott has written a full newsletter this weekend about Medicare (and if you haven’t subscribed yet….). What does she make of all this?

    Just Between You Me. Never ever step on Bill Thomas’ toes!  The sometimes curmudgeonly, but always very powerful, Ways and Means Chair, is reported to believe that the proposal does not do enough to make Medicare fiscally sustainable. And he definitely was not happy that a deal had been cut over his head. Walking with his feet, Thomas left the conference room, threatening to fly home to California rather than accept the imposed deal. Later he was reported meeting with House Energy and Commerce Committee Chaircritter W.J. "Billy" Tauzin (R-La.), hoping to draw up an alternative to the Frist and Hastert’s proposal. The Republican criticism raises the possibility that, if Mr. Frist can’t hold his own party together for the deal, that it won’t survive a yes-or-no vote in the Senate, let alone a filibuster situation demanding 60 votes to cut off debate. Don’t hold your breath on passage by this coming Friday.

    So Where are We After All of This? Conservatives say the cost containment and market components of the bill do not go far enough to hold down spending as baby boomers strain the program’s spending. Liberals say the reforms threaten the very existence of Medicare and constitute the first step toward privatizing one of the most popular government social programs. Don’t hold your breath, but there may be life in the old gal yet.

My sense is that Medicare remains unreformable given the parity in the Congress and the huge political gulf between the Conservative House Republicans and the old style Liberals in the Senate.  But given that the election next year is going to be about Iraq and the economy, I’m not sure that Bush is willing to over-ride his fiscal conservative allies on the fiscal issue in order to get a bill through at any cost. Meanwhile, the bill’s lack of popularity with many seniors is probably enough to sustain a filibuster, so that Ted Kennedy can claim that he saved Medicare.

My guess is that nothing gets by this week. And thus I’m now officially short one of the PBM stocks (in a tiny and cautious way!).

Update The Business Word has another take on this, and I’m glad to say that Donald Johnson over there has been blogging much more regularly of late.  But he too believes that the bill may not happen.  I’m sure we both agree that it’s disapointing that what is a necessary reform for Medicare (adding drug coverage) has been so politicized.  However, AARP’s endorsement may not be such a great thing, especially given the questionable popularity of the bill amongst middle income seniors.  Here’s Jeanne Scott on AARP’s last intervention in Medicare drug coverage:

    And AARP May Screw Seniors Yet Again: AARP (formerly the American Association of Retired Persons, now just plain old “AARP”) may put the screws to seniors again, just like it did in 1988 when it killed the first Medicare Rx proposal. In 1988, AARP orchestrated a highly misleading campaign to convince seniors that they were being unfairly taxed to support the new Rx program  — that law called for a 10% “surtax” to be paid on the federal taxes owed by seniors. Every grandmother in the country was told she would have to pay a “tax” when in fact fewer than 12% of all seniors would have paid any tax (10% of “0” is still “0”), and only a handful would have paid more than they might have received back. AARP did this then because it wanted to save its highly profitable “Medi-Gap” insurance business and could care less about its senior members. AARP now may give the “new and improved” Medicare its seal of approval and in return get guarantees that its for-profit subsidiary operations will have an opportunity to participate.  The AARP orchestrated phony “senior sticker shock” of 1988 may be conspicuously absent when seniors face a real sticker shock in 2006.

POLICY: More on uninsurance

A while back the Bloviator and I had some discussions parsing out the 2002 uninsurance numbers. There was some controversy (that the two of us settled to our satisfaction, at least) about those numbers from the census bureau to do with how many of the 43 million it counted as uninsured were uninsured for the whole year. Now Health Affairs has published a Commonwealth Fund-sponsored article by Pamela Short and Deborah Grefe at Penn State that examines in great detail uninsurance between 1996 and 1999. While this data is of necessity a little old, you must remember that we were in an employment boom then–so things were as good as they were ever going to get for employment-based insurance in the modern economy–and also that things are worse now.  Still, onto the highlights.

The authors looked at large slice of the non-Medicare under-65 population which had approximately 225 million adults.  (It excluded immigrants, newborns and some others). Out of that 225 million number 84 million (37%) were uninsured at some time in the 4 years. Of those 84 million roughly 15 million (or 6% of the total) were more or less uninsured the whole time. As for the rest, the authors use a fairly complicated 6 way breakdown which I will grossly over-simplify into the fact that 50 million were uninsured for 5 months or more during that four year period. Roughly 32 million of that sub-group (64%) were uninsured for at least a year or more. If you are counting along at home that leaves another 20 million who had one or more short breaks in their coverage of less than 5 months.

So in my assessment, what’s new about this research? 

