Economics

Yes. Employers Really Are to Blame For Our High Medical Prices

I welcome Leah Binder’s earlier post on this blog, written in  response to my blog post in The New York Times. To be thus acknowledged is an honor.

As an economist, I am not trained to respond to Ms. Binder’s deep insights into my psyche, dubious though it may be. Nor, alas, can I delve into hers, fascinating though that might be. Let me therefore concentrate instead just on substance.

First of all, I do not recall calling employers “stupid,” nor did I question their IQ. I do confess to having once called employee benefits managers, when addressing them at some of their usually mournful meetings, “kind-hearted social workers dressed to look like tough Republicans.” At that meeting I contrasted how carefully their company’s tough-minded VP for Procurement, Murgatroid de B. Coverly III, Princeton ’74, purchased paper clips for the company with the much more mellow approach taken by their V.P. of Human Resources to purchase health care for their company’s employees.

Benefit managers – I hate to call them BMs — really are the nicest folks. They care deeply about their employees’ well being (until, of course, the latter lose their job with the company). They worry incessantly about their company’s ever rising outlays for health insurance. And, after a cocktail or two, they regularly lament how rarely they get the attention of top management and of the board of directors – the very folks I once told to go look into a mirror in their search for the culprit behind rising health care costs.

No, when I say “employers” I really mean top management and boards of directors who make the rules. And  I did not even call those mighty ones stupid, but merely “passive payers” as did, by the way, David Dranove on this blog in his critical response to my New York Times piece. Why these usually tough and smart people have behaved so passively in buying health care for themselves and their employees remains a puzzle at the level of economic theory.

As none other than the distinguished Alain Enthoven put it as early as 2003, and later with Victor Fuchs in“Employment-Based Health Insurance is Failing Society“.

I concur. Indeed, if I really had the titantic power over U.S. health power Ms. Binder imputes to me and my academic colleagues, I kindly would have relieved employers long ago of their nettlesome burden of worrying over health-care costs. I would rather just have them concentrate on making the best widgets in the world and sell them to China.

Furthermore, I would grant Americans truly portable health insurance that is not lost with a job at a particular company and I would have afforded Americans price transparency in the market for health care.

Many academic economists have that same dream – perhaps most – but for more years than I wish to remember we have been howling into the wind with these ideas – even with the more modest idea of eliminating the regressive tax-preference now accorded employer-paid health insurance, a dream David Dranove seems to have as well.

I do stand properly accused, however, of accusing employers being party – passive or active, I care not which — to a deal to keep prices for health care in the private sector opaque from the public. Well, haven’t they? After all, they had half a century to flush these prices out into the open. Indeed, I recall that one of the major complaints among employees with high-deductible policies has been the lack of information on prices by provider and procedure.

Ms. Binder assures us that employers have “fought tooth and nail” to get more transparency on prices for employees. I wish Ms. Binder had explained to us their lack of success in this regard so far. Aren’t insurers the hired agents of employers, and should not these agents do as their principals tell them to do? How can principals fighting tooth and nails for something they want from their agents lose that battle?

Finally, I have nothing at all against The Leapfrog Group, being a friend of several of its founders. They, and especially their CEO Binder, are fine, hard-working people truly devoted to improving the cost-effectiveness of U.S. health care, with some successes.

But The Leapfrog Group brings to mind a pictorial model I used during the late 1990s to sum up my impression of the U.S. health system. At that time employment-based health-insurance premiums started once again to rise at double-digit rates. The picture is of a giant elephant lumbering down a jungle path, carrying the U.S. President on one of its tusks, and with people on the ground busily beating the legs of the beast with chop sticks, hoping thus to shove the beast into a more desired directions.

The Leapfrog Group is among the chop-stick wielders called “employers.”

A more current image of the Leap Frog Group in my head is that of a band of U.S. Special Forces doing valiant stuff in the wild mountains somewhere in Afghanistan. Great combat victories in tiny areas, but overall – you get the picture.

Michael Millenson’s, no stranger to this blog, apparently agrees with that imagery.

Uwe Reinhardt is recognized as one of the nation’s leading authorities on health care economics and the James Madison Professor of Political Economy at Princeton University. He is a regular contributor to The New York Times Economix Blog.

