The affordability factor must accompany discussions on health care coverage

Charlie Baker is the president and CEO of Harvard Pilgrim Health
Care, Inc., a nonprofit health plan that covers more than 1 million New
Englanders. Baker blogs regularly at Let’s Talk Health Care.

I was in a meeting the other day when someone said — mostly in exasperation — "Everyone’s for affordable health care for everyone, but no one cares very much about dealing with the cost of health care.”

I’m sure that truer words have been spoken, but I can’t think of any off the top of my head. It’s too bad. Somehow, we’ve divorced the coverage/affordability question from the cost question, and we pay for it – everyday. 

In a recent article in the Journal of the American Medical Association (JAMA), bio-ethicist Zeke Emanuel from the National Institutes of Health, put it pretty well — “Without controlling health care cost, any attempt at universal coverage will be transient. Sustainable expansion of coverage to all Americans requires credible changes in the rate of health care inflation. In the strange calculus that is American politics, the more politically salient issue of costs may provide a better way to achieve the comprehensive reforms necessary to cover the uninsured that the hitherto futile direct moral appeal.”

It shouldn’t be that hard to accept the notion that it’s easier to
cover more people if health care costs are under control – and harder
to cover more people when they are not. But, most of the time, the
coverage debate has been only about coverage – and not about cost.

pretty sure there’s a morality play in here somewhere — that covering
people is a moral issue, while controlling the increase in health care
costs is an economic one. For some, arguing the rightness of providing
coverage is more compelling than engaging in the grind that comes with
discussing what to do about health care cost increases. But, the
simple fact remains that covering more people is intrinsically linked
to health care costs. If costs go up, coverage goes down – and vice

Two years ago, Massachusetts enacted major health care coverage expansion legislation, which did very little to deal with health care costs. As the cost of implementing the new law became clearer (and higher), everyone began discussing how hard people would need to work on the health care cost issue to preserve and expand on the gains made under health care reform. Yet here we are in 2008, there are significant pieces of health care legislation under discussion in the closing days of this legislative session. Unfortunately, some of the proposals being considered would raise health care costs if passed – a big step backward in efforts to reduce the increase in health care costs.

Why? Because it’s easier to talk about doing more things for more people than it is to talk about taking costs out of the system.

Two people in Massachusetts who’ve been willing to discuss both issues at the same time are Alan Sager and Deborah Socolar from the Boston University School of Public Health. Sager and Socolar have maintained – for a long time – that there is no answer to the coverage question that can work without fundamental reform of the delivery and payment systems. They offered up an op-ed in the Boston Globe the other day that basically said health care reform — and the ongoing expansion of coverage – cannot be maintained without a major change in the payment system. In this case, they recommend moving away from fee-for-service, which pays for volume, but not outcome – to something more like – GASP – capitation – in which physicians would receive monthly payments in exchange for managing all of the care someone requires.

Many people may recall that capitation failed in the 1990s, mostly because most physicians rejected it – and once they rejected it, patients and policymakers rejected it, too. Health plans also did a mediocre job of incorporating the risk inherent in serving people requiring different levels of care into the payments they made to physicians thereby speeding up physician dissatisfaction with the whole concept. After all, should someone who’s taking care of three patients with cancer and two with HIV get paid the same budgeted amount as someone who’s taking care of five healthy 25 year-olds? To solve this issue, Sager and Socolar suggest using risk-adjusted payments that account for the relative health of each group of patients served by a physician and his or her practice, and they propose to only include those physicians who are willing to try this approach. This idea may work for some, but I don’t think capitation – even if it’s risk-based – is going to bring too many physicians back into a financial risk arrangement.

Still, I share their larger perspective that coverage and cost have to be discussed together, and that our chances for sustaining health care reform improve the more we do to lower the increase in health care spending. Unfortunately, the discussion in Massachusetts this year has been mostly about expanding mandated health benefits, reducing coverage options for employers and individuals by increasing minimum benefit requirements, and collecting more money from participants – health plans, employers, providers and consumers – to fund unanticipated expenses.

Health care reform will not succeed if this keeps up. People who care about health care coverage need to engage as aggressively on the cost question as they do on the coverage question. Otherwise, the ongoing expansion in coverage that they fought for and care about will not be sustainable.

42 replies »

  1. Dear Mr Baker ,While I have admired the way you have handled HPHC in the past ,I question where you are going in the future .In Jan 2008 I enrolled in your First Seniority Plus plan with out drugs .Why did I not take your drug plan? because AARP allows me to buy a 90 day mail order generic drug for $0.However in 2009 you took care of that ,forcing every senior to take your prescription plan if you wanted the plus plan or take your vastly inferior basic were there is no such requirment .PLEASE TELL ME WHY?
    Then the second shocker Fluorometholone an eye drop described as a generic by Tufts,Ble Cross & AARP has been catapulted into a TIER 3 .YES A TIER 3 at a cost of $150 per quarter .Mr Baker I have to ask you why you have done this ? I am looking at other plans now because my 90 day copayments for tier 1 & 2 has gone from $75 to $395 .Also Acyclovir, another generic where there is no distinction between a 200mg pill and an 800 mg pill has doubled under your plan to $40.
    While I don’t dispute that medical costs keep going up .I do dispute the fact that HPHC has taken thelow road by playing rope-a-dope with our seniors ,this is unconsciable ,so I have 2 choices ask my doctor to put my wife on another eye drop or go to another provider .Our seniors should not have to do this yearly ,at least stay competive with other providers and stop being so tricky .I would hope to hear from you with an explanation since I can’t get one from member services

  2. Nat says:
    > People tend to forget the fundamental problem.
    > Today, employer spends (with employee contribution)
    > around $12,000 a year to provide insurance
    Other people tend to confuse fundamental problems with their symptoms.
    Nat’s $12K insurance premium is only a symptom of several fundamental problems (plural) in the medical services industry. Nat focuses exlcusively on one of the fundamental problems and he’s not wrong about its existence.
    Unfortunately for him, there’s a lot of evidence that his prescription won’t help reduce suffering and unnecessary death, or cost either.
    The THCB archives contain a rich source of digestified reading about all this.

