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Market Failure in Health Care?
October 2009
Four years ago then-Senate President Peter Welch, now Congressman, declared, not for the first time, that “the private sector approach [in health care] has failed.” That assertion has been echoed repeatedly by all of the advocates of increased government control over health and medicine, culminating in a wholly government run health care system.
It never seems to occur to such people that, while there remain private actors in the health care sector, that entire sector has been distorted, restricted, mandated and indeed corrupted by decades of government meddling.
A century ago the American Medical Association, concerned that a glut of new doctors would drive down doctors’ fees for service, conspired with doctor-dominated state medical licensing boards to restrict access to medical schools and limit the number of emerging MDs.
Through most of the 20th century – and even still - the physician’s guild successfully pressured their state boards to strictly control routine medical duties provided by nurses, deny licenses to doctors working on contract for fraternal lodges and cooperative hospitals, and discipline doctors using new technology that threatened to lower treatment costs and thus fees.
Responding to pressure from interest groups, legislatures have insisted that health insurance policies cover over a thousand specific treatments. These include such things as in-vitro fertilization, hair replacement, pastoral counseling and childbirth – even for single men, infertile women, and couples in their sixties.
Even more premium-inflating are guaranteed issue and community rating. The first of these requires insurers to accept all comers, even those who skip buying insurance until they get sick.
The second requires young people, just at the lower-income beginning of their working careers, and paying for college loans, home mortgages, and child rearing, to pay sharply higher premiums for the benefit of their sixtyish parents and grandparents who are almost inevitably better able to pay health insurance premiums. These “Robin Hood in Reverse” features are key provisions of ObamaCare.
Then there is the disparate tax treatment of medical expenses. Thanks to wartime wage and price controls imposed by the Roosevelt administration in 1943, employer-provided health insurance became tax free to the employees. That benefit tied health insurance to employment, gave the power of choice to the employer, and denied portability when employees changed jobs. Individual insurance buyers must pay their premiums out of (diminished) after tax income.
Tax free Health Savings Accounts, authorized by Congress in 2003, unfortunately cannot be used to pay premiums on the associated consumer driven health plans.
Local citizen groups – based on churches, unions, fraternal lodges, and coops - might want to form health insurance buying pools and negotiate with insurers for good rates. State governments have made that illegal since the 1930s.
Why not let Vermonters buy health insurance from carriers in the many states with far more reasonable insurance regulation? Many thousands of younger working people could save over two thirds of the cost of premiums they are now paying to Vermont’s two remaining carriers. Forget it. No state presently allows its licensed carriers to accept bargain-hunting out of state customers.
Modern pharmaceuticals can work wonders, but the cost of gaining FDA approval of a new drug runs well over $800 million. That’s because the 1962 Kefauver amendment requires new drugs not only to be proven safe, but also effective. This ambiguous requirement dramatically escalates the cost of clinical testing, much of it now done in cheaper Third World countries. The large drug companies are happy with this requirement, however, because it erects an enormously expensive entry barrier to new drugs developed by their smaller competitors.
Government drives health care costs far above market prices by sending millions of Medicare and Medicaid patients to health care providers, and paying far below the actual cost of the services rendered to them. Hospitals, required by the Hill-Burton Act to accept every patient that comes in the door, have no choice but to shift their losses into the price of care provided to patients with private insurance. This is the single most important factor in driving up private health insurance costs – far, far larger than the unpaid bills of uninsured patients.
In most states, many doctors – especially obstetricians, anesthesiologists and neurosurgeons – face staggering medical malpractice premiums. This results from courts and juries imposing extravagant pain and suffering awards. The threat of malpractice litigation also leads doctors to run up the costs (“defensive medicine”).
The high costs of health care and health insurance are due to market failure? Let’s call it what it is: it’s the failure of government, politicians and interest groups to allow competitive and efficient markets to satisfy consumer desires.
Get Ready for the Obama Individual Mandate
October 2009
With President Obama’s government-run “public option” insurance proposal on the skids in Congress, attention has focused on an even more central part of his sweeping health care plan: the individual mandate.
“Individual mandate” means that every person subject to it must buy a government-approved health insurance policy from a government-regulated insurance carrier. Or else what? Or else they must pay the government a “fee” for not being insured. This “fee”, in the most recent Senate bill, amounts to as much as $3,800 a year for a family. If you willfully refuse to pay it, the government has the power to fine you another $25,000 and put you in jail for a year.
Here’s a brief tutorial on the issue.
