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POLICY/EMPLOYERS: All you need to know about health care is in this article

Everything you ever wanted to know about the US system is buried in this article in the NY times article called Whose Problem Is Health Care?. The interesting core paragraphs tell you that

    After corporate income taxes, employee benefits are the second-largest structural cost for American manufacturers, adding 5.8 percent to costs, according to the study. In all major economies, paying for health care means a combination of public and private money. But in the United States, businesses pay a larger chunk than do their European and Asian counterparts.

    "In Canada, for example, a lot of the expenditures for health are funded out of general revenues," said Jeremy Leonard, an economic consultant for the Manufacturers Alliance, and the report’s main author. In Canada, the private sector spends 2.8 percent of gross domestic product on health care; in the United States, the private-sector figure is 7.7 percent. And American private-sector spending falls disproportionately on big employers like manufacturers. Some 97 percent of members of the National Association of Manufacturers provide health care coverage for employees. In 2002 alone, General Motors, which covers 1.2 million Americans, spent $4.5 billion on health care.

    Uwe Reinhardt, an economist at Princeton, has referred to General Motors, Ford and Daimler-Chrysler as "a social insurance system that sells cars to finance itself.”

And as Uwe knows, the US government is a mutual insurance company with large military wing struggling with its debt repayment package.

All the other salient facts are that over 95% of companies with more than 200 workers provide health insurance, and only 65% of those under 200 employees do.  And those that do not are the ones paying low wages (i.e. it’s not the law firms or boutique investment banks). So that’s where uninsurance comes from and why 85% of the unisured are the working poor.

The other side of the story is that the US private sector spends 7.7% of GDP on health care. (I think that’s the same as saying that of the GDP, 7.7% goes on health care that is privately funded).  If I recall it rightly some 15% of private sector payroll goes on health care costs. But the overall issue is that although costs are a big deal for employers, they are not the biggest deal and are a realtive low percentage of total expenditures. Contrast that with the role of the health minister in most European countries.  His or her health care bottom line is 100% of what s/he cares about, and also has to be defended from both other government departments and the central treasury in governments that budget centrally, not at the whim of a parliament that can create programs without caring about the overall government budget (as does the US Congress). Hence, no-one in the US is responsible for overall health care costs.

This is not in itself good or bad.  It’s just different, and certain parties, such as large employers, the uninsured and anyone buying their own health insurance, do way worse than they would in a system that didn’t rely on employment-based insurance and had some central cost control.  But don’t worry, if you’re reading this and you don’t fit into that category–perhaps because you work in the health system–it probably means that you’re doing better than you would in one of those nasty single payer countries!

POLICY: Too many physicians? UPDATE midday Friday

We’ve been told by COGME no less that there’s an impending physician shortage, and today I reviewed a whole bunch of material for a hospital that looked like it was true.  However, to put a spike in this balloon, an article published online in Health Affairs by Jonathan Wiener showed that even with extra recruitment over the 1990’s, the large prepaid group practices like Kaiser and HealthPartners still managed to serve their populations with far fewer physicians per 1,000 patients than already exist in the US, let alone the number that will be practicing in 20 years time. And all this with physicians allegedly working shorter hours and seeing fewer patients than in the wider FFS world.

I’ll update my thoughts about this later (It’s late and I just got off the plane!) BUT go give the article a read.

UPDATE. OK I’m off my 3 hours early morning call and can spend a moment extending this post, especially as it has a passing relevance to the project I’m working on.  Here’s the argument:

Way back in the early 1990s those forecasting the physician workforce made some assumptions that the US would move closer to gatekeeper/managed care model.  This type of a model assumed a split between specialists and generalists that’s close to 50-50, and in many countries it’s closer to 20-80.  The model also assumed that there would be fewer surgeries and procedures as the model unfurled.  At that point consultants wondering around with bed days per enrollee of Medicare managed care plans in southern California became a familiar feature of the hospital boardroom (yes, I admit I was one of them).  Essentially if you played out that model nation-wide we had about 75% too many hospitals and a few too few generalists and 50% too many specialists. That future never happened for a variety of reasons, mostly connected with the death of managed care. However we did see a reduction in the number of residency slots, including some teaching hospitals being paid to not train residents.