  3. People tend to forget the fundamental problem. Today, employer spends (with employee contribution) around $12,000 a year to provide insurance for a family. A big chunk of this money goes down the drain. The suggestion is to direct around 1/2 of this money to the employee’s (& family) HSAs and the rest to a new ‘public catastrophic plan’.
    And from this HSAs, the individuals pay directly for all non-catastrophic procedures & co-pays for catastrophic procedures. If you don’t use your HSA, the money still stays with you and builds up over time; encourages lifestyle changes (food & exercise) by the individuals….enormous cost savings.
    Besides, cost transparency is forced automatically; hospitals can not charge 10-20 times the usual & customary rate when your insurance rejects a claim. You know the cost up-front. Also, it forces cost based quality in healthcare where good doctors charge more.
    Basically, this plan takes the millions of middlemen out of the system. And the current excessive complexity is reduced and thereby less litigation.

  4. Nat does his best to define eficiency:
    > patients (service receivers) getting directly
    > involved in the payment process —- reduces over-use
    Nat wants direct payment for inexpensive, routine services, but wants insurance for expensive services.
    Direct payment for routine services will decrease the over-use of cheap, routine services. It will also increase their under-use. This is a two way street: patients often don’t know the difference between over and under. Sometimes the docs can educate them, but there’s no reimbursement for that.
    The under-use of cheap primary care will lead to the increased use (not necessarily the over-use at this point) of very expensive specialty services. Which is why health plans tolerate the over-use of primary care.
    > medical decisions are made only by patients and
    > their doctors.. not by health-plans —- reduces
    > litigation.
    I don’t see how it reduces litigation, but this situation has been shown to increase over-use. The doc wants a happy customer, the customer wants everything with a concievable benefit no matter how small. The doc may say “This almost certainly will not help.” The paient says “Almost no chance? Then there’s a chance it might help. I want it!” Since Nat wants insurance for expensive things, the customer is entirely price-insensitive at this point, and the only thing standing between him and our collective pocketbook is the health plan Nat had declared inefficient.
    > patients choosing and keeping their doctors based
    > on their comfort level (and not directed by
    > healthplans). Leads to better understanding between
    > doctors and patients; it means reduced defensive
    > medicine, reduced litigation, more frequent routine
    > visits for checkups, early diagnosis of diseases.
    Patients can do this RIGHT NOW, health plan or no. I don’t know of a doc anywhere who’d turn down a cash customer.
    But let’s get this straight: Nat thinks there will be more frequent routine visits for checkups and early diagnosis of diseases when patients pay $150 out of pocket than when they pay $10 out of pocket. Remember, no insurance for primary care! The health plans got it backwards when they made primary care co-pays cheap and specialty co-pays more expensive. They should have made them the same in order to discourage over-use of primary care, and this would have absolutely no impact on the under-use of primary care.
    I thank Nat for telling us what his efficiency means, but I still don’t want his.

  5. Nat,
    I think these are good points, but I wonder whether they will be very effective.
    Idea 2) may help some patients rethink their attitude towards healthcare (“OMG, this MRI did cost 3595 $”), and I thought this is a good idea. However, what about the cash strapped patients who put things off because of lack of cash?
    With regards to litigation, my (rather well informed) opinion is: as long as there are patients disappointed by bad outcomes AND as long as there is a financial incentive to sue (and no disincentive not to), there will be malpractice litigation. There are some studies indicating that better dr. – pat. communication makes litigation less likely (supporting ideas 3+4), but this does not change the fundamentals above.

  6. Charlie: your comment “Care variation is worth more – much more – than the costs and profits of all the private health plans in the U.S. put together”, is no doubt the fundamental opportunity (and challenge) in the health care reform materiality debate.
    Yet, why are you silent on passing through most favored nations (aka the value of group purchasing leverage) access to health plan rate book to the uninsured via a suitable “club” mechanism? Why not served this growing, under-served market?

  7. Efficiency means
    — patients paying only to the providers and not to the middlemen
    — patients (service receivers) getting directly involved in the payment process —- reduces over-use
    — medical decisions are made only by patients and their doctors.. not by health-plans —- reduces litigation.
    — patients choosing and keeping their doctors based on their comfort level (and not directed by healthplans). Leads to better understanding between doctors and patients; it means reduced defensive medicine, reduced litigation, more frequent routine visits for checkups, early diagnosis of diseases.

  8. Dr. rbar,
    Your comments about how the amount of defensive medicine might change and by when under a more favorable legal environment are consistent with my perceptions, which accounts for at least part of the reason why the U.S. healthcare system is likely to remain significantly more expensive than anywhere else for the foreseeable future.
    One factor that could potentially accelerate the decline in defensive medicine here if the legal environment changed would be if a critical mass of physician practices emerged that embraced a culture of cost-effective, evidenced based medicine and made it clear that excessive utilization due to defensive medicine would not be tolerated and doctors with a reputation for high utilization would not be hired into the practice in the first place. Under those circumstances, continuing to practice excessive defensive medicine would have adverse career consequences. Presumably, insurers, probably led by CMS, would have to develop payment models that reward cost-effective practice combined with good, or at least competitive, risk adjusted outcomes.

