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Uwe Reinhardt is one of the nation’s most respected health care economists, professor at the prestigious Woodrow Wilson School at Princeton, fellow of the Institute of Medicine, and one of the shining lights in health policymaking circles.

But alas, even the best and the brightest are wrong sometimes. Case in point: Reinhardt’s recent comments in the New York Times on the role of the American business community in fueling our nation’s health care problems. To paraphrase, Reinhardt believes that employer purchasers of health care are 1) dim bulbs and 2) responsible for the escalating costs of care.

This seemed puzzling coming from Reinhardt, whose views are widely respected by purchasers.  But I was able to diagnose the problem by drawing on insights from social psychology.

Social psychology investigates “attribution,” our mind’s process for inferring the causes of events or behaviors. It’s how we describe why things happen — to us or to someone else. It turns out, we humans aren’t very accurate in our attribution processes because all of us suffer from at least one of the following problems. In his New York Times piece, poor Professor Reinhardt appears afflicted by all three at the same time. Let’s take a closer look at each:

1. Actor-Observer Bias: This is the notion that when it comes to explaining our own behavior, we tend to blame external forces more often than our own personal characteristics.

Reinhardt is rightfully troubled by a decade of escalating health care cost growth under employment-based health insurance. But seized by Actor-Observer Bias, Reinhardt blames this problem not on the world of health care that he played such an influential role in over the past few decades, but on external forces, the employers who purchase health care.

In Reinhardt’s thinking, employers did two things wrong. First, they were stupid: “For more than half a century, employers have passively paid just about every health care bill that has been put before them, with few questions asked.” Second, they were sneaks: “All along, they have been party to a deal to keep the chaotic price system they helped create opaque from the public and even from their own employees.”

Employers in my acquaintance fight tooth and nail for more transparency from our reticent colleagues in the provider community; I have never had the privilege of meeting these low-IQ, scheming employers who are desperate to hide prices. Nor have I met an employer who looks forward to a day of mindlessly paying escalating health care bills; the ones I know try everything in their power to get those bills down.

In fact, these employers aren’t real people; they are straw men created to justify the Professor’s contortionist logic that health cost inflation has nothing to do with actions of the health care industry itself.

2. Self-Serving Bias. This is a variation of Actor-Observer Bias, focused on attributions of success and failure. We humans like to think our success is our own, while failure comes from factors outside of our control.

The failures of American health care are well known. We lag behind other industrialized countries in every known indicator of health status or quality, while we pay more per capita than any of them. Errors, accidents, injuries and infections are rampant: one-third of dollars are likely wasted on these, as well as misdiagnoses and overuse, and one out of four patients will be harmed in some way during a hospital stay.

Reinhardt, one of the titans of American health policy and among its most influential leaders, blames not himself or his colleagues, but health care outsiders (employers) for all of this, and credits his own success for telling it like it is. As he describes his own sagacity: “In the early 1990s … at the annual gathering of the Business Council, I bluntly told the top chief executives assembled there, ‘If you want to find the culprit behind the health care cost explosion in the U.S., go to the bathroom and look in the mirror.’ After years of further study, I stand by that remark.”

This is like blaming the closing of Lehman Brothers on Lehman customers. After all, Lehman customers had the nerve to open accounts, take out loans and buy securities. Obviously these customers failed to use the bank wisely, so when the bank failed they should be looking in the mirror to figure out why.

Reinhardt’s attribution bias leads him to point fingers outside of health care, at business leaders who spend their day opening factories, manufacturing minivans, baking bread, making computers, selling distributor caps, designing toys, producing movies, owning restaurants, etc. These people, in his mind, are more to blame for the problems in health care than, say, doctors, or hospital administrators — or revered Ivy League health economists.

3. Fundamental Attribution Error. When faced with other people’s woes, we tend to attribute their problems to something intrinsic to them and minimize external variables that might have caused the problems. This results in the phenomenon better known as “blaming the victim.”