Government (mostly state government) regulates the sale of health insurance policies. Policies must have government-approved coverage and include a host of specific government-mandated terms and benefits.
Many states (including Vermont) require community rating. This means that healthy young people must pay higher premiums to enable the insurance company to pay the health care expenses of their less healthy parents and grandparents.
Many states (including Vermont) require guaranteed issue. This requirement forces the insurance companies to offer coverage to all applicants (except that pre-existing conditions aren‘t covered until after a waiting period, to discourage people from skipping insurance until they get sick.)
Coverage mandates, community rating, and guaranteed issue drive up the cost of premiums. So many young working people, basically healthy, can’t or don’t buy coverage. They are the largest component of the uninsured.
When the uninsured do have a health problem, they show up at the emergency room. Federal law requires the hospital to treat them, whether or not they can pay. The hospital factors this uncompensated care into its state-regulated rate structure. This shifts the cost of uncompensated care onto the premiums paid by people with private insurance.
At the same time the two big government insurance programs – Medicare and Medicaid – seriously underpay for those they cover. These underpayments, far larger than non-payments of the uninsured, produce even greater cost shifts to private insurers, making insurance coverage even less affordable for many young workers.
President Obama’s solution to this is the individual mandate: “You will buy a government approved insurance policy, or you will be fined/taxed/jailed until you comply.”
He also wants to prohibit insurance companies from denying immediate coverage for preexisting conditions. But this is very expensive. The only way to cover such expensive enrollees is to find more people to pay into the insurance pool, who aren’t likely to require much treatment - the young and healthy who can’t or won’t buy insurance.
The insurance companies fear the government will force them to cover expensive pre-existing conditions. Without the premiums paid by young and healthy new enrollees this mandate could put them out of business. So they are strongly in favor of the Obama individual mandate. For them, the individual mandate becomes a pre-emptive government bailout.
What’s wrong with this proposal?
In the first place, Congress has no power to force Joe and Betty to buy a product specified by the government, or pay a tax. The taxing power cannot be used to force regulations on Americans, where the federal government has no constitutional power to regulate.
All of the bills in Congress specify that a person can avoid the tax only by buying a government-approved policy. Every special interest – prescription drugs, substance abuse, mental health, in vitro fertilization, pregnancy, abortion – will lobby furiously to make sure the approved policy includes their money making product.
This will of course drive up the cost of that product. President Obama proposes subsidies to people whose incomes are not adequate to pay the inflated premiums, and the taxpayer cost of these subsidies (and resulting deficits) will escalate accordingly. Ending “uncompensated care” will come nowhere close to yielding enough savings to cover these subsidies.
The approved policies will clearly not include the increasingly popular lower cost, high deductible health plans coupled with tax-favored Health Savings Accounts. The House bill doesn’t repeal the HSA language, but it imposes an accrual requirement designed to make sure that no such policy can be sold on the government-run monopoly insurance exchange, or qualify for the premium subsidies. Eight million Americans with HSA plans are a significant obstacle to expanding government health care, and the liberals in Congress are eager to eliminate their influence.
Obama’s protests to the contrary, his proposed “fee” on the uninsured is a tax. Even some of his own officials and the Congressional Budget Office recognize that fact. It’s a clear violation of his firm campaign pledge not to raise taxes on Americans making less than $250,000 a year.
The September 22 Wall Street Journal poll found respondents opposed 57-38 to an individual mandate. There are more reasons than liberty, constitutionality, cost, taxation, jail, corporate welfare, and reverse Robin Hood economics to oppose an individual mandate, but these ought to be enough.
The Real Message of ObamaCare
The national debate over health care reform has taken some unexpected turns.
As more and more people have begun to grasp the import of the sweeping bills put forth by Congressional Democrats, outspoken resistance has become an epidemic.
Images of uproarious town hall meetings have filled the TV screens. Many Democratic members of Congress seem to have gone into hiding. Surprised and alarmed, the Left has launched an intense counterattack.
n one ludicrous counterthrust, the Left claimed, with zero evidence, that the protesters were paid shills for the health insurance industry (that had just cut a deal with Obama to support his individual mandate proposal.)
President Obama, seemingly startled to learn that the people of this country don’t seem to be taking kindly to his efforts to socialize the nation’s health care industry, sternly admonished critics to “don’t do a lot of talking” and ”get out of the way” That’s a bit ominous, coming from the President of the United States.
