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Sustainable Healthcare Reform

Senator Harry Reid speaking at a press conference announcing the opening an art exhibit benefiting the State Children's Health Insurance Program
Last week Senate Majority Leader Harry Reid was quoted as raising the possibility
we could take the $600 billion in new revenue projected from a
"cap-and-trade" plan to cut green house-gas emissions and use some or
all of it to help pay the estimated $1.5 trillion cost for
comprehensive health care reform.

Energy and climate change issues aside that would be a bad idea–a really bad idea.

The biggest health care challenge we face in America is the cost of health care. To really reform the system we have to bring its costs under control. The only way we can achieve sustainable health care reform
is to pay for most of the cost of any reform plan out of the savings we
achieve fixing the system and its perverse incentives to spend more
without regard to what we receive.

Finding $600 billion from
another part of the budget to simply subsidize these out-of-control
costs would be tantamount to just raising taxes to keep paying this
unsustainable bill. Pouring another $600 billion into the system would
have the supply-side inflationary effect of just pushing costs up even
more–pour lots more money in and it will get spent. Why would any
stakeholder–provider or beneficiary–have any incentive to reduce health care costs?

But
finding $600 billion would go a long way to also meaning no one in
Washington would have to face the hard choices needed to actually
reform our system. It would mean we could just promise everyone
painless access to whatever health care services they want. Just think how happy consumers, doctors, drug companies, hospitals, and all the rest would be.

That is until the money ran out.

But, you know, this is just shortsighted and politically expedient enough to go somewhere.

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24 replies »

  1. Let me suggest — for consideration and comment — that the greatest challenge we have is not “the cost of health care,” but rather the number of people whose use of the system could be avoided if we spent any time, effort or money on helping them stay healthy. When supply can’t meet demand, adding more supply is not likely to result in lower cost

  2. Controlling health care costs in the US will involve fixing the lopsided supply-demand equation in US health care. Since Medicare/Medicaid must currently pay for all treatments, no matter their cost-benefit, and since government heavily subsidizes private health care, we’ve ended up driving up demand and therefore costs as well.
    Here are my ideas for increasing the supply of healthcare, and reducing demand for healthcare, thereby bringing the system closer to balance:
    http://truecostblog.com/2009/04/09/lowering-healthcare-costs/

  3. FL PCP,
    I agree that abuse is abuse wherever it occurs, and the case you cite is a good example. However, I have to ask: who’s the bad guy in your example? The developer of the device? The doc who prescribes the device and doubles its cost with his/her fees? Would you rather not have the device available for those who truly need it?
    Moreover, if the device is truly beneficial, will other defibrillator manufacturers introduce a competing product at a lower price? That’s what should happen in a competitive marketplace.
    Finally, if we had a single payer system, do you think a manufacturer would even develop the lifesaving device?
    The fundamental question is how do we balance innovation and cost? It seems you would have government control costs at the expense of innovation which may improve the quality of care. I would control costs by having government ensure a competitive environment so innovations that improve care are encouraged.

  4. Merle asserts that a single-payer (government controlled) system akin to Medicare “merely substitutes one payer for others and doesn’t change the structure of our healthcare delivery system.” I would argue that Medicare operates with a 3% administrative overhead, while commercial insurers skim over 30% of profits for administrative costs, which largely go to executive compensation, shareholder returns, and bureaucracy designed to bog down physicians in interminable paperwork.
    Innovation is surely desirable, but my observation is that is only increasing costs without guaranteeing improvements in outcomes. Example: thanks to the Multicenter Autonomic Defibrillator Implantation Trial II (MADIT II), nearly all of my patients with low EFs have been advised to get an implantable defibrillator by their cardiologist. The device alone costs $20,000, not counting cardiologist or facility fees that may amount to $40,000. Arguably, this is not money well spent to reduce the mortality of a few people.
    Therefore, my rebuttal is that innovation and technology have created a market that may or may not statistically benefit the individual, and most certainly won’t benefit the collective.
    I know a cardiologist who is right now enjoying an offshore fishing trip on the tab of a major device maker. Remember, this industry has no regulation, no PhARMA guidelines. In this instance, innovation has created a need that may not even exist.