1) Well it’s usually assumed that at any one time 20 odd million are uninsured for a whole year (a little less than half the 43 odd million uninsured at any one time).  But if you take this rolling view rather than the snapshot, you have 15 million hard-core uninsured essentially for ever and another 32 million who’ve had a year or more uninsured in a four year period.  So rather than the 43 million oft-quoted snapshot number, some 57 million have been uninsured for more than a year in a four year period. These are the hard core uninsured and they measure nearly 25% of adults. And incidentally that is more people than voted for any one candidate in the 2000 election.

2) Counting this crudely, and making some assumptions, there seem to be three groups; one that is nowhere near getting insurance, One that is swinging between government programs like Medicaid, some employer based insurance and no insurance, and a smaller group that is cobbling together a patchwork of employer insurance, individually-bought insurance and uninsurance. The first two groups are the lower income ones.

The authors conclusions are that separate policy solutions are needed for each group–unless we have universal coverage.  That’s true in so far as it goes, but the authors know and (restrained by the terms of this data study) don’t state that the peverse dynamics of the individual insurance "market", the cost of COBRA coverage, and the difficulty of maintaining Medicaid coverage, all combine to make viable policy solutions targeted to sub-groups of the uninsured almost impossible to create.  The only actual options for universal insurance are :
a)some kind of employer-mandate, or
b)some kind of individual-mandate, both backed-up by government schemes either in terms of premium support for the poor or guaranteed insurance (e.g. Medicaid expansion). Or
c) of course single payer, Medicare for all.

There is clearly no political will for any of these reforms now. But perhaps if word gets out that not only is one in seven people uninsured now, but over one in three of us might be in this jam sometime in the next four years, that political will might become more apparent. One thing we do know: voluntary universal insurance is a fiction.

POLICY: State budget crunches are real

Just in case you thought that state budget deficits caused by the ruinous Bush deficit/ending of the Clinton bubble (delete where applicable to suit your political taste) were somewhat academic, read this report on Colorado’s decision to remove legal immigrants from Medicaid eligibility.

I strive to be neutral in this blog, but on this issue I’m very biased. I’m a US citizen now, but I was a legal immigrant for many years.  The only difference between being a green card holder and a citizen is that you can’t vote or do jury duty. Importantly you still pay the same taxes as every one else and presumably these Medicaid patients did too. It also looks that some workaround will be discovered to pay for their care, maybe. However, aside from the politics, the fact that the state is desperate enough to consider putting some 150 elderly nursing home residents out on the street, shows that this crisis in funding is real.

POLICY: Medicare competition as a political football.

The New York Times points out a couple of things about the Medicare bill negotiations in this article, Competition Causes Widest Split Over Medicare. These issues won’t be strangers to those reading TheJeanneScottLetter, whether or not you were sent there by me.

Here’s the short-hand. The House bill introduces the notion that Medicare needs to compete with private plans, rather then allowing them as an option under Medicare+Choice as now.  In order to give this some teeth, it looks like premium cost-sharing, based on income, is emerging from the current Senate-House negotiations. The Democrats led by Ted Kennedy see the long term outcome of this being Medicare as welfare, with only some people getting a flat payment (defined contribution) to spend as a voucher amongst competing plans. Unstated is the Democrats belief that the private plans would skim the healthier and wealthier from the public plan, which would be left with those who couldn’t "trade up" to join the private plans,  and that traditional Medicare would be forced to cut services, and would eventually go broke.

That’s as maybe.  When Medicare Risk plans were growing in the early 90s they were able to make money getting 95% of the average cost of a recipient in the local area for each member they signed up, and usually they got people to sign up by offering them free insurance for drugs with no extra premiums. Several reports at the time suggested that plans were signing up healthier patients than average, and thus were skimming (duh!).  However, at some point even those patients got sick and more importantly payments were not put up in line with medical costs. The result was that benefits were cut within the Medicare Risk plans, and then many private plans pulled out of Medicare risk altogether. The percentage of Medicare enrollees in managed care plans went from 10% in 1995 to 18% 2000 but fell to 13% in 2003 (all January numbers, for more see the CMS site here).

What this tells me is that the government can pass regulations that can change health plan behavior in terms of its recruitment and profitability. So if a benevolent HIPAA administrator was sent down from Mars to run a neutral system in which there were private and public plans competing and incentives were designed to be even, it is possible that a mixed system could work. It might even improve the efficiency and quality of care delivery.

But this is politics and that’s not going to happen. Note that the House bill which includes the privatization thrust only passed by one vote, while the Senate bill had broader approval among Democrats. Bush will soon have to make a call as to whether it’s more important to shore up his support amongst conservative Republicans in the House, or whether it’s worth using his eroding political clout to have them cave on that, in order to be able to campaign as the President who passed Medicare drug coverage. If he does and if Medicare Reform passes including real competition between Medicare and private plans, watch out for a large battle in the years to come as this concept moves into reality. But realistically that’s looking less and less likely.

