In case you missed it at Ross’ site, here’ Uwe Reinhardt’s guide for journalists ot the health care debate. Brilliant, and rather tragic. More at his site.

In today’s post I risk upsetting The Veteran even more, by featuring a new comment from Joe Crea, a doc who’s run off to academia and so doesn’t need to care what anyone thinks of him! Joe is peeved at my comment in Friday’s post that:

Hence I’m told again and again that government healthcare would be inefficient (as I heard from a Democrat I met tonight), despite the fact that Medicare’s admin costs are 3% while private insurance’s costs are 8-15%. You’d think that the onus would be on the defenders of the staus quo to show why a change would be worse.

I later went on to say:

But it is a long way from being a government dictated-system like that of Canada or the UK. Given the record of American private health care, that may be a bad thing…

Joe thinks that there is a flaw in my logic:

One of my pet peeves is the presenting of “the fact that Medicare’s admin costs are 3%” without appropriate qualification or explanation. I have attached such a succinct qualification here, courtesy of Healthleaders.

“Medicare overhead has the appearance of a gold standard: 2.1 percent overhead compared to a commercial average of 13 percent and a “best practices” company commercial average in the range of 5-8 percent. Medicare clearly has economies of scale, but its overhead figure is a bit misleading. The average per-member-per-month premium for commercial HMOs in now in the $200-$250 range, while the typical PMPM for Medicare is in the $600 range. If the Medicare PMPM were $200 rather than $600, then it would have an administrative overhead of 6.3 percent rather than 2.1 percent-still very good, but not out of the range of the very lowest-cost private insurers.

“For that relatively low overhead, Medicare offers only a single product (little choice except in urban areas where Medicare+Choice is available), provides limited medical management (and that seemingly by lawsuit), conducts provider contracting by fiat (negotiations take place in Congress), and has almost no marketing costs (no competitors).”

The other two things that are not mentioned are the hiding of the debt service to other areas of the government, and the shifting of administrative costs to providers by way of mandates and voluminous paperwork.

Now the article Joe references does take a look at the “best practice” plans with the lowest medical loss ratios. They tend to be big monopoly Blues in rural states, or staff/group model HMOs which practice shoulder to shoulder restraint (or push medical management doen to the physician level). But with the exception of Kaiser they are not the core private health insurers that dominate the national market. Those guys not only have very high admin costs (or in the jargon “low medical loss ratios”) but are making them higher. Following United Health Group raising its profit forecasts CBS Marketwatch reports that Health insurers (are) getting bigger cut of medical dollars:

From 2000 to 2003, medical loss ratios for the 17 companies dropped from an average of 84.8 percent four years ago to 81.5 percent last year. So while medical expenses have increased, the proportion of dollars devoted to them has dropped.

So for the bigger players getting bigger, more money is sticking with them, so adminstrative costs are going up not down. And, duh, that’s the way the system is designed. Everyone at Anthem, Pacificare, Wellpoint, Aetna, etc, etc is incented to try to reduce their medical loss ratio.

Now that might not be such a bad thing if they were truly managing care, auditing for quality, and increasing the amount they’re spending on administrative functions in order to reduce the amount being spent on medical care. But if you think that’s what they’ve been doing for the last 5 years, you really haven’t been paying attention. I talked to a VP of HR at a very, very big telecoms company last week, and she disputed my notion that the health plan’s clients (like her) haven’t been holding their feet to the fire. She claimed that they’d done huge amounts to try reduce their costs. I said, “Tell me another industry that supplies you from which you’ve accepted 15% annual increases in costs for no perceived additional benefits for the last 5 years in a row?” The HR VP went very quiet.

Now maybe Joe is right and we should be calculating Medicare’s admin charge on its higher cost per case. But even at 6% it looks pretty good compared to all but monopoly Blues plans. In other words Medicare and those plans all share a bunch of characteristics leading to their low overhead (from the same Healthleaders article):

• Economies of scale in a single state (Blue Cross Blue Shield of Alabama and Blue Cross Blue Shield of Tennessee)
• A narrow geographic focus (Capital Group, Fallon, Kaiser)
• Off-loading medical management expenses to capitated medical groups or IPAs (Kaiser, Fallon, Capital Group)
• Market leader position (Fallon, Capital Group, Blues of Alabama and Blues of Tennessee), lowering marketing costs
• Comparatively narrow product offering (Fallon, Capital Group, Kaiser, BCBS of Alabama)

I’d actually dispute Joe’s point about Medicare off-loading admin work to providers. Given the lack of UR in the Medicare system I think it off-loads less admin onto providers than private insurers–certainly it doesn’t create more. And because it’s so big and only needs things done one way, it’s a lot less work for providers than dealing with 5-10 plans of the same cumulative size who all want things done just their way (the thing that HIPAA simplification was supposed to do). But even if he’s right, Medicare’s adminstrative cost is as low as it is because of all the things he finds so terrible such as being able to set its own provider rates, only offering a limited “product” line up, limited medical management, etc. The problem is that private health plans are “charging” through the nose to deliver all those things and yet it just costs more and more with no apparent gains. And those “charges” are increasing (or the MLRs are going down).