Reinhardt knows that cost growth in health care troubles employers, but he thinks they brought it all on themselves. “A decade of health care cost growth under employment-based health insurance has wiped out the real income gains for an average family with employment-based health insurance,” he observes. “One must wonder how any employer as agent for employees can take pride in that outcome.”

Indeed, it makes me wonder, too. I’m left wondering where Dr. Reinhardt finds this crowd of witless yet diabolical employers, who take such pride in undermining their employees’ well-being. Do they live under rocks in the storied halls of Princeton? No, alas, this is a flare-up of Fundamental Attribution Error, assigning weird and frankly illogical qualities to employers in order to evade the obvious culpability of his own health policy community.

I’ve poked some fun at Professor Reinhardt, but in truth his leadership and courage over the years has made a major difference in U.S. health care. Many of us look to his wisdom to help navigate our country through the many changes and challenges ahead. Undoubtedly, we need more action from the business community to solve some seemingly intractable problems in health care. But scapegoating employers won’t get us there.

Leah Binder is the CEO of The Leapfrog Group, a voluntary program aimed at mobilizing employer purchasing power to alert America’s health industry that big leaps in health care safety, quality and customer value will be recognized and rewarded.

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39 Responses for “Three Reasons Uwe Reinhardt Blames Purchasers for Everything”

  1. Vik Khanna says:

    Great post, Leah.

    I like Uwe, too, but mostly because he’s funny, not because he’s been particularly persuasive in any concrete way. I know firsthand that, in policy circles, people read his stuff, laugh, and move on.

    I’m just glad he doesn’t chime in on wellness. I can only imagine who he would blame/credit for the Rube Goldberg contraption that is contemporary workplace wellness.

  2. j45 says:

    Interesting essay by Binder.

    But she makes one mistake. The biases she describes–actor-observer, self-serving, fundamental attribution error–apply to everyone in health care.

    Everyone points a finger at others, says “not me.”

  3. Al Lewis says:

    You raise an excellent point about providers. The other “providers” you could have cited are the benefits consultants, who,by spending as little time as they can do in order to maximize their profits under fixed-price consulting contracts, make it that much easier for the other providers to get what they want.

  4. Leah Binder says:

    I see from comments there is a long list of culpable bad actors. Here’s the truth: everyone is responsible for the health care cost problems except me. And maybe my cat. (Basking in my attribution errors can be quite comforting).

  5. Boris Katz says:

    I agree with opinion briefly expressed by Leah Binder: “everyone is responsible for the health care cost problems except me”. We all know for a long time that the most efficient cost management is the one when consumer and provider deal directly with each other and consumer has enough choices. Every attempt to build a bureaucracy and delegate cost management to it results in inefficiency. Just compare what is more efficient individual home cost management or at large apartment complex?
    And the examples of other countries with social medicine do not convince me. Their results mean as much as “average temperature of hospital patients”. When someone in those countries gets really sick and need e.g. MRI not in 3 months because of a long line but right now, what do they do? Lucky Canadians cross the border and come to this country.
    Employers are unnecessary layer of bureaucracy (in addition to insurances) between patients and providers. But while insurances (as an institution and not as they currently work) are necessary, the employers are not. They can contribute healthcare benefits (in a form of designated money) to their employees if they want, but spending of this money should be solely under control of the individuals. No group policies beyond a family and no contract prices should be allowed. Insurances and providers may set their prices to anything they want (as it is in the free market society) but the price should be equal to those who work for GE, those who work for a local dry cleaning shop and for unemployed. Can you imagine going to a grocery store to buy a gallon of milk with a cashier asking who you work for and charging you ten or more times more (or less) than another person based on who is your and their employer?

    • @cascadia Sherry Reynolds says:

      I was wondering how long it would take for someone to blame the least powerful actor in this system and default to the western view of the individual as the locus of control vs a systems level intervention?

      Thankfully 1/3 of all bankruptcies in the US are the result of medical bills so perhaps eventually the market will punish them enough to stop “purchasing” health care in the future?