Senate Democratic Leader Harry Reid coined the phrase “evilmonger” to describe critics of his party’s grand plans. Democratic House Speaker Nancy Pelosi offered her view that the same folks were ”un-American”.
It’s also amusing to note that suddenly, beginning about ten days ago, the Obama White House has been frantically chanting “competition and choice”. When liberals extol “competition and choice”, it means the government will compete against the private sector until it gains a monopoly, and employers will have the choice of scrapping their health care plans and turning their employees over to a government insurance program that the employees don’t want any part of.
There is in all this a message that President Obama badly needs to hear.
Millions of Americans have caught on the scheme that’s afoot in Washington. It’s a witch’s brew of:
- a federal mandate on every American to buy an insurance product that the federal government decrees is good for them (or it), with serious penalties for noncompliance.
- a new Medicare-type entitlement for the under-65, when Medicare is $37 trillion out of actuarial balance and will start outspending its revenues next year.
- a national insurance exchange that will allow insurers to offer only policies containing costly Federally-prescribed “essential benefits” and mandates, lobbied into the legislation by a host of special interests.
- an effective repeal of the increasingly popular tax-advantaged Health Savings Accounts (liberals hate HSAs because they put patients in charge, not government regulators).
- an effective repeal of the ERISA act of 1974, that allows larger employers to control their own insurance coverage.
- a “public option” government insurance company that assuredly will undersell its private competitors through a range of subsidies and preferences, impelling employers to drop their plans, pay the new penalty tax, and dump their employees into government health care.
- a government-issued health care card that specifies just what medical services the government has determined that the bearer is eligible to receive.
- over $500 billion in reduced payments to doctors and hospitals over the coming ten years “ with harmful consequences for seniors and the poor.
- a trillion dollars or more in additional ten-year Federal deficit spending, on top of Obama’s astounding $1.7 trillion deficit in this fiscal year alone. After 2019, the health care deficit takes off like a rocket.
- increasingly explicit government-mandated rationing that is unavoidable whenever a large bureaucracy with finite tax dollars faces near-infinite demands. As a British National Health Service official observed, “Money isn’t limitless, so we need to make sure the money we have is spent on things which offer more than the care we’ll have to forgo to pay for them.”
No wonder millions of Americans are up in arms.
The stated reason for all this is to expand insurance coverage, improve health care, and curb deficit spending. But more and more ObamaCare has come to look like a naked grab for total government control over the nation’s health care sector.
Above everything else, liberals believe in the wonder-working power of government - regulatory, coercive, punitive, monopolistic - in the service of their approved ends. They cannot tolerate economic and political power widely distributed among free citizens pursuing their own diverse preferences and interests, instead of conforming to the liberal vision of the Greater Good.
For zealous liberals, power must always be drawn upwards to the center. There it must be wielded - ruthlessly, if necessary - to irreversibly push America leftward. Americans are getting that message from the health care debate, and it’s beginning to appear that a majority will not stand for it.
What to Do with the Uninsured
August 2009
The version of Obamacare offered by the Senate Health, Education, Labor, and Pensions (HELP) Committee has a number of controversial provisions. Conspicuous among them is a proposed fine of as much as $1,000 a year on individuals who refuse to purchase health-insurance coverage as the bill mandates.
The antecedent of the individual mandate is the Massachusetts health-care reform of 2006. That measure - spearheaded by Republican then-governor Mitt Romney, and lauded by Ted Kennedy, who is now the chairman of the HELP Committee - contained a universal individual mandate to purchase state-approved insurance coverage. Or else what?
Romney had proposed a self-insurance option, whereby an individual could post a $10,000 bond to cover unanticipated medical costs. Liberal Democratic legislators rejected that option, leaving only a penalty for failure to enroll.
In 2008, Massachusetts started levying fines on non-compliers. The amount of the fine is half the cost of the premium of the cheapest approved plan in the person’s region of the state, up to approximately $1,000 a year.
The Obama-Kennedy individual mandate is perhaps the first attempt by the federal government to require individuals to buy a particular product, or suffer a fine.
The problem this measure aims to solve is real: People incur medical expenses that exceed their ability to pay, leaving others (medical providers, insured patients, taxpayers, and so on) holding the bag. However, there is a better way to deal with this problem.
The operative principle should be personal responsibility. The responsible thing to do is to buy health insurance to cover most of the costs of illness or injury.