Up date: Harris Interactive’s latest poll shows that there’s a slight uptick in support for the Democrats on the health care issue with a plurality favoring the Dems 35% to 20%, although they don’t think it’s big enough for the Dems to be happy. Interestingly, among the over-65s who matter most in health care politics, it’s ony 36%-30% in favor of the Dems.

POLICY: The uninsured–can Pfizer’s solution really help?

I stumbled across the web site healthpolitics.com recently while looking for Jeanne Scott’s site health-politics.com (you spot the cunning difference!). HealthPolitics with Dr. Magee is a site which does a weekly power-point, talking head (literally!) and transcript presentation. It’s neatly done and when you find out the Dr. Magee is head of Pfizer’s Medical Humanities Initiative you understand that they have the bucks to make it so. I’ve seen a few of the webcasts, they are less than 10 minutes long.  Normally these webcasts are about extremely specific patient-physician issues, so the "healthpolitics" title is a bit of a misnomer.

This week, however, the program is about care for the uninsured. Worth watching; it runs about 8 minutes but you can click ahead and read the transcript and slides in about 3. Magee draws heavily on the Kaiser Family Fund backed study by Jack Hadley and John Holohan in Health Affairs that shows that government picked up $35bn of the tab for caring for the uninsured already. Magee ‘s solution is take to those funds and several other sources including cash paid out of pocket from by the uninsured and use it to give the uninsured health insurance.  Magee does not mention the follow up study by the same authors which showed that the uninsured would use "$33.9-68.7 billion (in 2001 dollars) in additional medical care if they were fully insured". In other words covering the uninsured with health insurance by using the current government funding would require extra money, but it would still be considerably less than, say, the $87bn going you know where this year.

Of course Pfizer (and its fellow pharmas and private insurers) are not going to be in favor of a comprehensive national health insurance policy.  However, because they have shown considerable ability to derail health reform in the past, any reform proposal needs to consider their position to be realistic. We are now in a situation where PhRMA, the big pharma trade group, has put its backing behind Medicare Drug Coverage, even though in the long run this will probably mean price controls over their products. Magee’s view seems to show that big pharma is willing to work on ways to get to insurance for the uninsured (who after all then would have more access to their products). Meanwhile the lefty Foundations like KFF believe that there’s less than $50bn required to get to comprehensive insurance for the uninsured, much of which could be recouped from the uninsured themselves (80% of whom, don’t forget, are working and who are already paying over $25bn out of pocket for care). This means that there is potentially less than $20-30 billion required out in new government funding to solve the whole deal.

Is this likely to happen?  Obviously not soon, and extremely unlikely unless we see a "regime change" next November. But given the fairly formless proposals offered by the Democratic candidates so far, this type of minimalist practical approach may make sense by February 2005.

POLICY: User fees, employer-based insurance and why it won’t go away

Suddenly it feels very like 1991 again. Imagine that the 49ers and Joe Montana has suddenly become human and the newspapers are full of stories about how the high cost of health care is the cause of all the world’s troubles.  The NYT is back with an article asking Do Some Pay Too Little for Health Care?  So managed care has run its route, gotten clobbered by Lawrence Taylor with a vicious hit in the open field, and coughed up the ball just like Roger Craig in the 1991 NFC championship. The west coast offense led by Kaiser, Pacificare and the rest has run up against the Bucs and Redskins defensive combination of medical power and government intervention, and its tactics have broken down in dis-array.

OK, enough with the hackneyed football analogy.  We all now accept that "managed care", which never really made it out of California and was killed by a combination of Wall Street greed and popular discontent, is not the secret to cost control. The old chestnut that has returned, as this week’s flavor of the month, is the issue of what used to be called "first dollar coverage".  The argument is essentially that if you charge people to use the relatively cheap services provided by physicians, it’ll prevent them from using those services and save the system money.

I had a similar conversation with another blogger, Medpundit*, last week (and have liberally repeated myself here!). Medpundit’s solution (scroll down a ways), is to make people pay for preventative (and I assume routine) care, and carry catastrophic insurance. Although I have some sympathy with this approach in three-tier drug coverage, and in helping to avoid what economists call moral hazard (i.e. unnecessary use of services because they are free) Canadian economists Bob Evans and Morris Barer have proved to my satisfaction that point of service user fees only really discourage the very poor from seeking care, and are as such discriminatory. But the real point is that although the testing of the healthy that Medpundit sees too much of may be increasing costs, the real money is spent on the care of those who are very sick. The NY Times article and even the normally sage Uwe Rheinhardt, who’s quoted in the article, miss this.  But in health care 80% of the money is spent on 20% of the people.  Even if you got the other 80% to cut half their use of medical care by charging them for it, you’d only save 10% of the costs.  It’s in the 80% of the costs you need to look if you want to save money.