      Honestly if mutli-billion dollar companies are unable to negotiate price how do you expect the average citizen who makes 45k a year with an 8th grade reading level to negotiate not only their own care but the cost of that care?

      At what point in the process would you suggest that my Mom negotiate the cost of her breast cancer MRI or surgery? Perhaps she can get a discount on her chemo by using an attorney? Healthcare is or should be a community good more akin to education or electricy than it is to milk. Your example of the store is flawed since you are purchasing a service not a good and – variable pricing is the norm in most industries like airlines

      Remember the ONLY person in the health care system who isn’t being paid to be there is the patient and their family.

      • Boris Katz says:

        Sherry, this is where the government has to play its role of representing the whole population and making rules for the players. If you read my post you may notice that I have suggested: no group plans and no different pricing. Thus, anyone – no matter of their health condition, gets the very same price from the same insurer. No need to negotiate. My store example is correct – you pay the same price for e.g. cerial – whether you buy 5 boxes a week (because you have large family and like cerial) or I – buying just a box a month.

  6. Dr. Mike says:

    Boris makes a very good point. Every layer of bureaucracy between the consumer and supplier only increases costs. The employer tax deduction for health insurance was initially instituted during World War II as a temporary war-time measure, but like most temporary interventions, it was never removed. What would happen to the efficiency of auto insurance if it was purchased by employer’s for employees? It would be interesting to see what would happen to the cost of both healthcare and health insurance if the employer tax deduction were removed and consumers became cost conscious again.

    • Uwe Reinhardt says:

      Like most economists, I favor the elimination of the tax-preference currently accorded employment-based health insurance. It is both inefficient and inequitable, a combination that is hard to beat.

      I wonder that the Leapfrog Group’s position is on this point. Is it with us or against us or indifferent? Ms. Binder?

      To do this, employers presumably would have to impute to an employee’s taxable income an amount representing the employer’s contribution to that employee’s health insurance premium. It would alert employees to the total cost of their health insurance coverage and might kindle an interest in const containment on their part.

      But how would that imputed amount be calculated? Would it be independent of the employee’s age, gender and health status, or would it be community rated?

  7. Boris Katz says:

    Mike: employer tax deductions is slighly another subject. Even if the tax deductions for employers are to be preserved they may contribute this money to individual flexible spending accounts (available to all people regardless of employment) out of which people will spend them to buy insurance policies which work best for them. In other words, contribution of money may be allowed for employers, but not control of spending.

    • Jeff Goldsmith says:

      Uwe is a classic European social democrat. The solution in his essay:
      a government managed single payer system. The problem with this venerable and increasingly moldy prescription: health costs have risen just as rapidly, albeit from a lower base, in the OECD countries as they have here, with our chaotic multi-payer system. And of course the government that would have to manage our single payer system here in the US recently brought us the Affordable Care Act. Maybe we could outsource the development and management of our single payer system to Sweden or Holland. . .

      Many elements of Uwe’s indictment of employers are true. They do pick their employees’ pocket to fund the health benefit. They have been feckless “passers thru” of provider cost. They’ve been by turns paternalistic and heartless. They’ve shifted costs to employees thru higher deductibles heedless of their income or financial capacity to absorb costs. All true.

      But the larger among them are not principally in the “purchasing of health” business.
      If they were, their shareholders would eat them for breakfast. Their principal business is making things or providing services, and when they are growing, they take their eye off the health cost ball and focus mainly on growing. When they are losing money, they panic and apply the latest nostrum to their cost problem. The smaller employers are simply overwhelmed and go where their brokers tell them to go. For the smallest, the CEO is the benefits manager, as well as everything else.

      But it isn’t just employers that perpetuate the “pass through” culture that afflicts our health system. Governments have done only marginally better. The federal Medicare program is hardly a model of consistent and effective cost management. And to paraphrase Michael Kinsley (who said it about campaign financing), in Medicare payment, the scandal is what’s legal.

      Uwe himself once likened our health system to a giant feeding trough. Government and employers have all backed up the truck and dumped a fortune into that trough. And those who have worked in this industry for entire lives have eaten our fill, including Uwe and me.