Instead we started seeing a rash of new procedures and technologies, especially in the unmanaged Medicare population, and the newly unmanaged HMO-lite population. Meanwhile there was a rash of hospital consolidation and bed reduction in the 1990s (although only about 10%). Then the prognositcators started to notice the impending arrival of the baby boom, the leading edge of which hits 60 next year and Medicare in 2010.  So we can do more things to more people and will have an increasing number of people to do them to. They also noticed that medical school applications had fallen (although not the number of those in med school, just fewer candidates for each place) and some surveys showed that most physicians wouldn’t recommend medicine as a career to a new student.  Yet we didn’t fundamentally change our system in the last two decade. So about a couple of years ago you started seeing articles like this one warning that we had a shortage coming and that we needed more doctors, and in fact late last year COGME recommended that we increase the level of residency slots 15%.

Weiner’s article simply points out that we can give appropriate care to a given population with a physician-to-population ratio that is 22-37% below the current national rate.  How do the bigger PGPs do it?  Not apparently by working their doctors harder–in fact they probably work fewer hours. Not by adding more primary care doctors–over the years primary care doc numbers in these groups grew less slowly than those of specialists, although the share of primary care docs remains higher than in the overall physician population. In fact specialty position growth in these PGPs exceeded that of the national average. Instead they use more physician extenders (nurse practitioners and physician assistants) for between 17% and 25% of primary care providers–as opposed to the 10% they represent in the overall primary care provider population. Kaiser in particular uses specialty care nurse practitioners–their growth was 16% annually in the 1990s. They also use more preventative care and disease management programs, probably work their procedural specialists harder (this is certainly the case abroad), and probably do less surgery

Meanwhile Solucient projects strong demand for cardiologists, GI and orthopedics docs while the folks at the Advisory Board (who’ve been known to extend a chart line well beyond breaking point in their time–anyone remember their forecast of 90% capitation by 2005?) believe that there’ll be a shortfall in specialist hours of between 35% for intensivists and up to 70% for cardiologists by 2030. They also have a neat chart in their recent report on physicians which correlates GDP per head in the US with MDs per thousand — in other words the richer we get the more money we want to spend on doctors? (Well that’s one interpretation!)

So how will this play out?  One thing to remember is that thanks to the expansion of med schools in the 1960s and 1970s we are still pumping out docs out of residency programs at about the rate of 20,000 a year, with only about 8,000 a year retiring, and that growth will continue until about 2015.  So the number of active non-federal doctors per 100,000 population, which is about 225 now, will peak at 235 in 2010 and only fall back to 230 in 2020. In a chart which includes NPs and PAs, Wiener shows that while the US now has a total of 230 MDs, DOs, NPs and PAs per 100,000, the big PGPs get by with 145-175. So although the rest of US health care lives in a different world than Kaiser and Group Health, anyone wanting more money for medical school and residency places is going to have to make a pretty convincing argument that they’re really needed–especially with $500 billion deficits out as far as the eye can see.  So, as it takes 8-10 years for a policy change to show up as the first "additional" doc in practice, I believe we’ll work with what we’ve got at least out until 2030 and probably beyond.

Medicare will inevitably have to slowly change its payment arrangementss to reflect this–although that’ll be a touch battle. Private plans are already working on similar ideas, such as pay for performance, and the folks at Leapfrog and IOM are also pushing for changes in the model of care delivery. So slowly over time expect the obvious:

–More use of phsyician extenders, such as other clinical professionals. 
–More and better use of technology to make physicians more efficient and patients better at self-care
–Innovative patient-centered practices that get around the "broken chassis" of the 8 minute office visit, and require less physician intervention
–Longer waits (eventually) for the real hard-core sub-specialists, higher salaries for those guys and more struggles between hospitals for the revenue generating superstars.
–Concominant rationing of the really expensive stuff. Don’t worry–you wouldn’t be able to afford it by then anyway!