  9. > Tom conveniently ignores the numbers.
    Nat completely ignores the numbers, but more than that, dreams that the market for medical services ever could be a competitive market. It can’t.
    But under his proposal where professional fees are paid for out of pocket and everything else by insurance, ceteris paribusthe only consequence is that the price of the average visit (especially in primary care) will rise versus today’s prices, and the docs will fire their billing services and take more money home with them. Not that I don’t want them to have it.
    Professional fees of all types account for less than 25% of all healthcare spending, so on this score, Nat’s plan shouldn’t cause too much of a spending increase. Maybe only 12% or so — his $50K will become $56K.
    Medical tort reform could save a ton eventually, but should be coupled with a regime of “best practices” (something short of the full-blown academic utopia of EBM) as has been widely discussed on THCB. But as Dr. rbar has pointed out in this thread, it isn’t necessary:
    It is virtually impossible to successfully sue if evidence based standards are followed…
    …litigation has become almost meaningless careerwise

    I have repeatedly begged interested docs to implement standards through their professional societies so that the fear among docs can be reduced and we don’t need the cooperation of the tort bar.
    And Nat still hasn’t defined “efficiency”.

  10. Nat,
    Tom and you will never agree as long as you stick to your fantasies of the problem. Excessive middlemen adds at most 15% and excessive litigation less than 3%. The vast majority of the problem is a really bad system with practice variation caused by insane financial incentives and ignorance and people with considerable (excessive) expectation of high income.

  11. Nat,
    Tom and you will never agree as long as you stick to your fantasies of the problem. Excessive middlemen adds at most 15% and excessive litigation less than 3%. The vast majority of the problem is a really bad system with practice variation caused by insane financial incentives and ignorance and people with considerable (excessive) expectation of high income.

  12. Tom conveniently ignores the numbers. He doesn’t care about the efficiency and willing spend $52,000 a year on healthcare for a family of 4. What he doesn’t understand is that median household income is less than $50,000. And so….he just wants the chaos to continue.
    I suggested ‘fee for service’ only for non-catastrophic procedures and not for chemo, radiation, etc. Why the heck a simple doctors office visit should be subject to in/out of network issues, copays, deductibles, annual/lifetime limits, claim submission/processing, multiple billing/payments, etc when you can pay directly which would cost much less and very much affordable.
    Lets look at the fundamental problem why it costs at least 100% more than what is spent in other developed countries.
    1) Excessive middlemen and
    2) Excessive litigation.
    If you want to keep these 2 things around, you CAN NOT find a solution to the crisis.

  13. Elliot,
    I wrote above: there is currently no incentive for a physician not to perform a noninvasive test. Therefore, it does not matter how succesful defensive medicine is – as long as there are situations (and believe me, there are plenty) where a test that was not ordered is reason for a “failure to diagnose” lawsuit.
    How quick will this change? Well, this is guesswork only, but I believe that some practice patterns are pretty much hardwired, while some others can be more readily abandonned – and all this varies from practitioner to practitioner. Let’s not forget that most of the difficulties (some would say inability) measuring defensive medicine are the multiple motivations to order test x/treatment y (defensiveness, patient request, quest for the rare and difficult diagnosis, doing sthg as opposed to nothing etc.). Maybe you could reduce 5-15% of defensiveness right away and another 40-60% with the next generation??
    Let’s also not forget that the litigational threat has some positive effects as a negative motivator against physician sloppiness. The problem is that the current system does such a poor job differenciating good from bad: most inappropriate care does not cause litigation (i.e. goes unnoticed) AND when there is litigation, care is very often appropriate but may still deemed negligent. I personally think that the best system would protect doctors who make honest mistakes or oversights, but it would weed out serious negligence or repeated grave incompetence. I can tell you that litigation has become almost meaningless careerwise in that it does not bring trouble to any (otherwise qualified) applicant, unless the actual case is egregious (e.g. if you are Dr. Death:

