PODCAST/POLICY: A frank exchange of views with David Gratzer

So I tried really hard to be nasty to David Gratzer. I’ve complained bitterly on THCB about his op-ed posts which I think just misrepresent Canadian and American health care, and I still think that his book The Cure misrepresents both the prospects of his solutions fixing the US mess, and the desire of foreigners to implement US-style solutions. But as I was interviewing him, he was just so nice and reasonable!

That is not to say that we agreed on virtually anything. Listen to the pod-cast.
It’s long but you’ll enjoy it. (Transcript is up here)

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  1. Peter — My understanding of all of these efforts — the CHCF paper, the Massachusetts experiment, and a paper I recently heard about that explores financing options for the state of Georgia all have the goal of achieving universal coverage. All three options explored in both the CHCF and the Georgia papers involve mandates under three different financing mechanisms — individual mandate, employer play or pay into a state fund, and full taxpayer financing (premium support / voucher approach).
    Furthermore, I understand that the Democrats have a Medicare for All proposal that would be financed by an 8.7% payroll tax (7% nominally paid by the employer and 1.7% by the employee). However, the current 15.3% combined FICA tax only raises 6.5% of GDP according to the CBO. While the 12.4% Social Security portion only applies to the first $94,400 of wages, the 2.9% Medicare piece applies to all wages. As near as I can tell, an 8.7% payroll tax applied to all wages (which would be onerous and unfair) would raise about 4.0% – 4.25% of GDP. At the same time, we are currently spending roughly 8% of GDP for healthcare excluding the portion already financed by taxpayers (Medicare, Medicaid, VA). Either they are assuming massive and unrealistic savings in administrative costs or the numbers simply don’t add up. I’m more inclined to believe the latter.

  2. Barry, again, I don’t think we are all talking about problems in healthcare due to younger workers opting out of company plans. I’m not worried about opting out but those who can’t afford to opt-in. I would be interested to know how a group health provider handles companies where half the workers are not participating as opposed to one where 90% participate. The situation in this country where if you get health insurance is determined where and who you work for is unfair to workers and business. A universal plan should cover everyone with the same plan.
    “I read with interest a recent paper published by the California Healthcare Foundation that explored several options for achieving universal coverage in California.”
    Would the goal of those choices be to bring in those who opt-out of company plans due to youth and health? Or is the goal to change things while keeping them the same?

  3. Tim,
    Thanks. Can you provide a sense for whether these companies generally buy stop loss protection, and, if so, how much does it cost? Also, how much do they typically save vs buying conventional risk coverage from an insurer and, are these groups primarily young, relatively healthy people? Any color you can provide regarding small groups that choose to self-insure vs those that don’t (other than generalized appetite for risk or lack of it) would be interesting and helpful, at least to me.

  4. Barry,
    Acually, the self funded plans work for anyone from groups of 2 and up, not just from 100 employees and up. I have about 100 companies in varying sizes from self-employeed to groups of 100 doing this.

  5. Peter — While I am certainly not an expert on employment law, I don’t believe an employer can force an employee to participate in its insurance and pay a significant contribution toward its cost. Employee cost sharing for most large employer plans these days ranges from 15%-30% of the estimated employer cost and averages in the low 20’s, I believe. The federal government requires 25% cost sharing. I believe John Fembup mentioned that his company requires 20% cost sharing. Furthermore, some employees are covered under a spouse’s plan and decline their employer plan to avoid wasteful double coverage. Finally, under self-insurance, the employer pays whatever the health costs turn out to be. It may or may not purchase stop loss coverage, and it contracts out the administrative services. If any employee declines to participate, that is just one less employee that it needs to pay medical costs for, but it probably sets the targeted employee contribution as though everyone took the insurance. Some companies may also charge low paid employees a lower percentage of the cost (or even zero) as compared to employees who are paid more.
    Perhaps others with more expertise can speak to this, but I think a large number of those who choose not to partipate are indeed relatively young, healthy people. This is one of the reasons Wellpoint introduced its Tonik product in California (to start) aimed at young healthy males which provides insurance with a $3,000 deductible, $30 co-pay for doctors visits and no maternity benefits for $109 per month.