POLICY: Health savings accounts-the likely impact

Over at Medpundit, Sydney Smith quotes the WSJ on health care cost breakdowns and argues that HSAs will allow market intervention in the share of spending that goes to doctors and pharmaceuticals, and will bring both that spending under control and enforce market discipline on the providers to give us stuff we want.  The WSJ thinks that what the consumer wants is flash computer-based customer service and they may well be right. There are though a couple of problems with this, and it takes a nerdy wonk like me to point them out. First, it’s unclear exactly what the HSA can be used to pay for (OTC drugs? I doubt it; off formulary drugs? Maybe not in Medicare) so there’ll be less of a market in which it can enforce its discipline than might be suspected. Second, about half of physician costs are connected to other costs that involve hospital stays and surgery–in other words they happen after the deductible has already been blown and the HSA spent, and we’re not talking about 33% of spending but more like 20-odd % of the "market" being "managed" by these new HSA bearing consumers–and that’s assuming that everyone gets one.  The real issue as George Halvorson points out and Milton Friedman despite his many intelligent view points gets wrong is that almost 70% of the money goes on 10% of the people.  That’s where the costs need to be controlled, and there’s nothing in the HSA that can possibly do anything about that.

Now from the other side of my mouth, here’s why I’m getting one.  I pay my own insurance and I have medical expenses that don’t reach my deductible and I’d love to pay those in pre-tax versus post-tax dollars. So for people like me, they’ll grow as a niche insurance product. But I’m only 8% of the market.  64% are in employer-based insurance and they’re beginning to flirt with consumer-directed health plans. Some of these consumer-directed health plans give  money to the employees to put in their HSA. Once employers figure out that giving real money to employees for their HSA’s means taking it away from their self-insurance pool, they’ll either find the next trendy product OR reduce markedly the amount they give so that it is way less than the deductible.  At that point all but the healthiest employees will move back to a more comprehensive plan.

Meanwhile Sydney will have to figure out why she’s creating a understandable consumer price list–and that’s not simply printing out the CPT codes– just for the 10% of patients walking into her office who are now paying with pre-tax but real dollars. My advice is to her is to mark those prices up!

POLICY/INDUSTRY: The value of health care–interesting issue, but appalling analysis

An interesting report was issued yesterday with loads of fanfare by The Value Group. The actual study was done by Medtap, a technology assessment shop for the pharma industry, which was spun out of the Battelle Institute (a kind of mini-SRI or RAND) a few years back. The report says that increases in health care spending are a good thing. And as Mandy Rice-Davies said, "they would say that wouldn’t they!" The consortium that paid for the report is made up of the usual suspects, including PhRMA, the AHA and their for-profit friends at the FAH,, the Advanced Medical Technology Association (AdvaMed), the ACC, and the Healthcare Leadership Council (HLC). I assume HIMA and BIO were too cheap to chuck into the pot for this one.

You can amuse yourself by going to look at this news brief, the exec summary charts or the full report. Essentially it says that although we’ve doubled real per capita health care spending in the US in the last 20 years, we’ve had so many health gains from it that we have made out like bandits from all that extra spending. To wit:

o Annual death rates declined 16%
o Life expectancy from birth increased by more than three years
o Disability rates for seniors fell 25%
o Number of days Americans spent in the hospital fell 56%

Naturally enough there’s even a ready made video that you can run straight onto your cable news show without the bother of having to do any of that journalism stuff. I particularly love the "news-type" voice-over ending "in Washington, I’m Karen Ryan reporting" Reporting for whom? I didn’t realize PR was now called reporting! (Medtap is too embarrassed to put the video on its web site but its clients aren’t!) The video uses the example of a young guy who had a heart attack and got a stent implanted in his heart.  Unfortunately a rather detailed analysis from a Stanford team published last year pointed out that stents actually are a worse deal for the patient over time than having a by-pass. So by that logic we’ve wasted all the money we spent developing stents; but what kind of sour-puss worries about a little thing like that?