  14. Nat writes:
    > This is exactly the reason, I blogged
    > about EFFICIENCY and cost control.
    > Any comments?
    One definition of economic efficiency says that a market is efficient when everyone willing to pay at least the marginal cost for goods or services is able to buy them. The market for gasoline is almost perfectly efficient, whilst the market for hydrocodone/APAP isn’t even though its just as much a commodity as gasoline.
    Given that Nat thinks that a market whose only participants are Providers and Patients leads to efficiency, I have chosen a definition of efficiency that presumes very little: only that no one supplier or consumer has enough market power to influence prices. This sort of efficiency is the expected outcome of a competitive market.
    So in Nat’s world without health plans, insurance agents/brokers, third party administrators, claim processing organizations, clearing houses, etc., his efficient market looks like so:
    Woman notices some pain and tightness in her leg.
    If she’s a poor woman, she takes OTC pain medication and carries on as best she can. A year later she’s collapsing in pain when she gets home from work, too fatigued to look after her family. So she goes to see a doc. “How will you be paying today, ma’am?” “Cash. Is $100 enough?” “Can you send another $25 in next week?” “Yes, we can do that.” “Very well, the doctor will see you now.”
    Doc does a through history and physical, but doesn’t know what’s wrong with her, and wants an MRI. Doc knows her financial condition, and finds out she can have the exam at 4 AM on a Tuesday two months hence for $500. Woman hasn’t got $500 and an MRI exam won’t cure her anyway. She sends the $25 next week as promised.
    So she goes to an herbalist and starts taking some combination of natural and homeopathic remedies at $60/week. Two weeks later, she thinks she might be feeling a little better. But it doesn’t last. She goes to a Chiorpractor who taps and wiggles her spine and hip, and has her hold various bottles while he does muscle tests and talks about energy auras and a university study that proves their existence. He tells her “I’m so glad you came in for a second opinion, you have really taken charge of your health! Such a smart woman. Now, I’m not saying the herbalist is dishonest, but that stuff she gave you just isn’t what you need. You need this instead — we can tell even though you only held the bottle! Oh, and come back twice a week for a little tune-up.” “How about once a week?” she asks him. “Oh, you’ll probably feel a little worse but if that’s OK it’ll have to do.” Notice how he makes her no promises…
    Over the next six months, she spends about $1,000 on all this, but now she’s quite ill. The Chiorpractor tells her “You know, this really isn’t working, maybe you should go see an allopath”. About this time, her husband quits his job to take care of her.
    The doctor sees her again, and says “I’m pretty sure you’ve got cancer, and its pretty far along. About the best I can do is refer you to St. Somebody’s Hospice program, they will treat your pain for free. This is most unfortunate.” They thank the doctor and are grateful that he offered to reduce his fee to $75.
    Three months later she’s dead, and her husband and the kids are evicted from their apartment that same week.
    If she’s a middle class woman, she goes to see her doc. He doesn’t know what’s wrong with her, and wants an MRI exam which can be had at 4 AM on a Tuesday two months hence for $500, or this coming Thursday at 3 PM for $800. She springs for the earlier exam.
    Turns out she has a tumor growing up against the sciatic nerve underneath the illiopsoas muscle. A biopsy to figure out what sort of tumor it is will cost $2,200. She springs for that too. The news is bad: this is a form of cervical cancer and should be treated. Doc refers her to the local Cancer Center.
    They tell her that surgery is not an option. The standard treatment is a course of chemo, followed by radiation. Chemo alone gives her a 60% chance of five more good years. Adding radiation to that raises the odds to 95%. But with the combo, 80% of patient like her are fine ten years on. Nobody knows whether radiation without chemo will help much.
    Chemo alone will cost $25K. The radiation will be another $15K. She won’t be able to work for several months because she’ll be so sick from the treatments. Her lost wages during this time amount to $6K, but she’ll be dismissed from her job because she’ll be unfit for it. She’ll need a new job when she’s stronger.
    So she and her husband decide they can afford the chemo but not the radiation — they’ll just have to take their chances. They have no savings, so they take a $10K cash advance on their credit card, at 21% APR. They sell their house and buy a cheaper one so they can get what little equity they had out, and afford the vigorish on the borrowed money. A year after the chemo course, things look pretty good, but cheap houses are in economically depressed areas — she can’t get as good a job as she had before. And the schools leave a lot to be desired.
    Three years later, her cancer’s back. They can’t afford further treatment, and the family resigns itself to her death. The kind sisters at St. Somebody’s are very helpful, and offer whatever assistance might be needed when it comes to that. Over the course of the next year, her husband is spending so much time caring for her and the kids he’s fired and declares bankruptcy. They lose the house. She’s dead a couple of months after that. Her husband is stoic, but her teenage year old son becomes bitter and heads down a most unfortunate path…
    If she’s a rich woman, she buys the standard treatment, and has an annual PET scan for $2,500 to determine whether there’s a recurrence which can be treated early. Five years later she’s going strong, and helps her 21-year old son start a new business.

    This is a very, very efficient world where costs (both per-service costs and aggregate) are controlled very, very well because most serious disease is never treated. It simply isn’t a world I want to live in.
    Introducing insurance, whether its social insurance or insurance by contract, will introduce economic and procedural inefficiency. So do medical licensure and all other forms of regulation. I am willing to accept ineffiency to avoid living in Nat’s world, where a family is lost over the price of a really nice car. So are most other people, Deo gratias! At the end of the day, I suspect Nat is too.
    Now, maybe Nat has a different definition of efficiency, but he hasn’t told us what it is. When he does, we’ll see whether it squares with the rest of what he says.

  15. Nat, if we do nothing about health costs, healthcare will cost $4.2 Trillion by 2016 – private system OR public system, neither is sustainable with present structure. The pupose of a public system is not to just transfer costs to the taxpayer – it is to set a universal budget and get costs down. I don’t advocate a public system with the present cost structure or mind sets. But the private sector has shown it can/will not rein in healthcare costs and include everyone with affordable healthcare. When you talk about taxes for healthcare it’s not as if you’re not getting anything for those taxes – you’re getting healthcare. If the private sector is the efficient way to deliver healthcare – WHERE’S THE PROOF! Hell, the private sector can’t give us efficient air travel. If you want cost control then enforced budgets through a public system is the only way it will happen, with greater efficiencies through no private insurance. But I don’t think this can happen with our present political climate where politicians spend more time dialing for dollars than creating good public policy. And for all our other quickly approaching problems, fixing the political system has to be the first thing we do before we begin to develop solutions.

  16. Peter,
    You are ready to pay taxes for ‘single-payor Govt system’. do you have any idea as to how much it will be.
    Here are some raw numbers:
    –> Govt estimates that healthcare cost in 2016 will be $4.2 trillion in the existing system; remember, currently 100 million people do not go to the doctors (50 million uninsured and 50 million under-insured) out of 300 million total population.
    –> Assuming the new ‘single payor Govt system’ is highly efficient, when you cover everyone (including uninsured and under-insured), it will need at least the same $4.2 trillion (a best possible scenario). It amounts to over $13,000 per person per year.
    –> Whereas, the median HOUSEHOLD income was $48,200 in 2006 (means 50% of the households made less than $48,200 in 2006). Average size of household is 2.5 persons.
    –> It means, an average household would make around $50,000 in 2016; but its healthcare cost will be $32,500 (2.5 times $13,000) and they need to pay this amount in the form healthcare TAXES and CO-PAYS.
    Can it happen? No way. Let us understand the numbers first and talk about reality.
    This is exactly the reason, I blogged about EFFICIENCY and cost control.
    Any comments?