  6. Posted by: Barry Carol | Oct 26, 2006 8:44:09 AM
    “However, my understanding is that the vast majority of uninsured with incomes above $50K could get insurance through their employer but choose not to. This is because most are young and healthy and would prefer to spend their income in other ways. If their employer offered a high deductible plan as one of its insurance options, these people could buy catastrophic coverage for a much lower out-of-pocket contribution than the comprehensive plan would cost them.”
    Barry, I don’t believe your understanding is actually happening. If I were an employer with a group health plan I would want younger healthier workers in the plan as they bring down the cost for the “sicker” older workers. I would make my plan mandatory, or at least offer some company paid portion so that inclusion in the plan is a no-brainer. But I don’t think that young workers opting out of company plans is the problem with either healthcare costs or low participation for insurance premiums, if indeed that is actually a problem. Maybe for insurance companies it is who would like to see the MA plan (forced inclusion) for all, with of course no cost containment system that would at affect the insurance industry. And Jack is right, as I have also stated before, we are all in ONE pool. We all need to contribute. The creation of these separate pools is just insurance industry business plans, not healthcare.

  7. Posted by: Stuart Browning | Oct 26, 2006 8:08:45 AM
    “Gee Peter, I’m not sure I know what you’re talking about. – And I’m not sure you do either.”
    Well Stuart correct me if I’m wrong but my interpretation of your post about “forcing things on others” was a about those here that would like to see a single pay government run system. If I did misinterpret you then please clarify.

  8. Natalie–that is just bizzare. Denmark has a capitalist health care system? The Danes, all of who’s doctors work for the state, would be surprised to find that out. And if you advertise your site or your service once more in my comments, you’ll be banned.

  9. Barry–All very well. But in the totality of things, we are the pool….so when everyone doesn’t contribute enough, and the costs of the sick exceed what they can pay, and what’s in the pool–it has to be made up somewhere.
    The Gratzers of the world’s response to this is that the current system is broken, so encouraging those outside to buy int with a HDHP is better than nothing–even though the really sick can NOT buy them due to underwriting. BUT if you encourage that, you’re actually encouraging a move within the pool by those who are putting in a full amount putting in much less (stashing the rest in an HSA). So actually the introduction of the HDHP breaks the pool even faster.
    That’s why I think this will go on until the whole thing collapses and we’ll end up at government mandated single payer by default. Not my desired end, but the likely logic of what Gratzer et al are pushing.
    Of course the people who suffer first are poorer and sicker than the average software millionaire who’s skills at balanced analysis of the health care system are massively exceeded by a desire to blow his own trumpet, and presumably his ability to write code. And apparently are unable to read the very same Commonwealth reports that Gratzer did indeed cherry pick from.

  10. Jack,
    Draining the pool is not a problem for self-funded plans. Virtually all large plans of 5,000 employees or more are self-funded, and the self-insured model can work down to as few as 100 employees, at least with stop loss protection.
    Say an employer who self-insures pays $800 per month for comprehensive family coverage with a $500 per covered adult deductible ($1000 OOP) and requires the employee to contribute $200 per month toward that premium. A young healthy person thinks $200 is too much and declines to participate.
    Now suppose the employer offers, as an option, a $5000 per person deductible ($10,000 out of pocket maximum) which the employer estimates will cost $600 per month on average. In exchange for taking on the risk of a $10,000 OOP vs $1,000 under the comprehensive plan, the employer could offer this option for a zero contribution from the employee, or, at most, a nominal contribution. That catastrophic protection will be greatly appreciated by both the employee and the hospital where he or she is treated if there is a serious medical event, because the hospital will now be paid, at least the amount beyond the deductible, instead of having to treat yet another free rider. The employer still has enough money in its pool to cover the high cost cases.

  11. My problem with this, Barry, is that these young and healthy people draw financial resources away from the overall pool, and then when they need it, they want into the pool. I guess you can’t blame them for wanting to maximize their incomes, but it sure detracts from the concept of sharing risks. I am constantly amazed at how much time and money we are spending trying to do an end-around of what many believe is the right way: a universal system. Perhaps we need to come up with some combination that lets people opt out but then pay a premium to get back in.

  12. Peter — I’m sure that Matthew and others know more about this than I do. However, my understanding is that the vast majority of uninsured with incomes above $50K could get insurance through their employer but choose not to. This is because most are young and healthy and would prefer to spend their income in other ways. If their employer offered a high deductible plan as one of its insurance options, these people could buy catastrophic coverage for a much lower out-of-pocket contribution than the comprehensive plan would cost them.
    For those with incomes below 250% of the FPL, the California Healthcare Foundation’s paper proposed sliding scale subsidies that would require individuals to contribute a percentage of income ranging from 0 to 7.5%, if I remember correctly.
    Very few people have high health costs EVERY YEAR. Maternity expenses, for example, are a one or two or three times in a lifetime event for most women. Accidents, sports indjuries, and even heart attacks may result in high expenses in a particular year but not permanently.
    Personally, I think the taxpayer funded premium support approach has some merit as long as the funding mechanism is fair and transparent such as a payroll tax.