And in individual disease states, even more good news. Death rates per 100,00 have dropped for heart attacks from 345 to 186, for strokes from 96 to 60, for breast cancer from 32 to 25 (although for diabetes they’ve gone UP from 18 to 25).  And the best news of all is that when you work out the cost benefit of all this good medical care, we get back $2.40 to $3.00 for every $1 spent!

And funnily enough that’s why the report was created. While I was there a report was done at IFTF (not by me I hasten to add) showing how wonderful the contribution of research-based industries was to the US economy. Although the premise was probably true, the fact that it was paid for only by drug companies made me feel more than a little uncomfortable, and no one from the health team would work on it! In fact by the time it was released the event it was designed to protect against (price controls for drugs in the Clinton health plan) was history anyway. But that’s the reason these reports are commissioned, and consequently it’s worth looking at how they came up with that statement about getting $3 back for every dollar spent.  Here’s the logic–it’s a little dry but bear with me:

    To compute the value of investment in health care, we converted the mortality or life expectancy gains into dollars.  Published estimates of the value of a statistical life (VSL) method of calculating the value of small reductions in mortality risks derived using data on risk-compensating wage differences, consumption activity which affects risk, or hypothetical markets yield values of life that range from $1 million to $9 million (Blomquist 2001). The VOI analysis in this study uses $4 million for VSL, an estimate towards the mid-point of this range. Based on this VSL, a value of $100,000 was used as the net present value of an undiscounted life-year gained and $2,455 as the annual consumption value of an increase of 1 year in life expectancy (Mauskopf et al. 1991, Nordhaus 2002). Using these standard economic values for avoided deaths or increased life expectancy, the value of investment for every $1 spent on health care ranged between $2.40 and $3.00, depending on the outcome chosen (Table 3). The value of investment in health care is positive under a wide range of alternative assumptions. As an example, for every additional dollar spent on health care, the value of the investment remains greater than $1 for all scenarios where one life is valued at >$1.4 million and for all scenarios here a life-year is valued at >$40,000. Alternatively, assuming our base case values of $4 million for the value of one life and $100,000 for the value of a life-year, for every additional dollar spent on health care, the value of the investment remains greater than $1 for all scenarios where at least 40% of the life expectancy gains are directly attributable to the additional health care expenditures. Using a similar methodology, several researchers have computed a value of investment in overall health care expenditures for the U.S. for different time periods:

     Nordhaus (2002) between $1.90 and $2.60 for every additional $1 invested between 1980 and 1990
     Murphy and Topel (2003)  $1.60 for every additional $1 invested since 1970
     Cutler and McClellan (2001)  $3.71 for every additional $1 invested between 1950 and 1990

    These figures are likely to underestimate the value of investment in health since they do not include the value of the morbidity gains from the reduction in disability over age 65 and gains in worker productivity and quality of life attributable to new treatments for specific health conditions. Over the past 20 years, significant gains in productivity and quality of life associated with health care interventions in those under 65 years have been shown for several diseases including influenza, migraine, diabetes, and depression but comprehensive national estimates of changes in U.S. productivity or quality of life attributable to health conditions are not available.

So basically by teasing out the impact of better medical care on life expectancy, then attributing an value to an extra life-year, they claim that every dollar spent returns around $3.  The problem is that this is entirely dependent on what a life is worth, and those calculations are entirely arbitrary, and are pulled from all kinds of sources.  The sum of $4m a life or $100,000 a year they use is more or less meaningless. Let me take a different crack at it.

According to the Federal government, GDP per head in the US is about $35,000 a year. Median income per household is around $45,000 meaning way less per individual than $35,000, but that’s because not all GDP is income. But let’s assume that average person lives 75 years and is worth $35,000 per year, then their life is worth only $2.3 million rather than $4m.  So immediately almost all the gains that the report finds in terms of improved life expectancy have been wiped out.  But wait, it gets worse if you consider that the expectancy gains have been added to the end of people’s lives rather than the middle–and at the end of your life you tend to be retired and earning a considerable amount less each year. Median household income for those over-65 is only $23,000, so you could argue that, instead of being worth $100,000 a year, that year of life saved is worth less than $20,000. Therefore instead of returning a positive ratio of $3 saved for every $1 spent, we are in fact getting only 70 cents for each $1 spent–a record even worse than my stock trading!