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Michael TurpinSuzie QuaternoAmanda GoltzPeter1Phil Christianson Recent comment authors
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Michael Turpin
Guest

In a thirty year career in healthcare, I have witnessed the continuum of engaged to unengaged purchasers. Sadly, generalists are often tasked with making key decisions and there are unaligned incentives to truly act as informed purchasers. It should also be noted that many employers rely on brokers and consultants and unfortunately, the brokerage and consulting business is as variable as the unit cost pricing of a NY MRI. I have served as a consultant, CEO of health plan and part of a management team that spent over $30M a year of healthcare. While expense management and travel procurement was… Read more »

Suzie Quaterno
Guest

Over the years, I have meany times read of the problems associated with free markets, but seldom have I read of such a specific failure that is so well understood. It seems to em that the only way this can come about if the executives concerned are essentially resigned to ever escalating costs and have no interest in fighting it. This may be because when costs escalate across the whole country, every employer is affected equally on a per-employee basis and there is therefore no loss of competitive advantage. So maybe the fault isn’t with the employers as suggested –… Read more »

Al Lewis
Guest

Well, I only deal in facts (and I’m glad you agree with them) but if I insulted somebody I clearly need to apologize, so please tell me who I wrongly insulted (and hopefully this will be a longer list than the number of things you said I was wrong about, n=0) and I will certainly apologize to them, publicly.

Amanda Goltz
Guest
Amanda Goltz

Indeed, readers of your comments are *very* aware that your books are bestsellers. I don’t disagree at all that using current tools for calculating ROIs, some wellness and CM/DM programs fall short of the mark. The Rand study is most notable for demonstrating how limited our measurement tools for wellness programs really are. And I agree completely that purchasers of such programs should demand evidence-based proof of return before their investment. And I’m working to build the data collection system to build a realistic dashboard that employers and others could use to evaluate whether such programs make sense for their… Read more »

Al Lewis
Guest

My apologies for my hysterical off-topic screeching, Ms. Goltz! Please tell me exactly the math mistakes I made in any posting here or in my essays in the Wall Street Journal, Health Affairs, Harvard Business Review, NPR or in either of my trade-bestselling books, and I will happily retract them. And please, you or anyone else, give me the name of one wellness vendor — just one — that is showing savings without making up numbers (like all the ones those aforementioned articles) or comparing active willing motivated participants to unmotivated non-participants, and while you at it please explain why… Read more »

Amanda Goltz
Guest
Amanda Goltz

This is a rich and mostly well-reasoned discussion from which I learned a lot, and I thank Dr. Reinhardt, Ms. Binder, fearless leader Matthew, and most commenters. Two key nuggets which escaped commentary but are profound: 1) that Dr. Reinhardt is not targeting the well-meaning but disempowered HR managers but rather corporate leadership who stand by while operating profit is consumed by healthcare costs and do nothing; and 2) Matthew’s excellent observation about how those same corporate leaders may be getting the big picture right after all, as the share of revenue going to employee costs has held steady. That… Read more »

Phil Christianson
Guest
Phil Christianson

I agree with Uwe. We were on the Board of Editors for the Journal of Medical Benefits in the 1990s. I was a benefits manager for 14 years at Fortune 500 companies. I was proud of what we accomplished, but in terms of making an impact on anything other than our own employee and dependent populations, generally one year cost reductions through better contracts with providers and health plans, or plan design changes, it was a frustrating job. These roles will continue to needed less over time as employers realize they can’t have much influence over cost, quality and innovation.

John T (Jack) Garland
Guest
John T (Jack) Garland

As a retired physician (provider) who for many years paid for insurance coverage for our employees, I have experience “wearing several hats.” I think there is ample evidence that a single-payer system offers the most efficient way to provide health care for EVERYONE. An improved MEDICARE for ALL would remove most of the 30% [$400 BILLION] that is now spent paying people to do things that do not contribute directly to medical care, but serve only to serve the interests of the investors and workers in bloated medical insurance industry. After that, we can carefully investigate which adjustments will best… Read more »

Uwe Reinhardt
Guest
Uwe Reinhardt

Yes, that is the problem, MG. I don’t at all argue that either employee benefit managers or CEOs are stupid, incompetent or not hard working at what they do, nor even that over the years they have not tried to flail at the health-care supply side with this or that local innovation. My point over the years has been that employers are just not well suited to be the sponsors and managers of the health insurance of Americans, in good part for the reason you note, MG. It has been remarked on this blog that there are reasons why “CEOs… Read more »

MG
Guest
MG

I always thought it came down to the simple fact that even if a group of large, self-insured employers really wanted to really change something they simply didn’t have enough the enrollment numbers (employees & dependents and retirees) over a broader geographic area (e.g, MSA) to grab providers attention by effecting their pocketbook.