  17. Peter,
    I think there are lots of patients who will overuse the healthcare system for minor problems in order to seek reassurance from a doctor as opposed to waiting a day or two to see if the problem will resolve itself or calling an insurer’s nurse hotline. As you say, ER overuse is also a problem which is exacerbated by having little or no direct financial exposure for the cost of service.
    I also agree that overuse by doctors is a bigger problem from a system cost standpoint. However, if doctors know that patients in general or a particular patient has little or no financial exposure to the cost of whatever tests or procedures he orders, he will feel much more comfortable in ordering it and won’t see as much need to try to practice cost-effectively, especially if he is being paid on a fee for service basis.
    Just as tiered drug co-pays reduce utilization of higher cost brand name drugs, co-pays and meaningful deductibles will result in less utilization than a system that calls for no deductibles or co-pays and no money changing hands at the point of service. Any administrative cost savings will be swamped by increased utilization.
    Budgets and supply restrictions are mechanisms to ration care. It has to be done somehow, and I don’t blame Canada or Taiwan for doing it. Whether Americans will accept it anytime soon, I don’t know but I doubt it. When Americans develop more reasonable expectations with respect to how much healthcare we can have, especially at the end of life, for an affordable price we might get somewhere. In the meantime, everyone wants to solve the problem at someone else’s expense. It will be hard to move off the status quo until that changes.

  18. Barry, you treat healthcare like Cadillacs. People seek healthcare when they’re sick not when their not. They can’t hoard healthcare. Do you have an appreciation of healthcare use when you purchase from an insurance company – that rate does not change no matter how much care you use, at least up to the deductible. Taiwan studied every healthcare system in the world and adopted a single-pay government run system, I wonder why. There citizens are issued health smart cards that track usage. If the system sees unusual usage then that person is looked at closely. As for Canada they limit supply through budgets which limits demand. Think we’ll see a health budget here in your lifetime? If you want to limit demand here then use co-pays, but how much and to whom becomes the question. Over-use by patients in healthcare is not an issue, except maybe for ER visits when they could wait for their GP, over-use by docs is the biggest driver in any system, private or public.

  19. Barry,
    It is virtually impossible to successfully sue if evidence based standards are followed. Defensive medicine does not defend against being sued nor prevent a payout; there is no evidence. If defensive medicine were defensive then it’s practice would provide a shield to the doctor who practiced it. In other words, practice variation (presence or lack of defensive medicine) would create some discernible variation in number of lawsuits filed, payout, or insurance premiums. The only evidence we have is survey after survey published in leading academic journals of doctors’ perceptions. No body of evidence that practice variation leads to better or worse malpractice outcomes for the physician exists. Shouldn’t defensive medicine “defend” the doctor against something if it’s going to cost so much.

  20. “why do you assume a single-pay government system is “free”? It’s not. It’s paid for with taxes but it has a universal budget which limits use by making healthcare a scarce resource.”
    If I, or anyone else, pays for healthcare with compulsory taxes, my tax burden does not decrease if I use less healthcare and it doesn’t increase (in a given year) if I use more. If its cost is subsumed in general income taxes as opposed to financed with a dedicated healthcare tax (like Medicare is in part), the tax cost to the individual is completely opaque. Therefore, If one is inclined to use more healthcare (for whatever reason) rather than less, the knowledge that the individual’s tax burden will not be affected in the short term makes that person perceive healthcare as “free.” This is why tax financed systems like Canada’s need to develop mechanisms to limit demand that would otherwise be potentially infinite.
    Tom and Dr. rbar,
    Whether defensive medicine accounts for 5% of healthcare costs, 25%, or something in between, what I wonder about is how quickly doctors would reduce defensive medicine and change the community standards of practice toward much less intensive treatment if a sensible medical dispute resolution system (like health courts) replaced the current jury based system and doctors came to perceive that it would be virtually impossible to successfully sue for the failure to diagnose a problem if evidence based standards were followed. Is this something that could take hold fairly quickly or would we need to wait years for a new generation of doctors to replace the old timers as they retire?

  21. Folks – great dialogue. Wow. Four points – all of which I’ve blogged on previously at http://www.letstalkhealthcare.org...
    1) HPHC’s admin. load is about 10% of premiums. The industry average in MA – which is non-profit plan dominated – is 10-11% admin., 1-2% margin, and 87% on medical expenses. I don’t know where these 25% numbers on health plan admin. spending come from. Even the for-profits run in the low 80’s on the Medical Cost Ratio.
    2) As a former Cabinet official in MA state government, I can promise you that Medicare’s admin. expense ratio is wildly understated. Department budgets in public entities don’t include all of their expenses. For example, Medicare’s admin. budget doesn’t include a lot of stuff that’s paid for elsewhere in the federal budget – like health insurance for its employees, pension expenses for its retirees, and capital spending for its IT and physical operations. It also doesn’t include the cost of processing and paying claims – which is done for Medicare by other private organizations under contract with CMS.
    3) Jack Wennberg and the gang at the Dartmouth Atlas Project have been banging the practice variation drum for many, many years. Lately, people have finally started to pay attention. This is, frankly, where the real money to be saved can be found. Care variation is worth more – much more – than the costs and profits of all the private health plans in the U.S. put together.
    4) I think value-conscious consumers are a great idea – and tiered pharmaceutical formularies have proven that consumers – working with their doctors – will choose generics and lower cost brands over more expensive medications. But the amount of information we need in the public domain to help consumers work with their doctors to make good choices elsewhere in health care is way past where we are now.
    And thanks again for the comments. Very informative.

  22. “3) Our culture does not allow anything FREE to be efficient. We do not simply care about COST or NECESSITY if it is FREE.”
    Nat, why do you assume a single-pay government system is “free”? It’s not. It’s paid for with taxes but it has a universal budget which limits use by making healthcare a scarce resource. Do you think insured people and care providers consider the present healthcare system a scarce resource? If our system is “efficent” then why does it cost twice as much as universal single-pay systems?
    “efficient: performing or functioning in the best possible manner with the least waste of time and effort” Could apply to any system.