Unfortunately, state governments have made health insurance unaffordable for many consumers. They have done this by piling on costly mandates, requiring guaranteed issue (applicants cannot be turned down because of a pre-existing health condition), imposing community rating (everyone in a particular region pays the same premium, regardless of personal history), and outlawing low-cost policies that have high deductibles or offer only catastrophic coverage.
Faced with the steep cost of insurance, many people - especially healthy young people - choose to go without. Fine - but if they then incur high medical expenses, they ought to accept the primary responsibility for paying for the services they have received.
Consider this proposal: If an uninsured person incurs medical expenses and leaves an unpaid balance, the provider must try for 90 days to collect. At that point the unpaid balance is posted to an account in the patient’s name, managed for the government by a credit-card company. Each year the account manager reports to the patient his or her balance, on the equivalent of an IRS 1099 form. When preparing that year’s taxes, the individual must include a stated fraction of that amount in his or her gross income. (The same result could be achieved with an inverse tax credit.)
The fraction reported would be graduated according to the patient’s income and the amount of the balance due. For a high-income taxpayer with a low account balance, the amount subject to tax the first year might be 100 percent of the balance. For a taxpayer with minimal income, the balance would carry over undiminished to the following year.
Thus the uninsured patient would be required to pay off the unpaid balance via income-tax payments year after year until it is retired. Whether the account balance would be adjusted upward annually to match the depreciation of the dollar, whether interest would be charged on the average balance, whether the IRS would have a claim on a decedent’s estate for the unpaid balance, and whether such liabilities would survive bankruptcy are questions for policymakers to decide. A further question is how much of the tax payment collected the government would deduct to cover administrative costs before remitting the remainder to the providers who weren’t paid for their services.
In sum, the proposal says to the person who prefers not to obtain insurance: Your government will not fine you for failing to buy health insurance. But if you are unlucky enough to run up a big medical bill that you can’t pay from your assets, you will be paying a piece of it off every year at tax time, possibly for the rest of your life. Are you sure you wouldn’t prefer to invest in a high-deductible insurance policy with limited mandates, with a cap on out-of-pocket payments, and with your own tax-free Health Savings Account?
It will be objected that it might be years - if ever - before an ordinary individual could pay off a large hospital bill through annual income-tax payments. That’s true. But the proposal at least fixes the economic responsibility for paying for services received upon the person benefiting from the services, and it sets up a virtually effort-free mechanism for paying. To the extent the government returns the tax collections from this provision to the unpaid providers, the proposal will also reduce the otherwise unavoidable cost shift to insured patients via higher premiums.
This plan is a clear conceptual alternative to the government forcing every citizen to buy government-approved insurance. The uninsured patient will be spared an oppressive government mandate to buy coverage. But the patient will know that if he or she suddenly requires expensive medical care, the consequence of having failed to enroll in suitable coverage will be reduced after tax income. That will emphasize that the unpaid bill remains the patient’s responsibility, not society’s.
No scheme is perfect. If expenses are incurred, somebody has to bear the burden. But by obviating the argument for an illiberal individual mandate, such an income-tax-based recapture plan has a lot to recommend it.
This commentary by EAI President John McClaughry was published on National Review Online August 14, 2009.
Twelve Health Care Questions for Your Members of Congress
July 2009
Vermont’s three Members of Congress will be home next week for a month-long recess. This will provide an excellent opportunity for citizens to query them on the subject of the Obama-Kennedy-House Democrat health care bill.
There are actually three huge bills under intense development. The Democrats’ game is to cobble together some collection of provisions that will attract enough votes to pass their respective chambers. Then in the House-Senate conference, their leadership and the Obama Administration will reshape the package into what they want, and twist arms until enough Democrats agree to vote to enact it
Here are twelve questions that concerned citizens should pose to their Congresspersons:
The bills impose an individual mandate on me to buy health insurance approved by the Federal government. What will happen to me if I don’t go along? Fines? Wage garnishment? Jail? Will these penalties also apply to millions of illegal aliens, or will they apply only to American citizens and legal aliens?
The bills impose a mandate on most businesses to pay for employee health insurance containing “essential benefits” approved by the federal government. If the businesses don’t do so, they’ll be required to pay a fine. How many small businesses in Vermont will shrink their operations, or go under, rather than pay this new penalty?
President Obama said that if I am happy with my coverage, I can keep it “no matter what”. Now we learn that I can keep it until my employer changes or drops it, or until I change employers, or until I try to buy individual insurance. Will you stand behind the President’s initial promise, or will you support Congress’s action to break it?