  5. Peter,
    If your concept of “government run(controlled) single-pay” means extend Medicare to everyone, I consider that “tweaking.” It merely substitutes one payer for others and doesn’t change the structure of our healthcare delivery system.
    Additionally, I believe a single payer system will kill innovation and make our system more rigid rather than less and will put control of healthcare delivery in the hands of administrators and bureaucrats rather than physicians.
    What I want to see is innovation throughout healthcare! I want our delivery system restructured so that we match resources (i.e., organizations and facilities) to needs. I want new types of services, new types of insurance policies, new ways to involve the patient in his/her care, new types of reporting systems that meet what doctors need not what vendors or government decide they should have, etc. Can you begin to imagine any of this happening in a government-run system? I can’t.
    The way we CAN get these types of changes is through competition, not through centralized control. And yes, through allowing innovators to profit handsomely when they really meet a need! I’m very happy to let the Microsofts, Googles, Apples and other innovators — even payers and big pharma — prosper when they improve the quality of care. And I don’t worry that they will make too much money because competition will limit their profits. Such improvements simply will not happen in a government controlled system!

  6. “So Peter thinks we should all pay $120 in taxes or $100 in insurance premium for our $80 of medical care.”
    No Nate, we should pay enough taxes to pay for proper healthcare – for everyone. Contolling costs (which insurance companies don’t know how to do) will mean we pay $80 of taxes for $80 of healthcare. Notice we’re not paying $80 costs + $20 profits in insurance premiums.

  7. “You can delude yourself into thinking that a tweak here and a tweak there will improve the quality of our care and reduce its cost but that simply won’t happen!”
    One thing I have never advocated is “a tweak here and a tweak there”. The implementaion of government run(controlled) single-pay is not a tweak, it is though a revamp of the “system”. All I’ve seen until now IS tweaking because we all want a different system but can’t figure out how to not give up anything to get it.

  8. inchoate but earnest PTE 84-24 is different from 5500 reporting. ERISA has specific reqirements about disclosing fees and expenses to the plan fiduciary. 5500 is reporting to the DOL who just like collecting paper, they don’t actually do much with them.
    Our disclosure is also done upon sale not lagged.

  9. Hello Peter,
    Re: government’s role in healthcare – my statement isn’t contradictory at all. There is a major difference between dictating how, what and when medical care is to be delivered, and using fiscal policy to foster innovation and change which can engender better care and lower costs. I, for one, favor the latter!
    Re: insurance companies and their execs getting rich – I agree that exec compensation is excessive (and it undoubtely will come down in the future) but even if you reduced it by 90% you wouldn’t dent the cost of healthcare in the country. And by focusing your attention on this relatively trivial issue you’ll distract attention from really changing healthcare!
    Re: Insurance company profits – is $186 million too high or too low? How much capital was invested to generate this “profit?” And if you don’t think this matters, try raising money when you earn a small return on capital!
    Re: Christenen’s Innovator’s Prescription – you clearly haven’t read the book; and the reviewers on this blog didn’t read it carefully either. He describes in great detail both the incredible rigidities built into our healthcare system and the structural changes required in every major segment of the industry – including med school curricula – to seriously improve healthcare quality and reduce its costs to reasonable levels.
    Re: Herzlinger’s Who Killed Healthcare? – again it’s clear that you haven’t read the book! Her whole point is that the not-for-profit hospitals, payers, big pharma and academics-who-advise-government dictate today’s policies and practices and make it impossible to change our system or for consumers to gain control over their care. She, too, spells out changes that will free our healthcare system from its present rigidities and permit consumers to wrest control over their care and, at the same time, reduce its costs.
    You can delude yourself into thinking that a tweak here and a tweak there will improve the quality of our care and reduce its cost but that simply won’t happen! And each player trying to blame and beat up on the others won’t change a thing. I repeat what I said initially: our problems are systemic… and we need to revamp our system.