  23. Tom,
    1) Efficiency MUST be the primary goal of any health policy because the fundamental problem in our system is ‘COST’ which is at least 100% more than what can be affordable. We spend over $7,000 per person per year ($2.3 trillion on a population of 300 million) where 50 million are uninsured and another 30-50 million are under-insured who do not go to the doctors. If we provide care for everyone, then average cost will be well over $10,000 per person per year OR $40,000 for a family of 4. According to the Govt estimates, the cost will be $4.2 trillion in 2016 in the current system with all the uninsured and under0insured.
    2) Leave healthcare to patients and providers only; we don’t need MILLIONS of middlemen in the name of health plans, insurance agents/brokers, third party administrators, claim processing organizations, clearing houses, etc.
    3) Our culture does not allow anything FREE to be efficient. We do not simply care about COST or NECESSITY if it is FREE.

  24. Dr. rbar —
    I don’t think we disagree. I think you’re lumping all this under the head “defensive” and I’m not. But however we call it, some people think overzealous diagnostics & treatment amounts to half of what gets done. What I have called “defensive” maybe comes to half of the half. You & Dr. Wennberg will know better than I do where this really lands. But patients do not know which half is useless and which half is not, and even if they did know, they suffer from an especially bad case of bounded rationality concerning their own disease. Therefore, a free (or merely free-er) market will not, nay cannot drive efficiency, and I don’t think mere efficiency ought to be a goal of health policy anyway.
    What I hope is that you acting in concert with most doctors will do something about useless treatments and diagnostic studies before non-doctors do something about it. And if you don’t, they will.

  25. Tom, I wonder why you are so convinced of that 10% estimate that some doctors gave you.
    It is true that some difficult patients (yes, maybe about 10%) may trigger “over the top treatment” just based on their attitude. However, there is a lot of defensive medicine that is not “over the top”. The often mentioned “standard of care” is, too my knowledge, a legal construct only that requires a physician to do what a “reasonable” colleague of that specialty would do.
    Let me give you an example. Patients with typical migraine headaches don’t need a brain scan, as also expressed in specific guidelines that state explicit exceptions to that rule. However, the majority of migraine patients ends up with at least one scan (if not several CTs and MRIs) … which, maybe, a lot of physicians you talk to may not find excessive. However, if you consider what these scans are good for, the technical answer is: they are a waste of money. This is a type of defensive medicine that becomes deeply rooted in provider’s habits and perceptions. Some doctors may find these scans defensive, others may think that they are just doing what everyone does (following the “standard of care”) and meeting patient’s expectations (“Doctor, my head hurts, check what is going on there”).
    I know that the current public health opinion does not see defensive medicine as a major problem, but I (and most doctors) strongly disagree.

  26. Nat proves his point with:
    > “43% reported using imaging technology
    > in clinically unnecessary circumstances”.
    I am surprised only 43% self-report this way: maybe imaging has become something of a crutch and overuse is no longer recognized by the majority. (I know docs who think so, even a radiologist. I guess they’re in the 43%)
    You have not contradicted me — all docs have that 10% and so they all have to deal with it. That nearly all of them report that they have dealt with it is not surprising at all.
    And your factoids say nothing at all about the the level of ‘defensive medicine’ in our system, only its pervasiveness, which is not in dispute.

  27. rbar —
    I very much admire Maggie’s writing, but in my own defense a blog comment isn’t a book paragraph. And I don’t have an editor 😉
    Yes, we know there is a great deal of unwarranted practice variation, and at least some overtreatment. That’s what I was trying to get at with my evidently too-subtle and non-confrontational intro The baseline “standard of practice” probably leans too much towards labs and so forth.
    Whilst I am sure we agree that the “standard of care” has been moved because of the legal environment, the individual doc can’t do anything about this — the standard is what it is. By “appropriately” what I mean is something like “well within the accepted standard of care”, not the “over-the-top, do-everything-concievable” legal defensiveness so often confused with diligence. So far as I can tell, this is reserved for about 10% of patients. You (or Maggie) may want to quibble about percentages, but I do not think we have a fundamental disagreement about this; at worst a little vocabulary problem.
    It seems to me more pressing to help free-market advocates understand what makes a market efficient before their presumption all free markets are efficient markets finds its way into policy.

  28. Tom,
    “The great majority of patients are quite appropriately handled.” Where are you getting this information?
    A survey of physicians by JAMA in 2005 says (http://jama.ama-assn.org/cgi/content/short/293/21/2609) “Nearly all (93%) reported practicing defensive medicine”, and
    “43% reported using imaging technology in clinically unnecessary circumstances”.
    What else you need to know to understand the level of ‘defensive medicine’ in our system. When people pay and have better relationship with the physicians, this will be drastically reduced.

  29. “If your employer does not provide coverage, your spouse’s employer might provide one; if not, you can use previous years’ HSA contributions or you can fund HSA tax-free.”
    What if neither spouse works for a company with coverage? What if one spouse works for a company that does provide health coverage for the employee but not the spouse, or the kids? Putting money into HSA assumes extra cash for that purpose. So where are people to get extra cash for HSA AND routine medical treatment as well as insurance coverage? Do you think the type of people we are typically talking about (without coverage) have all this extra cash lying around? How fast do you think one ER hospital visit will eat up an HSA? Have you ever tried “shopping around” for medical treatment? Is that what you want your surgeon, GP, hospital doing, or would you prefer they concentrate on fixing your problem? What if you’re in the ER and can’t get up to “shop”?