      Kathleen O’Connor had it right: in healthcare, the Buck Stops Nowhere! It takes a wealthy country to squander trillions of dollars. . . .

      • Al Lewis says:

        Me too.

        All of us middlemen can easily show the ROI on our services, calling to mind the immortal words of the great philosopher Pyrrhus: “Another such victory and we are ruined.”

      • Uwe Reinhardt says:

        So here’s your homework assignment for the week, Jeff:

        Find me the article in which I have advocated a single-payer health system for the United States — say, Medicare for all.

        I did recommend a single-payer health insurance system to Taiwan in 1990 — successfully — as that nation researched alternative approaches to universal health insurance and I strongly urged policy makers there not to follow the US example, as Taiwan was not then (or now) rich enough to afford such foolishness. I have not regretted that advice, nor have policy makers in Taiwan. The system there gets high satisfaction scores from the population.

        But I don’t recall advocating a single-payer system for the U.S., for a simple reason: we do not have the governance structure that is required for the operation of such a system well.

        Medicare, sort of a single payer system, is a giant health insurance company whose members of the board of directors — the House Ways and Means Committee and Senate Finance Committee — can individually pocket cash paid by vendors to the company (system). Think of that!

        You cannot successfully run a single-payer system if vendors can thus purchase the affection of individual board members on a retail basis. You would need a parliamentary system, where at most you can buy parties wholesale, but even that is illegal in those systems.

        No, Jeff, I have always been quite comfortable with the well reasoned out and well regulated Ellwood-Enthoven managed competition model. In fact, in a recent paper written for the IMF, Tsung-Mei Cheng and I recommended such a system to emerging market economies as an alternative to a single-payer system.

        Switzerland, the Netherlands and Germany do not run single-payer systems, but they don’t therefore invite the mess of our feeble, fragmented, ephemeral employment-based health insurance system. German employers do not intrude at all into the way their employees manage their private lives, as long as they show up puenktlich and sober for work and actually work per hour of work paid.

        So, my friend, now go and do your homework, as assigned above.

        • Jeff Goldsmith says:

          Thank you for this assignment. I have mischaracterized your position.
          You did NOT in fact advocate a “single payer” system in your article, but rather a “single price” system enforced by government mandate on multiple payers. This mechanism enables governments to cap the rate of growth in health spending by setting a spending target (the so-called “global budget” everyone talks about) while private plans and those who fund them, including the government thru subsidies, bear the actual risk.

          Germany has done a consistently better job constraining costs thru such a system than we have, though my comment about the rest of the OECD stands. That speaks more to an orderly, collective bargaining oriented German society than it does to the mechanism of cost control itself.

          Having corrected my mischaracterization of your position, I’ve got no more confidence in our government managing such a system, which would quickly captured by health industry lobbyists, than its managing a single payer system. There would be all sorts of carve-outs for various worthy causes. Our one large example of a multi-payer
          system which sets unified provider payment rates, is the State of Maryland, whose system is run by its large teaching hospitals. Performing a similar role was how I entered our health system 37 years ago.

          As for misreading your position, I can simply plead sloppiness or perhaps early onset Alzheimers. Regarding the competence and legitimacy of our government, however, I could use some further homework . . .

          For what it’s worth, I was and remain a Wyden Bennett advocate (Bennett, RIP) , which would have ended BOTH employer based coverage and Medicaid. We need to put a bullet in both systems, and provide everyone the same, affordable coverage as individuals thru tax subsidy if needed. I am no fan of our current employer based system. . .

          • Al Lewis says:

            Jeff, I know this is a bit off-topic but this is a terrific post. “I was wrong” and “I’m sorry” are two of the most underrated and underused phrases in business, not just healthcare.

            As a further aside to my off-topic post, the entire wellness industry should take note of this, as should Milliman in their pathetic and now disproven defense of Community Care of North Carolina. Instead they pile lies upon lies, and have lost a lot of support as a result.