OK, my numbers are abritrary and capricious (as are those in the report) because mine are based only on what people earn instead of what a life is "worth" but how about thinking of it in another way.  All that extra spending on medical care has shown improvements in results from as high as a 100% improvement in survival after heart attacks to little more than zero (or less) in the case of diabetes.  Comparatively the computer you could buy in 1980 cost 10 times what the computer you can buy today does and the new one is probably 2000% better.  Why hasn’t all this medical technology shown that level of improvement or that reduction in price? 

Or how about it another way, we’ve spent all that more money on health care, but couldn’t we have got a better return from educating young children?  The answer, by the way is, "yes" both for the societal benefits of early childhood education and for its future population health benefits, as better educated people are substantially healthier than the less well educated.

The overall answer is that this type of analysis is more or less junk analysis and necessarily cannot get at the underlying value of what we are doing in health care.  What we spend on health care is a societal choice (of sorts) and the folks behind this report have a large say in that "choice".  The only real contribution that can be made from this type of analysis is to consider how we should best spend the dollars within the health care system to improve outcomes. In many cases this ends up being bad news for the folks represented by The Value Group consortium, as using older and often cheaper technology often has more beneficial results (as with the stent vs bypass example but also in this aspirin vs statin case). The good news for the industry consortium is that technology and services often do have a beneficial effect and their role should be figuring out which technologies have the most beneficial effects and then to produce more of them.  And to be fair that’s what most of the medical technology industry on the R&D side is trying to do–the marketing folks of course have a different agenda.

The better news for the health care industry is that increasingly people view that these improvements are necessary luxury goods and are happy to help push society’s health paymasters in the direction of paying for them. Understanding the use of health care as a luxury good/service that we "have to have" and trying to steer it in the most beneficial direction is where the real analysis in American health economics needs to be done. The junk economics in this report doesn’t get us anywhere. It might help the industry deflect a question or two about what we’re getting for all the money, but on the other hand it just might provoke a sour-puss or two to cry "bullshit".

POLICY: Health care becomes like foreign policy

You might note that today in the UK the Hutton report on the Blair government, Iraq and "sexing up" was released. More on that later (although it exonerates the UK government from the "sexing up" allegation).

Over at The Businessword Don, Ross and I have been having an interesting back and forth in these comments regarding the uninsurance issue. In a nutshell, if you want a universal insurance system, in some way those who are working and have decent insurance will have to subsidize those who are working and don’t, as they make up 75% of the uninsured. Don, Ross and I agree on that, but disagree about whether we should do it and also how we should do it.  But that is the rational place to start.  We also agree that it’s not a situation that will change any time soon, and that it’s an important part of health care that deserves regular comment. As Limbaugh might say, that, my friends, is an honest platform for debate. But remember that not everything you read in the health care world is quite as honest.

In my in-box today I got a very curious missive from the Foundation for Health Coverage Education a new organization that I’d never heard of (and I tend to follow Foundations in California out of egregious self-interest!).  But OK, these folks say they want to promote education about the many federal and state health care coverage programs in California, which all sounds very worthy, and they have a press release about their new online tool that does that. Wa-hoozlle! 

However, on slightly closer reading I noticed that this Foundation is run by an insurance broker:

    Philip Lebherz has been working to help Californians obtain health coverage since 1977. Although Lebherz is president and CEO of LISI health care insurance brokers, he is strongly opposed to not only tax penalties on individuals or employers who choose not to purchase insurance but also any government mandates to buy insurance.

So I’m already a little suspicious, and then it continues

    Although many journalists have reported between 6-7 million uninsured in California, the real number appears to be less than one million according to the Foundation’s interpretation of a Blue Cross Blue Shield Association analysis of the 2002 Census Bureau (news – web sites). Of the 6.17 million classified as "uninsured," 2.97 million are eligible for public insurance benefits but are not yet enrolled, an additional 2.16 million have annual household incomes of more than $50,000 per year, and 652,000 are temporarily uninsured, primarily due to changes in employment. That leaves approximately 938,000 who would be characterized as truly uninsured.