  30. Tom, your statement:
    “The great majority of patients are quite appropriately handled.”
    is arguable at best. There is ample evidence for overtreatment (and overdiagnostics). If you don’t want to believe my own professional experiences/observations, look at Maggie Mahar’s book or the work done at Dartmouth, someone provided a link in the thread above (in fact, I just realize it was you(!)).

  31. Nat says further:
    > The bottom line is, if YOU don’t get
    > involved in payments, nothing can be efficient.
    Price Sensitivity among buyers is necessary, but insufficient.
    Econ 101: Economic efficiency depends on perfect information in the marketplace.
    Consider the markets for:
    Breakfast Cereal
    Medical Services
    Rank them in order of efficiency. Is there a free market in Automobiles and Breakfast Cereal? What accounts for a difference in efficiency between the two markets?
    There is a lot about these ideas in the archives…

  32. Nat says:
    > Reduced ‘defensive medicine’ as patient pays.
    > They are free to go for MRIs if they are prepared
    > to pay for it.
    And increased adverse outcomes (i.e. suffering and death).
    Without serious medical tort reform (or a serious attitude change) the docs will still recommend the MRI. Nothing changes, defensibile-in-court medicine will still be the norm. The difference now is that some patients will forgo the study. But patients are in a very, very poor position to decide whether your example MRI is likely to reveal some actionable intelligence, whether its being recommended for medico-legal reasons, or for reasons even worse.
    The baseline “standard of practice” probably leans too much towards labs and so forth, but talking with docs in the trenches, I’m told the over-the-top defensible-in-court thing is done with/to/for around 10% of patients. The doc gets an impression: “This guy or lady has expectations all out of line with reality and might sue. I’ll be sure I’m covered.” A few docs overplay the referral-income game with other docs but not very many. The great majority of patients are quite appropriately handled.
    There are the few patients who WANT studies for their own peace of mind; they don’t quite trust the doc’s judgement without something “scientific” in hand. Maybe we start to permit people to have studies done like blood work or imaging or whatever without a physician order. This gets the docs out of the position of pretending something is medically warranted simnply to make a patient/customer happy. Of course, there’ll still be pressure from patients since no insurance would reimburse a study without an order. On the other hand, without tort reform, this would probably lead to more Failure-to-Diagnose lawsuits.
    Not to mention the television ads: “CMP Special Saturday at our South County Location: Regularly $79.95 Saturday and Sunday ONLY $59.95. Check your Hepatic and Renal Function! And Our Vast Selection of the Finest Herbal Supplements and Homeopathic Remedies Will AMAZE You! Why Wait? Results in 30 Minutes or its FREE!!!”
    Sorta like pizza. I like the sound of this already — let’s open some labs in malls anchored by Nieman Marcus. Rich narcissists should be over-represented there. We’ll fleece them, the government will fleece us, and everyone will be happy.

  33. Peter,
    Today, employer AND employee spend 12K on average per family for the employer provided insurance. And the suggested 1/2 contribution goes to HSA account that stays with you forever. It will build over time if you spend less. If your employer does not provide coverage, your spouse’s employer might provide one; if not, you can use previous years’ HSA contributions or you can fund HSA tax-free.
    How it will reduce healthcare cost?
    1) When YOU are paying for care, you will certainly ‘shop’ and compare for price and quality just as we do for everything like restaurants, auto-repair, etc. As hospitals and doctors compete for your dollars, the cost will be drastically less.
    2) When YOU are paying, you will tend to go for ‘necessary treatments/tests’ only. Today, $100 billion is spent on MRIs and other imaging procedures alone every year; probably, majority of such procedures may be unnecessary.
    3) When YOU are paying, you will look for alternatives (generic drug vs branded ones) which would cost less.
    4) When YOU are paying, you can choose and keep your family doctor forever. This is probably the biggest benefit of all. Your family doctor knows you and your family’s medical history; after all, family history plays a major role in majority of chronic illnesses. Your family doctor can better diagnose potential chronic illnesses.
    5) You will have a better understanding with your family doctor. It means, your doctor will feel safer against potential law-suits.
    The bottom line is, if YOU don’t get involved in payments, nothing can be efficient.

  34. Nat, what about the employers that can’t afford to spend 12K on employee insurance, where’s their 1/2 contribution coming from? Also maybe insurance companies recognized that paying for routine healthcare prevents catastrophic illness, and lowers costs in the long run. And how will this cause hospitals, doctors, drug companies, etc. to lower prices?

  35. Interesting discussion. Why don’t we look at a possible solution…..a simplified one with EFFICIENCY built in.
    Today employers spend about $12,000 per employee (and his/her family) per year to provide health coverage. It includes employee contribution. Instead of providing private insurance, why not they direct 50% of this $12,000 to employee’s (and family) HSA and the rest to ‘new public catastrophic coverage plan’.
    The ‘new public catastrophic coverage plan’ will cover only a very limited number of procedures that are catastrophic in nature. And for all the rest, the individuals will pay directly to the doctors/hospitals from their HSAs.
    After all, ‘Insurance’ by definition is to cover the risk and not to deal with routine expenses.
    This will be the most efficient system as decisions are taken by the patients and doctors only. Can it reduce cost?
    1) No insurance overhead (sales & marketing, lobbying, insurance company profit, claim processing, etc).
    2) Much reduced level of litigation as patients and doctors have better understanding.
    3) Reduced ‘defensive medicine’ as patient pays. They are free to go for MRIs if they are prepared to pay for it.
    4) People are encouraged to eat well and exercise.
    With these benefits alone, the healthcare costs can be cut by about 50%. The current level of $2.3 trillion a year expenditure, every individual(including 47 million uninsured and 30-40 million under-insured) can get the needed healthcare.