            In my case, I was the biggest advocate (and very profitably so) of disease management, but when I realized the numbers didn’t add up, I outed myself and came clean, at considerable financial and professional risk (fortunately large unfounded–there is a market for people with integrity, I’ve found)

          • Uwe Reinhardt says:

            Jeff:

            Tks. for your comment. Appreciate them.

            I agree that Wyden-Bennett could be made to work for the US. Alain Enthoven had a similar idea which became the plan favored by the CED (Committee on Economic Development). I think Vic Fuchs and Zeke Emmanuel had a similar plan, and also Lawrence Kotlikoff.

            All of these plans basically eliminate the employment based system or kill it with their song softly, so to speak. All of these plans represent reference pricing for health insurance. It is an alternative to reference pricing at the nexus of patients’ receiving care, although one could have both in tandem. Reference pricing can be used in ethically acceptable ways or, alternatively, really to ration health care quality by income class. Europe has used it mainly for drugs.

            These plans are not as cheap to administer than is a single payer system, but they do have advantages in return.

            Health care is the kind of commodity for which a universally pleasing system does not exist. But one could and should get rid of the egregious alternatives.

  8. JD says:

    OK, so Ms Binder took offense at Prof Reinhardt singling out employer-purchasers for abuse. Getting past the rhetoric, they both agree, as should we all, that every major part of the health care sector shares blame.

    I could pick at the characterization of employers as highly informed, active purchasers (IBM and Safeway, sure, but not the vast majority of smaller firms). But I think the most important distinction to start with in apportioning blame and continuing to work to fix things is to distinguish between those who deserve blame because they were too strong and drove costs up, and those who were too weak and didn’t head it off. With minor qualifications, providers and suppliers fall in the first category, while purchasers, insurers and the insured are in the second. Government has played both roles, but also is the only hope of keeping costs under control while providing access and financial security to all.

  9. Bob Hertz says:

    Several points here:

    1. Employers do take steps to lower health costs. If they are non-union, they gradually (or suddenly) get rid of older employees.

    Having been in the benefits field myself, I can say that getting a younger group of employees is a much faster way to lower health care costs than intensive cost control. One cancer case or one heart transplant can wipe out all the savings from higher deductibles or tighter networks.

    2. Why can employers lower the cost of the steel that they buy, but cannot lower the cost of health care that they buy?

    That is an easy one. Health care is a local market. Steel you can get from Japan or China.

    When a few employers have tried to exclude expensive local hospitals from their insurance plans, employees have often rebelled.

    Health care costs grow faster than other parts of the economy because health care has less outsourcing and less automation. This is good for the salaries of health care workers, which by and large have grown faster than anyone else’s pay for 20 years.

    See David Brooks, Michael Mandel and others on the Two Economies — one of tradable goods and manufacturing, which provide many profits but few new jobs, and the other economy of health care, education, and government, which provide almost all the new high wage jobs by skimming money from the tradable sector in taxes and insurance premiums.

    Quite a world we have here.

    In

  10. Ann Robinow says:

    I think employers are a huge part of the problem, while having the best of intentions, of course. Every stakeholder in healthcare has responded to the incentives that apply to them. Employer purchasers aren’t accountable within their organizations for creating a health care market that really works. They are accountable for doing the best job of purchasing from what is available to them at the time with the leanest possible staff and the least possible disruption. There are a few notable attempts at exceptions to this, and some current activities that seem hopeful, but these one-off efforts are dwarfed by the overall purchasing behaviors of employers. For decades, employer purchasing approaches that could have aligned incentives over the long haul have given way to shorter term fixes with optics to show CFOs that they are purchasing in the best way possible.