So let me ask one more time. Why is the onus on the government program to prove that it is more administratively efficient than private plans when it already is, and they are getting less efficient?

Coda: I don’t want you to think that I’m a huge fan of the way Medicare works. I think it needs drastic changes, including upping its oversight of the system and changing the way it pays providers to a performance-based reimbursement system. And I said as much in the very first post of THCB. But given its huge clout and the government’s ability to change the law, I think a reformed Medicare could do that in a way that will improve the care delivered at a lower cost, bloody battle though that’ll be. The private plans’ record of the the last 5 years shows no sign that they could.

Bush has certainly been attacking Kerry on his health care program. Jonathan Cohn is an editor at the New Republic who specializes in health care and is currently a Kaiser Family Foundation media fellow. For those of you who don’t track the political leanings of the weeklies, the New Republic is the Clintonian Democratic magazine, way to the right of the leftish The Nation, while far to the left of the conservative National Review. Cohn’s latest piece has been reproduced on CBS web-site which may (or more likely may not) hint at whom CBS’ parent Viacom wants to win the election.

In any event he does a much better job than Kerry has done himself on crying bullshit at Bush’s attempt to call the Kerry plan a government takeover of health care. In the article called A Guide To Bushspeak On Healthcare Cohn says:

The Clinton health care plan really was a government-run health plan (albeit one that was hardly the menace its critics warned it would be). That’s simply not the case with Kerry’s health plan, for reasons that I (among many others) have already written about. Today, in fact, a group of 68 health care policy experts led by Mark Peterson at the University of California at Los Angeles, released a petition calling upon the Bush campaign to end its gross distortions of Kerry’s plan. “Although Senator Kerry’s proposals should be subject to a full analysis of their cost and impact, any claim that they amount to ‘government-run health care’ or a ‘government takeover’ of the health care system or of health care decision-making is simply inconsistent with the facts. We are not aware of any expert in health care or health care finance, whatever his or her political orientation, who believes otherwise.”So why would Bush produce an ad like this – and continue to raise the specter of “government-run health care” – even though the charges are now widely known to be false? Because he keeps getting away with this dishonesty.

Meanwhile the 68 academics that Cohn quotes as opposing the Bush rhetoric represent a middle of the road group of health care economists. The only notable exceptions are Alain Enthoven of Stanford (although his one time colleague Richard Kronick is in the group) and Mark Pauly of Univ. Pennsylvania, the foremost defender of the status quo of the healthcare market. It’s also missing a certain (ex) Stanford Business School professor called Mark McClellan, who’s written extensively about health care and seems to know a thing or two about it. He might want to want to sign this too, but I think his boss might be a little unhappy with him!

Part of the problem is that both sides get their say on the talk shows, with no one (aside from the Columbia Journalism Review or John Stewart) being able to say “this is true — that isn’t”. On a personal note I tend to be able to demolish many arguments I meet with from people complaining about, say, Canadian health care or how inefficient the government program would be, by quoting referred studies that tell the truth. (It’s good to be a researcher wonk when these arguments come up). But there are two problems. One is that a well-financed opposition can cite its own fake studies, and two, no one gives a dam about studies when they have their own fears and anecdotes to back them up.

Hence I’m told again and again that government healthcare would be inefficient (as I heard from a Democrat I met tonight), despite the fact that Medicare’s admin costs are 3% while private insurance’s costs are 8-15%. You’d think that the onus would be on the defenders of the staus quo to show why a change would be worse. But instead–and I realize why–Kerry is running away from any program that could be described as a “government takeover”, even though a rational candidate should be able to defend it. And if I hear Bush say one more time that we have the best healthcare system in the world…..well to say the least he needs to be told by someone that there is a difference between having the most technologically advanced medical spottily applied, and having the best health care insurance and delivery system. There’s a reason we’re ranked number 37 by the WHO, and it’s not just that they’re a bunch of cheese-eating surrender monkeys.