  36. I will bring a different aspect to the table that is slightly outside the health care coverage debate but incredibly important to one of health care costs: issue of personal responsibility and of gov’t policy.
    The sad truth is that an overwhelming majority of Americans don’t exercise or eat well. Nothing earth-shattering there. The issue though is how willing as a society we are to move to more a “nanny-state” though and penalize individuals for their behavior that results in higher health care costs (e.g., smoking).
    We have done that with certain behaviors (e.g, much greater taxes on tobacco products the past 15-20 years) but that has been largely missing from the “wellness” movement that is emerging due to some very strict legal limitations on disincentives or penalties for noncompliance. At some point, there has to be some level of “sticks” along with the “carrots” too.

  37. Nat: you’re right that private insurance spends on your items a thru d, plus a few arguably (or theoretically) value-adding activities like Utilization Review and Disease Management and Price and Service Negotiations with Suppliers and even Outcomes Research using Administrative Data. But the total for all of them comes (generally) to 15% or so, not 10% each. Add in the 5 – 10% of practice revenue necessary for third-party billing and you see that insurance “costs” around 25%. Moving to a single-payer sort of system might under optimistic assumptions save half that.
    The excessive litigation thing might be responsible for another 25% of system-wide expense. “Failure to Diagnose” is my personal favorite almost-always-bogus charge against a doc, and avoiding it probably leads to the bulk of the 25% — it makes a family less likely to sue when they’re convinced the doc “did everything concievable, whether or not it had any reasonable chance to help in the least”.
    And this brings us to rbar’s point: its our attitudes, stupid! If we more or less eliminated medical malpractice suits and moved to a single payer system, we’d get a significant one-shot savings, no doubt. But these things do not address medical inflation — that’s caused by our attitudes. The savings would be quickly eaten-up and we’d be having this conversation all over again.
    This has been extensively discussed on THCB. The archives are a rich source.
    And Dr. Bev — Not that some doctors aren’t trying, but the missing leadership MUST come from The Guild, the doctors themselves, acting in concert. If it doesn’t come from doctors, the vacuum absolutely will be filled by non-doctors doing the best they can, and who can blame them? They’re paying the doctor bills…

  38. Charlie: I completely agree as well. Universal access to a non-system, that is insatiable under present incentives is a fast track to insolvency.
    However, while we wait for the holy grail of “structural” reform of a health care economy with pluralism its “root DNA”, lets immediately create value by enabling access to the benefits of group purchasing by the uninsured. Why should the benefits of cost shifting insulate only corporate entities such as health plans, insurance companies and third party group purchasing entities?
    What standing entitles HMOs, PPOs and other aggregator derivatives to serve as the sole conduits eligible for provider discounting?
    Managed care has failed, and can not succeed as long as its business model consists of window dressing medical management sitting on top of essentially a cost shifting (contracting) paradigm.
    This model penalizes the least able to accommodate the charge basis burden that health plans and their corporate proxies inoculate themselves from in a health care ecosystem running out of candidates to bear the cost shifting burden.
    At least this incremental change offers some proactive (debt burden) relief while we debate the core issues that permit sensible consideration of models that work elsewhere and have historically been ruled out of the American psyche by clever sound bytes, and oversimplified claims of back door socialism entering a capitalist society vs its health care needs.

  39. I mostly agree. I see 2 major contributors to the cost problem:
    (1) Consumerism/”health care attitude” by many patients and physicians: if something (diagnostic test, therapy) is potentially helpful for problem X, it should be done immediately regardless of the cost since “you don’t consider economics when dealing with your (your loved one’s) health”.
    (2) Defensive medicine: there is currently no incentive for a physician not to perform a noninvasive test, other than potentially dismaying patients (who often actually often want testing – the fancier, the better); but there is always the threat of litigation for “not offering” something.
    I would think that we need change many people’s attitudes in order to focus on where we really get a “good bang for the buck” for the health care dollars. If the physicians were more unified on that issue, it might be possible to have a public discussion and PR campaign that might have a chance to change this. (And, whoever is interested in doing MRIs for about everything should do that in patients who have supplemental insurance for that particular reason.) And the issue of litigation needs to be fixed. Conscientous physicians who have satisfactory knowledge and make a reasonable effort should not be in constant fear of being sued, as it is the case for so many US physicians.

  40. However, Charlie, I forgot to add one thing. Capitation, and other HMO-mandated items, failed in the public’s eye largely because it was perceived (accurately) that the insurance companies ONLY cared about cost, not quality, and not about meeting legitimate medical needs. It is the entire system of delivery of health care that is broken – the waste of money, time, human capital and even human lives, due to operational inefficiency and system and human error, is huge. Just changing the payment system won’t fix the operational breakdowns. I think everyone inside the operational system has great ideas for how to fix it – what’s lacking is leadership on a national scale, in whatever form that may take.

  41. Agree, agree, agree with this post!! This point couldn’t be more fundamental or relevant – nor more ignored.

  42. Absolutely, without reducing the cost, healthcare can never be meaningful in US. Why it is so expensive in US compared to any other developed country?
    1) Private Insurance: How?
    a) 10-15% of the cost goes to Sales & Marketing
    b) 10-15% goes to lobbying
    c) 10-15% goes to administer the benefits
    d) 5% (or so) goes to profit
    2) Excessive litigation: Doctors and patients do not have long-standing relationship and understanding as
    a) health plans direct the patients where to go and doctors what to do
    b) doctors resort to ‘defensive medicine’ recommending unnecessary tests for fear of potential law suits(because they really do not know the patients)
    c) excessively complex healthcare system where decisions are often made by third parties (health plans).
    3) Excessively complex system where people are scared to go to doctors for regular check-ups; leads to chronic diseases and expensive treatment.
    UNLESS these fundamental issues that are unique to US are addressed NO plans (like the one in Massachusetts)can work.
    Let us talk about the real issues and not scared about powerful health plan lobbyists…if we really want a solution.