    Employers (along with their benefit consultants) have held back progress on achieving value by:
    –requiring the same plan across all markets
    –relying on discount analyses to decide which are the best plans
    –wanting to make every provider equally available
    –encouraging plan and vendor based disease management
    –self funding using fee for service payment platforms
    –refusing to pay providers for non-typical services like care management

    Plans respond by providing customers what they want. They contract with providers and analyze claim data to create the appearance of the greatest possible discount. It would require a much longer post to highlight the ways these discount analyses can be gamed by plans and providers. Employers don’t want to pay more than they already are, so they don’t want to add payments for things like care management even if it could offset other services that employers do pay for. Therefore, plans don’t cover and providers won’t make the investment in these activities. Non FFS payment approaches are particularly challenging for self funded purchasers who only pay their own claims and therefore require some kind of underlying fee for service infrastructure.

    Yes, providers have responded accordingly to the plan and purchaser incentives in front of them to create this monster we call our health care system. But, providers are smart people and if we could move from our very limited, nibbling around the edges approach to reforming provider payment to a market in which the preponderance of revenues were based on value, they would quickly find impressive ways to respond.

    It will be very interesting to see what happens to purchasing behavior by individuals on the exchanges. I predict there will be a much greater willingness by individuals to purchase plans with limited networks and designated medical homes, etc in exchange for lower premiums. That could be a game changer for how providers respond to deliver value.

  11. Leah Binder says:

    Ann, Very insightful post. I agree it will be interesting to see what happens on the exchanges. I think the reasons for employer purchasing behavior are complex, and I agree they need to do more. But I don’t think purchasers are the cause of the problems in health care.

  12. Bob Hertz says:

    Some large employer plans pay their actual claims at low rates that would feel right in place in Europe.

    Of course this does not help the persons who are self employed, or work part time, or have no job at all.

    Joseph White has made this point several times. America relies on selective contracting — each payer goes for their own discount. If you have a weak payor, too bad.

    As Uwe points out, Medicare is not a very good bargainer either.
    However, I feel he is sympathetic to collective contracting, in White’s phrase.

    • Uwe Reinhardt says:

      Bob:

      I am sympathetic to collective contracting as an alternative to the unseemly price-discriminatory system we now have, coupled with the opacity on which it rides.

      If someone could tell me of a better system of transparent prices, I’d certainly be willing to learn.

      If truth be told, however, we wonks have not done much to even think of a more transparent price system for health care. Clearly, we can’t work with physician fee schedules containing 9,000 items or hospital charge masters containing 20,000 items. We have to aggregate prices into meaningful aggregates, and that needs yet to be done.

      I once offered a suggestion on how to aggregate for hospitals, at least as an interim step, but it was, once again, howling into the wind — see here
      http://content.healthaffairs.org/content/25/1/57.short

  13. Bob Hertz says:

    I believe that the vast majority of doctors are sensitive to the ability of their patients to pay their bills. My uncle was a doctor in St Paul for 50 years, and I came to understand that he practiced a rough form of socialism. If a patient could pay, he billed them the full fee. If not, he accepted less.

    One does read about incredibly selfish doctors who are called on for emergency surgery and then send outlandish bills. Their own profession should be disciplining them. I do not feel we need a national fee schedule for doctors.

    I have long favored health courts, which would have to power to reduce unconscionable bills. Even the threat of such courts might inspire the AMA to restrain the greedy few.

    Hospitals are trickier. If they forgive or adjust too many bills they can go broke.

    I would favor the combination of a national fee schedule PLUS annual federal subsidies to any hospital that is responsibly managed and just happens to have a low patient count.

    This is not too different from what the US does for farmers. We cushion the effect of free markets, so that nearly all farmers stay in business.

  14. tom says:

    Uwe, let’s not blame the victims. Blaming purchasers because health care is riddled local local monopolies and oligopolies is a like blaming a mugging victim for living in the wrong neighborhood. Further government payers have been cost shifting to the private sector for decades.

    • Uwe Reinhardt says:

      Tom:

      You are telling me that in our health system, the payers are fragmented and so weak vis a vis the supply side that they have become victims of it. I am actually sympathetic to that view and have expressed it in writing — once in a paper that I could never have published in the US — hence in England (see here -http://www.bettmartinezinsurancesolutions.com/uploads/MAYNARD_PAPER_25TH_JAN_2012.pdf – I hope it opens for you. The first page tells you why I published it in the UK).