  10. Much better idea to take the cap and trade $$$ and offset the Social Security payroll tax, shifting net tax burden of Social Security off the wage base. It is way more important to do that than to flush it into the health system. I agree with Robert.
    Reid’s idea is authentically terrible social policy. The Democratic majority in Congress is a huge liability for this new administration.

  11. Nate, let’s not be disingenuous: you & I know that 5500 reporting for welfare plans (for the laypersons, those are health, disability, life & other non-retirement plans) is – shall we say – faith-based. Compliance has dwindled, and the #s on admin cost & PR have always been somewhat fanciful – not in every case, nor even most, but many, for employers large & small.
    The lax filing standards, coupled with the lagged filing schedules & glacial availability of the resultant data make ERISA reporting compliance a joke without a punchline.
    Your posts indicate you hold yourself to high standards, so don’t let us down on this one.

  12. I agree that climate change is one of the issues that absolutely need to be addressed. Cap and trade is a key part of that puzzle, since it provides individuals and businesses with a clear cost to their carbon consumption and the economic incentive to contain their carbon consumption. On its own, cap & trade would be a broad-based tax increase (unless everyone adapts very quickly, which may not be possible). To make life under cap & trade more feasible, the revenues raised by that provision should be rebated to individuals. They will still have the incentive to contain costs (since they’ll get a tax credit if they consume little carbon). It should not go to pay for healthcare, because cap & trade will become less politically feasible if it’s not rebated to consumers.
    By the way, Jazmin, if I were running this blog, I’d construe your comment as self-interested advertising and delete it.

  13. rbar,
    “3. If we keep private insurance, companies have to reveal admin. cost and PR”
    PTE 84-24 this is already required for self funded ERISA plans. Oddly government plans are exempt from this, your local city or school district doesn’t have to comply with ERISA.
    The large national carriers Congress wants all of us in don’t have to comply with this either.
    There is a rason ERISA plans are the most efficient plans in the country and have better satisfaction, thats also the reason politiicans are trying to kill them off.

  14. better arguments Peter!
    “Let’s see, pay the mortgage (or rent), save for retirement, save for college, now just save in an HSA along with putting enough money away for that high deuctible health plan – exactly which income bracket is this helping?”
    So Peter thinks we should all pay $120 in taxes or $100 in insurance premium for our $80 of medical care. No matter how many times we tell him he can’t grasp that paying small items directly is more efficient then paying them via premium or taxes.
    If you can afford to premium or the taxes then you can afford the HSA!

  15. “when was the last time government control fostered better quality, better service, lower costs and/or innovation of anything?”
    “What’s the solution? We have to revamp our system — and the federal government should adopt policies that will cause change to happen (this is where government can do good without actually getting involved in healthcare delivery).”
    Arn’t the two above statements contradictory? Government is the solution, government is not the solution. Governemnt should innovate, government can’t innovate. How can the government enact solutions without getting involved in delivery?
    “The fact is that no one is making a killing from our outrageously expensive system.”
    Someone sure is:
    “Blue Cross, the state’s largest insurer that operates as a nonprofit, earned $186 million last year and paid six top executives more than $1 million each, topped by Chief Executive Bob Greczyn’s $4 million income.”
    http://www.forbes.com/lists/2006/12/Health_care_equipment_services_Rank_1.html
    “For specifics, I refer you to Professor Christensen’s, “Innovator’s Prescription,”
    This book has been reviewed here and it appears it is long on analysis and short on solution “specifics”
    https://thehealthcareblog.com/the_health_care_blog/2009/01/by-vince-kurait.html
    “Professor Herzlinger’s “Who Killed Health Care.”
    “Herzlinger describes in precise detail how her innovative program will provide.”
    *Smaller, disease-focused medical facilities that provide complete care to patients.
    *A national system of medical records that provides privacy to provides and allows for confidential access to approved practitioners.
    *Mandatory performance evaluations of all hospitals and all other medical organizations.
    *Mandatory health insurance with subsidies for those who cannot afford it.
    We’ve discussed Herzlinger’s “consumer driven healthcare” here a lot. If consumers had any input we’d have a solution by now. And how will we get to the four points above without governemnt? If the above review (promotion) gives us the high points then again there’s not many specifics. Consumer driven healthcare is the “solution” of the industry, not consumers.