Meanwhile, as Harris reported last week, apparently to the surprise of the NY Times, employees want to keep their health benefits rather than take cash in exchange.  Just when I didn’t believe that I could say any more about the tax advantages for employees of getting their benefits in health insurance rather than in cash, and the disadvantages of buying insurance in the individual "market", the self same NY Times provides this horrendous story of the complete fraud going on in that individual "market".  As if it was needed this provides one more reason for employees to stay huddled in their protective groups. Hence, trying to make employees pay more out of pocket is the only real option for employers, even if it does little to change the overall dismal cost picture.

*Incidentally, this week Medpundit has turned her attention  to the problems of Medicare, and added some comments from a rather misguided reader slamming "Hillarycare", which–not that it ever existed– was NOT a central single payer model like Medicare.

POLICY: Not enough doctors?

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I’ve been sitting on this story about the number of doctors in the future for a week or two but have finally got around to posting it as Jeanne Scott has written about it and I don’t want to be cast into irrelevance. So the background:

Remember how we were told that under managed care we had too many doctors, and always had too many specialists?  The Council on Graduate Medical Education (COGME) has now decided that was all wrong.  We are now going to have too few doctors by around 85,000 (about 10% of what we’ll then have) in the year 2020.  COGME has now recommended increasing the number of doctors trained each year by 3,000, and also relaxing the aim (that was never close to being achieved anyway) of a 50-50 balance between generalists and specialists.  Their logic is that we will end up with an older population (the peak will be in 2020) and that there won’t be enough doctors to go around. However, there are several reasons to view this very suspiciously.

The first is based on data that comes from an IFTF report that was done by a crack team (ok, me and Marina Pascali) in 1997. The number of doctors in training doubled in the 1970s and 1980s. For roughly the past 15 years and the next 15 years we will have a net addition of roughly 12,000 doctors each year to the labor force. (That’s 16,000 new residents, plus 4,000 immigrants minus 8,000 retirees). The supply of non-federal patient care physicians (that’s post residency docs actually practicing) has gone from 480,000 in 1990 to over 600,000 today and will be around 720,000 by 2020, when the actual number retiring begins to match the number coming out of training each year. In 1994 COGME estimated that the need in the year 2000 would for between 145 and 185 doctors per 100,000 people.  At that stage there were already 210 docs per 100,000, and even with population growth that number will climb to over 230 by 2020.  In other words the physician population will increase by more than 20% over the next two decades while the population will increase by less than 15%. So unless COGME has radically changed its methodology and has decided that we need far more doctors per head, the simple answer is that–unless we are radically undersupplied now–we don’t.

The second reason is that old stand-by, international comparisons. If you want to dive into this table from the OECD, you’ll notice that the US has 280 docs per 100,000 population. (These numbers are higher than the IFTF numbers because they include all MDs including those in residency, those working for the government, those retired and those no longer in practice but doing something else). Plenty of countries have more doctors per head than us, but plenty including the UK, Canada, Japan, Australia and New Zealand have fewer.  Greece has nearly double and Italy has even more! In other words, we’re nowhere near the bottom of the pack, and several of the countries way ahead of us are not those whose systems are held up as the paragons of medical excellence. We are, though, the country that spends the most per head on health care, and has the lowest proportion of government spending as a share of all spending, while we have close to the fewest number of inpatient beds. So you could argue that the cause of our expensive health system seems to be too much private spending and too many doctors.  Perhaps we should be building more hospitals rather then pumping out more docs?

Finally as Jeanne Scott notes in her newsletter (and if you haven’t signed up by now….), do we really need doctors for all this "needed" care?

    But is there really a looming shortage? There were 229 active physicians for every 100,000 U.S. civilians in 2001, according to the American Medical Association. That figure was up from 135 physicians for every 100,000 in 1975, a very significant increase.  And what are we getting for all of these doctors? Double-digit increases in health care costs and more and more uninsured.  It may be time to look and see if there is a causal link between the these phenomena.  It may be time for us to break the reliance on the highly educated "medical doctor" for most routine and preventive non-emergency care. We need to be looking at our physician extenders: nurse practitioners and physician assistants —  highly paid and very capable of handling a significant portion of America’s health care. But this will take, as the old saw goes, a "paradigm shift" in American thinking about health care — but given the rising costs, the aging population and the evident need — paradigm shifts may be called for.