      But your theory is just one more reason to get rid of the employment based system. Who wants weak victims to be the guardians of the payment side of the health care sector, kowtowing with open purse to the supply side?

      Most economists I know, myself included, do not believe that the cost shift plays a major role in all but a few markets. Austin Frakt has written a superb paper on it in the Milbank Memorial Fund Quarterly April 2012 or 2011, I believe.

      • Jeff Goldsmith says:

        Tom’s point is only partly accurate. Payer markets are even more concentrated than hospital markets are. We already have single payer healthcare- in Hawaii, Alabama, Tennessee and across the upper Midwest, Blue Cross is the single payer, with 60-70% market shares and in some cases, Medicaid and Medicare Advantage as well. In nineteen states (including DC), two payers have 70% or better of market share.

        Have the Blues in these “single payer: state used that market share to lower costs, or, rather, to keep competitors out? Future doctoral dissertations, fodder for the “market concentration scholars, etc. Not clear that even dominant payers have used their market power in constructive ways, data to follow . . .

        We’ll see about the reference pricing thing- Wellpoint, the second largest insurer in the US and an agglomeration of Blues plans just announced that they intend to use it, but we’ll see how widely. In places like Virginia, whre they dominate, Wellpoint/Anthem has little motivation to rock the boat. United doesn’t seem interested. Aetna seems to have drunk the “ACO” kool aid and is cutting deals with the dominant providers systems in many markets (INOVA in DC, Aurora in Milwaukie, Advocate in suburban Chicago), likely locking out lower cost alternatives in exchange for rate certainty.

        My guess: “insurgent payers”- commercial plans with 3-7% market share who want to grow fast- are where we should be looking for payment innovations.

  15. Bob Hertz says:

    It may indeed be a good idea to move away from the employment based system, but the transition period seems pretty scary to me.

    You can get an idea of how scary by following the debate in Vermont over installing a single payer system and how to finance it.

    The first estimate from consultants is that a payroll tax of 12 to 14 per cent would be needed to replace the employer system and go universal.

    (this is not far at all from German or French taxes)

    Such a tax would be a cash relief to big employers like the government or General Motors, but it would be a real crusher to smaller businesses that have frankly been free riders.

    The goal is good, but I do not know how you get through the transition.

    • Uwe Reinhardt says:

      Bob:

      Such a transition would be so difficult that one could probably not accomplish it in even a decade.

      Instead, we should run a dual system and let more and more people tumble out of employment based insurance into the other system that offers permanent and portable insurance. The ACA could actually be a down payment on such an approach.

      The tumbling would be faster, of course, if the tax preference to employment based insurance were taken down — also gradually, over time.

      But I do agree with you — eliminating employment based insurance would be a daunting task.

  16. tom says:

    Uwe, if most economist fail to see the obvious connection between high care cost in the private sector and Medicare cost shifting, then they are wrong. Economists need to think more in terms of Occam’s razor and less about Rube Goldberg contraptions.

    I’m reminded of the Ivy league “luminaries” who were extolling the virtues of collateralized mortgage obligations up until the day CMOs collapsed.

    • Uwe Reinhardt says:

      So, Tom, don’t just give me an assertion and say that if I don’t buy it, I am wrong. Give me a plausible theory — or explanation if you like that word better — of how the cost-shift process works.

      Suppose Medicare pushes down on the DRG update. Hospitals then go to private insurers and say “You’ve got to pay more.” And the private insurers then just roll over and pay more. Now, if private insurers can’t say NO to the Medicare cost shift, can say say No when asked to cover added expenses from the medical arms race?

      So what are you saying about the market power of private insurers at the bargaining table?

      And if they don’t have any, or not enough, then should we rely on them as agents of cost control for US health care?

      So, please give me a plausible theory on the cost shift.

  17. Bob Hertz says:

    Back during the debates about Medicare in 1965, the thought (at least among Democrats) was that Medicare would take of seniors, employers and unions would take care of their workers, and Medicaid would take care of the poor.