  16. I repeat a posting I made on March 15th. It addresses some of this finger-pointing dialog.
    When will each participant in our healthcare system stop shifting the blame to the “other” guy, and stop looking for seemingly “easy” fixes such as a single payer plan (when was the last time government control fostered better quality, better service, lower costs and/or innovation of anything?).
    Isn’t it clear that our healthcare system is structurally unsound and uneconomic? We don’t always deliver the best care, and the care we deliver certainly is not low cost!
    Everyone agrees our healthcare costs too much but they argue that it’s the other guy’s fault! The fact is that no one is making a killing from our outrageously expensive system. Payers are not (and I suspect that even their high-priced execs will see their compensation cut in the near future). Employers are not. Doctors are not. Hospitals are not. Pharmas and supply houses are not. Vendors are not. Government is not. Consumers are not. The uninsured are not. And I suspect even most malpractice lawyers are not.
    If no one is benefiting financially from our overly expensive system, isn’t it clear that the problem is systemic? Instead of shifting blame, I think it’s time to analyze what’s wrong with our system.
    Three professors at the Harvard Business School (Clay Christensen, Regina Herzlinger and Michael Porter) have done just that. Their independently arrived at conclusions are similar: our healthcare delivery system and institutions are bloated with overhead, rigid, unsound and foster behavior that perpetuates rather than cures our problems!
    Instead of specializing to engender greater proficiency, more highly skilled care and innovation, our hospitals try to be all things to all people. And as they get bigger and try to dominate their markets in order to realize supposed economies of scale, their overheads get bigger and their charges go up, not down. The same applies to big pharma, whose mergers stifle rather than stimulate innovation which is their lifeblood.
    In reaction, payers and employers (including Medicare and Medicaid) try to drive down their costs by reducing what they pay doctors and hospitals. Moreover, payers have little incentive to offer innovative policies that meet consumers’ unique needs.
    And despite the fact that physicians increasingly won’t or can’t afford to invest in bloated, expensive EMR systems, EMR vendors add more and more bells and whistles to their systems thereby driving their prices still higher!
    Two other villains in this process are well-intentioned non-profit organizations and committees, as well as certain government agencies who support requirements that effectively entrench the players who aren’t meeting physicians’ needs while freezing out innovators who might.
    What’s the solution? We have to revamp our system — and the federal government should adopt policies that will cause change to happen (this is where government can do good without actually getting involved in healthcare delivery). For specifics, I refer you to Professor Christensen’s, “Innovator’s Prescription,” and Professor Herzlinger’s “Who Killed Health Care.”

  17. To answer your question, Deron: Yes, Obama has written smart things about health care (I think esp. about the NEMJ piece) … which means that he has smart people around him. Whether he will set the right priorities … that remains to be seen. I am skeptical. When even my archconservative brother in law, a midmanagement level banker, favors swedish model cleanup of the banks …
    Where should the money come from (savings or “income”? My hitlist:
    1. pharma and device companies – curb pseudoinnovation and excessive PR
    2. therapeutic and diagnostic overkill – teach simple cost saving rules/algorihtms to the residents and at CME … let certain tests (e.g. MRIs) be ordered (or signed off) by specialists only, with the aim of doing exams that change patient management only. Tort reform (every doctor documenting a reasonable effort cannot be found negligent … incompetence and systemic mistakes will be handled by state boards).
    3. If we keep private insurance, companies have to reveal admin. cost and PR … and Rescission
    in its current form has to stop (since it dumps costs and benefits the company only).
    4. proceduralist doctors – doctors should make between 150 to 400 K based on workload, complexity and risk (oncologist making more than dermatologist).
    5. Finacially reward healthy lifestyle that can be verified (ideal weight or weight loss, nonsmoker, compliance with chronic disease management such as normalizzation of BP readings, HbA1c for DM, possibly exercise tolerance)
    6. Tax the wealthy even more – sthg like income above 200 K 40%, above 300 K 43%. I am one of them.