The Foundation claims that 90% of bills incurred by the uninsured are eventually paid off, and therefore forcing them to buy insurance would deprive them of the ability to buy housing, cars, food etc.  This is indeed beautiful voodoo economics.

So half the uninsured are voluntarily uninsured? Lebherz may not have noticed but the public programs that he thinks are just waiting to take in 3 million Californians have no money–all over the country they are cutting rolls rather than adding to them. Has he heard of our little budget problem and the consequent Medi-Cal cuts?

As for the rest, well the numbers are pretty dubious.  According to Kaiser Family Foundation 64% of the nation’s uninsured come from households with incomes less that 200% of poverty (~$26,000) (go to page 8 in the link for more), and only 19% make 300% or more, which equates to about $39,000.  Somehow in the Lebherz analysis this equates to 35% of uninsured Californians are in households making more than $50,000. But even if that’s right a good chunk of these folks would love to have health insurance but cannot find affordable insurance in the individual market. As I’ve posted before, I know because I’ve tried as have my friends–and I think that paying $4,000 to $12,000 a year for health insurance coverage with a $2,000 deductible and many exclusions is not realistic for many households even those with incomes more than $50,000 a year.

The problem is of course twofold. 1) We end up with very little contribution into the insurance pool from the uninsured, and it’s clear that they could probably come up with at least half of the balance required for the nation to get to universal coverage. And 2) more importantly from the point of view of the safety net system, dealing with the uninsured is a hugely inefficient financial train wreck.

However, the real point of this new "Foundation" is that no rational system would need a huge amount of waste motion otherwise know as the health insurance brokerage market–so any attempt to sell the current system as being "not in any real trouble" is all Lebherz and his ilk care about. So you can just lie and keep repeating the lies and maybe someone will believe you, or as in the UK focus on the irrelevance of whether a single claim was "sexed-up" or not. Oh yes and there really were WMDs, WMD programs, Al-Quaeda terrorists, a bad guy called Saddam in Iraq, and health care’s getting more and more like foreign policy everyday

POLICY: California docs ambivalent about SB2

The poor CMA apparently can’t get it right. It finally gets a quasi-universal insurance bill passed in California that should reduce the number of uninsured showing up at the doctor’s office and yet a bunch of its members (like the LA and San Diego Medical Societies) have noticed that they might have to buy insurance for their employees when the bill becomes law.  So of course the squawking has begun. 

But the math skills of the southern Cal docs may be lacking. Lets say that 25% of their patients are uninsured (which is about the ratio down there). Presumably if that number fell dramamtically, many of the uninsured they are treating will now be insured, and so will be paying so revenues will go up–presumably by up to 25%.  Costs may rise as the office staff need insurance, but insurance does not cost more than 10-12% of payroll. So they should come out ahead. 

And of course if they bothered to read the fine print they might notice that SB2 doesn’t apply to employers with less than 50 employees, and not many solo or small group practices have that many.

POLICY: Notes from my wonderings on Medicare

In New York last week I had a great visit with my old colleagues at Harris. Humphrey Taylor had some new data showing that flu vaccinations don’t seem to work. Meanwhile Bob Leitman broadly agreed with me that we can’t expect anything much out of the next Congress no matter who wins the Presidency as, there may be as many as 5 Senate seats in the south that go over to the Republicans, and so the Congress itself will be to the right of this one. However, by 2008 things may be different. By then the TROOP and the donut hole will be familiar to the NASCAR dads (the southern males who vote Republican but economically should be Democrats).  Also, by then the first tranche of the baby-boomers will be retired (if they can afford it) and two years away from Medicare.  And they will be finding the individual insurance market increasingly difficult to deal with.  Meanwhile Medicare will be entering its most costly phase–the run up to 2020 when the peak of the baby boom hits 65. At that point wider appetite for reform financially from the fiscal hawks and from the baby busters who’ll be paying for this may meet the interests of the soon to be Medicare recipients who don’t like the benefits the way they are.  Some where in there is the subject of the real debate and therefore the seeds of a real compromise for a workable solution.  Maybe.