    This was not an evil formulation, although even then it left out a large number of low wage workers in retail, food service, hospitality, etc., especially but not solely in the South and West.

    The ACA for all its faults was in fact the first law since 1965 to help this large bloc of workers. I have said for many years that government has no ability to give everyone high incomes and stable jobs. What government can do is provide public institutions which offer some stability to persons who wind up with modest incomes and unstable jobs.

    The employees of Walmart still have free public schools, public libraries, police and fire, etc. We must preserve and in fact enlarge the public sector in health also.

  18. Hu Williston says:

    I agree that there is no incentive for insurance companies to have health care cost less. Does Aetna prefer 20% profit and operating costs of someone paying $1000 a month or someone paying $8,000 a month? Does the administrator of DMS or of a public option health plan make $20,000000 a year? Rewarded for making more profit, paying stockholders and having the stock price rise, not for providing quality health care. There must be affordability, accountability and availability for any national health plan. There should also be universality, transparency and evidence based reimbursement. To this end we need to know where the money is going and should have the cost per provider per patient for every medical service provider that bills the public purse for any form of care published on the internet. I believe Congress and CMS are working towards this. When we know what we are paying for we can decide how much we want to pay for each service and set a fee schedule. There would also need to be some oversight as to quality which is also being gradually implemented. Then I agree with what Dr. Reinhardt has written in the past some providers would contract outside the basic benefits covered by a negotiated fee schedule and implement private arrangements for what they perceive as better care. While I Imply a large government involvement in basic care, they already cover over 50% of patients with military, government employees, Medicare, Medicaid, CHIPS and other support, insurance companies would be free to complete with providing benefits for those who can afford and wish to go beyond basic care. For the public money there should be closer oversight and management of fraud and abuse which has not been a great strength of public programs to date. It could start with not paying claims over $1,000,000 to anyone before they are analyzed unlike the present system of trying to recoup money from providers that have vanished.

  19. Mighty Casey says:

    Love this discussion – it’s the conversational equivalent of a grass-fed Porterhouse.

    One factor that contributes to the Crazy Train that is US employer-backed group insurance is the state-by-state nature of the game. Insurers have to be certified to sell health insurance by state insurance commissions … who are in the same cohort that Uwe mentioned in his 2nd comment above: actors influenced by blandishments from vendor lobbyists.

    Call me simple-minded, but wouldn’t it make more sense to make “all US legal residents” the primary group, and allow us to negotiate our way, based on health status/fiscal status/preference, into sub-groups that could give us additional purchase advantage when buying insurance? All 50 states, you can’t abandon Mississippi for Colorado, you can’t cherry-pick states will better health demographics and drop-kick states with high obesity rates.

    Full disclosure: I think the employer-backed-group-insurance mandate needs to go the way of the dodo. I think we *should* be buying our own health insurance, with those at some multiplier of the federal poverty rate and below able to access Medicaid to get coverage/care. Employers can certainly help their people pay their premiums, and/or offer matching of HSA contributions, but essentially making employers the US single-payer option has always seemed utterly nuts to me.

    But, again, I might be simple-minded. I’m not an economist, just a journalist …

  20. tom says:

    Uwe,

    In the past 30 years there has been a nearly perfect inverse relationship between Medicare reimbursement as a percent of hospital billed charges and private plan trends. Medicare cuts payments and private trends increase. I’ve had discussions with CMS about that over the years and they acknowledge that is going on. I do not have a good theory for that but have observed it empirically.

  21. Uwe Reinhardt says:

    I am well familiar with that graph, Tom. It’s an Al Dobson special and also featured annually in the Medpac report.

    Oddly enough, Medpac has a quite different theory on the cvost shift. Their argument os that when private payers pay generously high prices, hospitals concert one year’s profits into next year’s cost and thus drive up costs, which then makes the Medicaid paymet-to-cost ratio fall. You can Google Medpac’s view on the cost shift.

    Austin Frakt in his Milbank paper also explains away the Dobson chart.

    So you can see why economists are skeptical on the cost shift theory.

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