Jack Lohman
Guest

I haven’t figured it out yet, but why in the hell would an employer want the additional expense of providing healthcare to employees? I’d think that all (smart) employers would prefer a single-payer system like Canada’s, at 10% of GDP, rather than ours at 18% of GDP. But what the hell do I know? I only owned a company for 25 years.

Francois de Brantes
Guest

In my latest blog (http://www.hci3.org/content/hci3-update-field-those-who-cant-teach-administer) I remind all that those who can’t do, teach, and these entries prove the point. Uwe, I’d like to see you spend a quarter in the shoes of one of these Benefits Managers that you belittle. Your comments are the typical snot-nosed comments of all academics who scorn the working class, and yet you’d likely be incapable of performing their jobs. There are many reasons why CEOs have been unable to keep the costs of care from increasing, not least of which is that health care isn’t their business, and so they have delegated the… Read more »

Al Lewis
Guest

Your comment does not address the employers’ many self-inflicted wounds, like forcing their employees to submit to annual screens for the purpose of overdiagnosing and overtreating them because their half-witted benefits consultants can’t bill the time it takes to read the medical literature that says Americans are already overscreened and overdiagnosed.

Francois de Brantes
Guest

I’m not sure that has anything to do with Uwe’s attack on employer-sponsored health care, Al. Even if healthcare were completely nationalized, it’s highly likely that employers would engage in those processes with a goal of showing employees that they care about their health. Second, I don’t think (but correct me if I’m wrong) that there are any studies showing that overscreening of Americans is caused by overzealous employers. So apart from that one, what other “self-inflicted wounds” can you come up with?

Al Lewis
Guest

I was responding to your observation that these people are doing their jobs and creating innovations in benefit design and producing needed change. Wellness programs are precisely the opposite — unneeded change. You don’t need a “study” to identify overscreening and overdiagnosis due to these wellness programs. You simply need to read the results. These people are so innumerate and unqualified that they invalidate themselves right in their own reports. I named three in my Wall Street Journal op-ed last week and my website http://www.dismgmt.com/ida has 25 more. Saying “apart from this one” is like “Aside from that how did… Read more »

Jack Lohman
Guest

>>> “So it’s not really the employers’ fault or the patients’ fault or the providers’ fault. It’s America’s fault.” No, it’s not America, a piece of dirt’s fault, it’s America’s leaders. Political corruption. *IF* we were smart we’d have a system where, if you get sick, you get care and the caregiver get’s paid. But it’s not that simple when profits are at stake, and politicians can get a piece of the action. We have scum at the top, called democrats and republicans, and it may take an armed and bloody rebellion to change it, but that’s our direction. And… Read more »

BobbyG
Guest
BobbyG

Gotta love the accruing exasperated cynicism here. Warranted, I suppose. All part of a larger theme, that of rampant criminogenic corporatism.

Peter1
Guest
Peter1

“All part of a larger theme, that of rampant criminogenic corporatism.”

Historically documented by Hedrick Smith in, “Who Stole the American Dream”.

Dennis Byron
Guest
Dennis Byron

This is an interesting stream of academician navel-gazing, both in the posts and throughout the comments, but when you peel the onion and go back to the author’s original New York Times article, you find the author’s real conclusion (and possibly his fundamental first principle for all his other opinions and conclusions stated here and elsewhere). The author concludes the finding that employers are to blame for high health care costs by stating: “(the likely long term outlook in his opinion) would entail ever more pronounced rationing of quality, real or imagined, by income class. But such tiering has long… Read more »

MedicalQuack
Guest

It’s all about the models and whether one is an insurance company, an HMO, a drug company, etc. they all use models for profit. Each sector wants a profit of course so how all this comes together today with raging algorithms is frustrating everyone. There’s not one entity to blame as it’s a lot of things. Sure insurers have keep the employer insurance going as it’s in their business model for profits. As far as economists, well I agree with the Quants that economists don’t have laws and they just guess as today’s technologies and instability has removed a lot… Read more »

Peter1
Guest
Peter1

Thanks for the links MedQuack, I watched both. We are being manipulated by the 1% because it’s easier to steal money than earn it.

Al
Guest
Al

Uwe, Yes, all of what you say is very interesting and disturbing, but I was referencing third party payer in my comment where the employer buys insurance for the employee. The real payer ultimately is the individual, but with so many intermediaries the real payer is mostly uninvolved. I would be less concerned about the variation in charges and more concerned about how the premium or service is paid for. You mention colonoscopy and I understand Medicare pays hospitals twice as much for their facility charges as they do to outpatient surgical clinics. That is a big dollar difference. Do… Read more »