POLICY: 1991 redux? NY Times discovers health care crisis, Democrats response to it

Apparently there’s a health care crisis going on. 43 odd million uninsured, (that’s at any one time–25 million basically permanently 80 million for some substantial time in any 4 year period), costs going through the roof (premiums up 8% over inflation in 2002 and more last year), and Medicaid coming under the knife. Oh, and seniors hate the NAIM (new and improved Medicare). The NY Times reports that the Democrats all have their health care plans and are taking them seriously. However, there are two minor differences between 2004-6 and 1991-4:

a) With the exception of the three outsiders’ single payer plan, none of the "main" Demo candidates proposals gets to universal coverage.  Don’t forget these are proposals.  And as you know any Presidential proposal will get watered down over the course of the negotiations in the Congress–especially in a Republican Congress.  So if, to pick on one suspect, Dr. Dean’s proposal will take us from 86% insured to 92% insured, the actual result may be to go from 86% insured to 91% insured–and that he’d regard as a victory.  It’s impact on the hard core uninsured and the providers who have to deal with them would be close to unnoticeable.

b) It’s not 1991.  We haven’t just won the cold war and can now concentrate on the peace time economy.  We’re involved in a never-ending "war" that whatever your view on it will be the main event in elections form now to 2006 and beyond.  Health care will be a poor second till the mass of NASCAR dads (the ones in the South who economically should be Democrats but culturally are conservatives and decide Presidential elections) get closer to retirement age and notice that they might need Medicare and Social Security.

In the meantime Bush is pushing his $89Bn tax break for the uninsured to buy their own insurance really hard.  I think he’s mentioned it twice in three years!

PHARMA/POLICY: New word for the day

Just a quick post as I’m traveling all day today. Yesterday I heard a new Medicare term to do with NAIM ("New and Improved Medicare"). The word is TROOP, which stands for "True Out of Pocket"costs. Those are the costs that will actually be recorded against your deductible and the donut hole for your yet-to-come Medicare drug coverage, and as you might suspect, it may not included everything you might think!

POLICY: Medicaid as the vehicle for Republican health reform?

So please welcome yet another anonymous contributor, this one we’ll call Jones the Policy Wonk.  The Wonk took exception to my recent post which suggested that "big" health care reform would be absent in the next administration whether it was Bush, Clark or Dean at the top. (Don Johson at Businessword indirectly chides me for leaving out Gephardt’s plan, but besides my admiration for Kucinch taking a bold non-conforming stand, I am a realist and Dick Gephardt ain’t got a shot either! The Geek seems to me to be in the Paul Krugman camp who think that the current Administration wants to "starve the beast" (scroll down to #3 here to learn more)–that is, run deficits so there’s no money for moderate income people’s programs like SS and Medicare so those people will turn against the government. Anyway, the Wonk gets her name because she understands Medicaid very well, not because she said I was wrong about no big health care reforms coming. Here’s what she suspects is coming from Bushco in the next couple of years:

    First, I think Bush will unveil some kind of tax credit for individuals, and while it will be deeply flawed policy, it will make for excellent political soundbites.  He’ll run on that and "I fixed Medicare!"

    I see the following happening:  An agenda of caring for the uninsured, which encompasses:
    #1 Med malpractice reforms–it’s ideologically desirable and the right kind of "malpractice reform" would undercut a huge source of funding for Democrats (trial lawyers).  It’s going to be a senate battle, and depending on how well Edwards does in the election, med mal could move WAY up in the agenda),
    #2 some kind of tax credits scheme (probably similar to the TAA bill), and
    #3 Medicaid Reform (largely an intragovernmental fight, and I think the White House will lose).

    My guess that they’ll go to Medicaid is just a guess, but it makes sense–
    Hint #1:  Dennis Smith, head of Medicaid, rather than Leslie Norwalk, currently the acting #2 person at CMS, was tapped to "temporarily" to take over Scully’s position.  I’m reading tea leaves at the Kremlin here, but it suggests to me they’re looking for someone conversant in Medicaid policy, and with the credibility and connections of a former state Medicaid director (Virginia) to push through reform.   