  13. Barry, I’m trying to put to paper your example to see how it would fair in actual practise.
    2006 FPL for family of 4 = $20K
    250% = $50,000
    Less Taxes 25% = 37.5K
    Less Housing 30% = 26.25K
    Less Transportation 20% = $21K
    Less Food 20% = $16.8K
    Less Healthcare premiums of $7500 = $9300
    My numbers are assumptions but maybe we could get a few to fill in gaps and other expenses to arrive at a final figure. My guess is that no one will bank the $5K deductible or be able to keep up with the co-pays seeing the level of debt americans carry now. You also seem to want the existing system of insurance carriers to remain – part of the problem and waste we have now.

  14. Matthew, this was an excellent interview. It sounds to me like David gambled and lost. He decided to go without insurance and got caught when his wife had a skiing accident. Even with HDHP, that would have cost him dearly. Can you tell us what his allegiances are? Is he a representative of an HSA provider?
    If we are going to force people to carry health insurance — as was one point of discussion — that just embraces the insurance industry and forces the public to continue paying for high administrative costs. Let me know ahead of time so I can contact my broker.
    There are still two basic issues: Why are health care costs so high in the first place, and what is the most efficient way of delivery? On a Blog like this, with obvious biases on both side of the issue, we’ll never reach consensus. But in time we will have some form of universal health care, and we’ll do it right.

  15. Matthew,
    I enjoyed your interview with Dr. Gratzer.
    While I have a strong free market bias, I agree with your thought about trying to find rational and systematic, or at least common sense, ways to reduce healthcare utilization in end of life situations. I also think high deductible health plans, coupled with robust price and quality transparency, can reduce utilization as well as costs for services that are consumed as people price shop, to the extent it’s feasible.
    I think your problem with high deductible policies draining the insurance pool of resources needed to pay for the sick could be solved by proper pricing. If, for example, family coverage with a $250 per person deductible would cost $10,000, the same policy with a $5,000 per person deductible might be priced at $7,500 or so in order to produce the same medical cost ratio for the insurer. Policyholders could fund their HSA with their own money up to the maximum allowable in order to make sure that expenses within the deductible are paid on a pretax basis.
    I read with interest a recent paper published by the California Healthcare Foundation that explored several options for achieving universal coverage in California. The options included (1) an individual mandate, (2) an employer mandate coupled with a play or pay fee tied to aggregate payroll, and (3) a plan funded by a payroll tax that looks like a voucher or premium support approach. The authors suggested that a policy with a $5,000 deductible would satisfy the individual mandate for people with incomes above 250% of the federal poverty level (FPL) wich is roughly 50% of the state’s population. Interestingly, the payroll tax rate required for option #3 was pegged at 15.1% of wages subject to Social Security taxes (currently up to $94,400 per year). If the tax were applied to all payroll with no limit, it would only be two percentage points lower or 13.1%. However, this would be grossly unfair to high income people who happen to earn their income from salary and bonus as compared to interest, dividends, capital gains, or rent. The paper is available here.

  16. “And he doesn’t talk about “forcing” anyone to do anything. Unlike others in this debate.”
    Gee Stuart, not like forcing people into rent or healthcare, food or healthcare or about the forced excessive chargemaster rates to the uninsured, then forcing them to vacate their home to pay the blotted bills, (which by the way in my state are collected by the AG’s office) just before they declare bankruptcy. No, no forcing here, we alls got a free market system – hallelujah!

  17. Can capitalism save the American healthcare system? I would say that its our only shot. Countries with a national health system as Denmark are WAY ahead and already implementing a national e health portal such that patients can view their medical record through the web. ( A subsidiary of IBM created this for them) Speaking of Capitalism, take a look atPersonal Pediatrics to see how wi-fi access and edata storage is revolutionizing the field of Pediatrics. Natalie Hodge MD

  18. Yes, David Gratzer is a really nice guy. – And he doesn’t talk about “forcing” anyone to do anything. Unlike others in this debate, he doesn’t dream of the kind of world he could create if only everyone’s lives and fortunes were turned over to him and his ilk.
    And there’s that tired line again about conservatives cherry picking health care outcomes in which the US looks good – you know – things like cardiac care and prostate cancer. How could he not take into account how the UN ranks our system? That’s all you’ve got?