Believe it or not, there’s a very detailed and fair explanation of the Kerry plan by the Heritage Foundation (they of the vast right-wing conspiracy) which goes through it line by line. Heritage of course prefers a consumer-based HSA-type system and (as debated ad nauseam on THCB) as that’s not part of the Kerry agenda they don’t approve. But despite their many criticisms of the Kerry plan, they represent it mostly fairly, unlike their friends on the Republican national committee and at the AEI. They say:

Based on independent estimates, it appears that the Senator’s proposals would significantly increase federal health care spending while sub­stantially reducing the number of Americans who are without insurance coverage. At the same time, he would refrain from undertaking any substantial reform of either private health insurance markets or government health care programs, including Medicaid.

Another detailed commentary on the plan comes from Jeff Lemieux at Centrists.org. Lemiuex’s extremely long examination of the plan suggests that it could be basis for bi-partisan reform to the system, as it relies on a mix of government and private action (or liberal and conservative ideas).

While I’m increasingly convinced that Kerry will win a very close election, I’m inclined to doubt that he’ll get anything like his plan past a Republican house and a very evenly divided Senate. So his plan is a starting point which may–if anything passes and that’s a longshot–work to get more people at the bottom into public programs, allow those in the middle to buy into the FEHBP, and slowly implement DSM programs and other cost saving methods into a more regulated private sector (and hopefully into Medicare too). But it is a long way from being a government dictated-system like that of Canada or the UK. Given the record of American private health care, that may be a bad thing. But the point is government-run health care can’t survive the political rhetoric here. It would be nice if just occasionally Bush would talk something akin to the truth about this issue, but then again why break a 4 year habit?

Ross at the The Public Health Press has a just excellent summation of the flu vaccine issue, in the context of the two rather odd replies from Bush and Kerry to that question in last night’s debate.

Harvard economist Anna Sinaiko has an article in Health Affiars suggesting that the SB 2 (or Prop 72) “pay or play” law will cause unemployment and reduced wages for those Californians it covers should it pass. Her analysis is manna from heaven to those opposing the bill. Here’s the key conclusion.

Implementing SB 2 will change the behavior of employers affected by the legislation, with consequences for California’s labor market and uninsured citizens…A more likely scenario is that some of the cost of health insurance will be passed to consumers, some felt by workers as unwelcome wage reductions, and some avoided by firms as they restructure their workforces. In California, workers at firms not offering benefits are more likely to be young males earning less than workers at firms that offer insurance; SB 2 will affect this group most adversely.

As a forecaster I was trained to that there’s a big difference between being broadly accurate and precisely wrong. Sinaiko’s detailed analysis of Prop 72’s likely impact falls into the latter category. Increasing labor costs (which is what SB2 will mean) may result in overall lower wages, but increased labor costs are more likely to result in lower profits. Sinaiko never mentions profits as a share of corporate revenues. A senior VP from Fidelity said, in a talk I heard on Monday, that corporate profits as a share of revenues are currently at an all time high, while wages are at their lowest in real terms for 30 years. Why should the costs of SB2 come out of wages rather than profits, given that one of them has been going up and the other down?

Sinaiko correctly points out that the vast majority of jobs affected by SB2 cannot be moved out of California, unless San Franciscans want to drive to Reno to get a cheeseburger. So the total amount of money going into these businesses is likely to stay roughly the same. She almost neglects to mention that the wages of many of those covered by SB2 are at minimum wage or the equivalent (and legally enforced) “living” wage in some cities, so their wages can’t be reduced, and the cost of hiring and managing more part-time employees may exceed the increase in labor costs from SB2.

The broad analysis tells us that, whatever the libertarians say, laws demanding an increase in the lowest levels of compensation (which is in effect what SB 2 is) have almost no impact on unemployment rates, which are driven by the overall economy I lived in the San Francisco Bay Area in 1999 when no amount of money could hire people. I was here in 2002 when you couldn’t get a job no matter how little money you’d work for. (And according to another talk from a different Fidelity executive, all the jobs that could be, had already been moved to India). At both times the minimum wages was the same. In the UK the Labour government brought in a minimum wage in 1999. Today the unemployment rate in the UK is the lowest it’s been since 1972, and studies show no negative impact on employment among low wage workers.

Common sense also suggests that the people who oppose Prop 72 think they have something to lose. Who are those people? They are the big fast food chains and the non-unionized discount stores, who have spent over $8m against it. If they believe that they’ll be able to push all the costs of Prop 72 into their “labor” segment and have none of it come out of their “profit” segment, why would they bother opposing it?

UPDATE: Health Affairs has published a rather more academic version of this letter in its online section.