  18. We can agree or disagree on who the winners and losers will be in real reform, but we should all agree that it is counterintuitive to throw $100s of billions at an already expensive system. Not every fix will require big upfront costs (ex. realigning the RVU system to favor cognition and discourage unnecessary testing). If things are done in the right order, the savings will accrue faster than the costs.
    Obama is a smart man. How is he missing this?

  19. “Finding $600 billion from another part of the budget to simply subsidize these out-of-control costs would be tantamount to just raising taxes to keep paying this unsustainable bill.”
    But this is how spineless politicians fund just about everything, and it’s what short sighted voters want them to do – or so it seems. We fund the general fund by robbing alcohol taxes, tobacco taxes, the DMV, the rainy day fund, the highway trust fund (NC), the profits from the state “education” lottery (NC again), the tobacco settlement money (what NC again!). Just as long as voters don’t see you raising THEIR taxes, just someone elses. We won’t get true cost cutting until it’s actually taken from healthcare.

  20. “Families should also enroll in consumer directed health cafe plan with a HSA. That way children will learn how to save money..”
    Let’s see, pay the mortgage (or rent), save for retirement, save for college, now just save in an HSA along with putting enough money away for that high deuctible health plan – exactly which income bracket is this helping?

  21. Health care reforms should start with the family. Parents should be role models for their kids early on in life. they should demonstrate proper diet, exercise, stress relief through family fun time, having 7-8 hours of sleep every day, safe and productive lifestyles, and proper moral values.
    Families should also enroll in consumer directed health cafe plan with a HSA. That way children will learn how to save money at the same time be responsible to take care of their health more. From the family, the whole nation eventually changes for the better.
    Health care reform should also include deregulating the industry. This is will provide everyone with better services and choices. Cost will come down.
    jazmin
    http://www.manhattanlifedirect.com

  22. The US spends 2 to 3 times as much per capita as other developed countries on health care. Other countries cover their entire population and have better health status than the US.
    There is plenty of money in the US health care system. It’s just being wasted on overpriced drugs, devices, procedures, and specialists. We could look at France or Germany or the UK or Canada or any of the other developed countries for a model on what to pay for and how much to pay. The savings could pay for health care for everyone.

  23. Fixing the cost side of our healthcare problems is absolutely the place to begin. Too often organizations try to solve problems by simply throwing additional money at without paying attention to the underlying systemic causes. One of these causes is the manner in which providers are compensated today. By moving towards a pay-for-performance model (or any model that stops rewarding providers for quantity over quality), we can begin to address one such cause.
    Some self-funded employers are doing just this by starting up on-site medical clinics where providers are paid an hourly rate rather than a per-procedure rate, which better aligns the aims of the provider with the aims of the employer (lower costs) and the employee (better quality care). While not a solution for every situation or organization, the on-site model is certainly something that more employers could leverage and the legislators in Washington, DC could incentivize.

  24. I basically agree with Mr. Laszewski but there must be some upfront $ to end the immoral stain on the US of 47 million (and growing?) uninsured immediately.
    The long term fix will require that all factions having to give up something. In some factions quite a bit. (There will be winners and losers)
    As for me the issue that intrigues me most is ethical and compassionate rationing at the end of life. Because not only will there be huge savings around this issue if managed properly,it is the single issue around which patients, providers, organized medicine and our culture can mature.
    Dr. Rick Lippin
    Southampton,Pa

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