    Hint #2–Bill Frist has said his #1 priority will be helping the uninsured. This doesn’t only suggest tax credits for low-income people.  Interestingly, when George Bush made his initial push for Medicaid reform in August, 2001 he linked it to decreasing the number of uninsured. 

    Rationale for Action: Because of the Federal match, the Federal government has almost no control over the annual budget line for Medicaid, and states love to spend through Medicaid.   Richt now, Medicaid growth is really being driven by medical inflation, esp in the care of long-term disabled and elderly dual-eligibles.  So, the question isn’t "why is Medicaid spending increasing"–all healthcare spending is increasing.  The question is: "why don’t states slash their Mcaid budgets?" 

    States are decreasing Medicaid spending (or, more often, decreasing the rate of growth in spending), but less than one would expect.  This is because aside from all the traditional political pressures against cuts (industries dependent on Medicaid  like pharma, hospitals, nursing homes, etc//political fallout of cutting benefits for poor people), every dollar of state spending through Medicaid is matched federally on a 1:1 or greater level (depending on how poor a
    state is).  So, a Medicaid budget of $100 million  represents (at maximum) $50 million in state spending, and $50 million in free federal dollars.  In most states, every dollar spent on Medicaid brings in way more than a dollar in federal matching funds.

    As a result, states have done things like classify state funded programs as part of Medicaid (eg: NY put its entire developmental disability system in Medicaid), to get the federal match on state spending they were going do even without the match.  Additionally, some states have engaged in fantastic accounting gimmicks with Medicaid to effectively draw down "match" federal dollars that could be used for any purpose.    

    So, the problem from a Bush Administration standpoint is that federal Medicaid spending can be infinitely expanded (states just get a waiver), and there’s not a lot of accountability for where the money goes (in theory, there’s accountability, but in practice not really.  Lots of states, you know.)  So, as you go farther and farther out, it’s gets harder and harder to predict Medicaid spending because you have the typical uncertainties of medical spending growth, but also the uncertainty of "Will California one day declare universal healthcare through Medicaid?" 

    In addition, there is some argument that federal regulations are too onerous.  IMHO, this is a red herring–most of the regulations really prohibit states from slashing benefits to the truly poor, and from providing benefits in a discriminatory manner.  Furthermore, you can always get around them with a good reason and a waiver.  Additionally, if the feds think the federal regulations are too burdensome, they can just not enforce them.  Grant waivers to everyone, for everything.  Problem solved.   

    So, the Bush suggestion is that states should take a block grant instead of a match, in exchange for increased flexibility.  It’s supposed to look like "managed care" for states–they get a block grant and all the flexibility they want to design their programs however they want.  However, the danger is that this will look a lot like "managed care" ended up–capitation with ruthless enforcement of spending caps, and not so much delivery on creating a better, more integrated system.  There’s already sufficient pressure for efficiency–states DO have to foot about 40% of the bill, and with the shortfalls they’re suffering, it’s significant.  So, the "taking on of risk in exchange for freedom" analogy that the Bush Administration is pushing is fundamentally flawed–they already have enough risk to motivate them to maximize efficiency, and they have enough freedom to get the job done. 

    However, it is strongly analogous to employers moving from a "defined benefit" system (we provide insurance to our employees) to a "defined contribution" system (shoot, we don’t know HOW much this damn insurance is gonna cost next year; let’s give all employees $900 annually to buy into a plan)

So there you have it. According to the Wonk, the next Bush administration will dump more people and less money into Medicaid, declare more or less universal coverage victory and go home.  My sense is that this won’t get off the ground politically because it runs into the roadblock of the southern strategy.  Most of those states relying on Medicare match for more than 50% of Medicaid spending, and the ones that get the most pork anyway, are the central and southern "Red" states. It seems unlikely to me that an Administration with almost no interest or appetite for significant policy reform domestically (i.e. outside Baghdad) and showing very little interest in fiscal restraint, will start down this path by upsetting its core supporters. But if I’m wrong the Wonk‘s theory does have a suitably neo-con ring to it!