The bills contain a provision allowing health insurance plans bargained by labor unions to continue unchanged €“ while nonunion workers are threatened with loss of coverage. Is this preference for unionized workers a result of Labor’s strong support of Obama and the Democrats in the last election? Do you support the exemption?
President Obama has said he won’t support a health care reform bill that will add to our exploding deficit. The Congressional Budget Office says this bill will bend the Federal health care expenditure curve up, not down. Will you vote against any bill that fails President Obama’s requirement that it will not add to our deficit?
Governors of both parties have strongly objected that the bill’s mandated expansion of Medicaid will put an intolerable fiscal burden on struggling state treasuries and state taxpayers. Will you vote against any bill containing this very costly unfunded mandate?
The bill includes provisions for Federally-designed “comparative effectiveness research.” This is intended to require health care providers to deny health care to elderly citizens, people with disabilities, and others the health of whom certain appointed experts think is not worth improving. Will you oppose any bill that contains such a provision?
The bill requires that “qualified” health insurance plans include all ”essential benefits” determined by federal bureaucrats. Democratic majorities have already voted down amendments to exclude elective abortions from the list of “essential benefits”. That means that for the first time taxpayers will be required to subsidize elective abortions. Will you vote for a bill requiring taxpayer financing of elective abortions?
Exploding medical malpractice claims, fueled by the plaintiff’s bar, are driving doctor and hospital malpractice insurance premiums ever upward. Why are there no provisions in any of the bills to ameliorate this problem, which is driving doctors out of practice? Is it because the plaintiff’s bar contributes millions of dollars to the leading sponsors of this legislation?
The bill contains a “public option”, a government-run insurance company “to keep the private insurers honest.” Will this government-run company pay taxes, pay for its own revenue collection and marketing costs, and pay market interest rates on its debt? Or will it enjoy government backing that will enable it to undersell its private competitors, swallow up their customers, and become a new ”Medicare for Everybody”?
Speaking of Medicare, the system is $36 trillion out of actuarial balance and will run out of hospitalization benefit funds by 2017. How will the government-run ”public option” insurance company avoid turning into another Medicare basket case? And how will our senior citizens on Medicare continue to get medical services?
Finally, as a supporter of this ”public option” plan, are you willing to transfer your family and your staff’s families out of the existing Federal Employees Health Benefit Plan, with its choices of many private insurers, into the new government plan? If not, why won’t it be good enough for you?
Your Congressperson will probably shake his head, smile, and say the issue is very complex, but rest assured, he’ll be down there fighting for the interests of Vermonters. At that point, engage him in small talk, while somebody goes for a rope.
The Obama-Kennedy Health Care “Reform”
June 2009
Health care “reform” is at the head of the national agenda right now. President Obama and his Democratic allies make this case for “change”:
“Americans are spending far too much for health care. That is because of waste and inefficiency among our health care providers. At the same time there are 45 million Americans without health insurance. Your government needs to wring the waste and inefficiency out of the system, curb unnecessary procedures and expenditures, promote behavioral changes to prevent illness, and use the savings to insure and where necessary subsidize the presently uninsured to. achieve universal coverage.”
The straightforward way to achieve this lofty goal is to install, as Great Britain and Canada have, a single payer system. Obama says this is what he would do if starting from scratch.
“Single payer” means that all payments to medical providers for covered health care services are made by one single payer: the government, or one or more administrators contracted by the government.
Everyone is included in the system. The funds required by that entity to make payments for services come from taxes.
The government determines which medical services will be covered for which patients, how intensively they will be provided, and how much the providers will be reimbursed for providing those services. The government prohibits any private health insurance coverage for medical conditions covered by the single payer plan.
Single payer systems rely upon the government’s global budget to “control costs”. The global budget attempts to match expenditures and revenues by directing providers to ration health care through postponement and denial of services, and by reducing government reimbursement to the “private” providers.
Since 1965 the U. S. has had a mandatory single payer system for hospitalization and physician’s services for over-65 seniors. It’s called Medicare, and it’s an inspiration for Obama and his allies. Participation is mandatory, because if you don’t agree to accept Medicare, you can’t collect your social security retirement checks.
Medicare is now insolvent. Its hospitalization insurance fund will not be able to pay for services after 2017 unless new financing is found. Its projected unfunded liabilities (payments above revenues) between now and 2082 total $36 trillion.
Medicare underpays physicians and hospitals. (So do Vermont’s Catamount Health, which pays at Medicare rates, and Medicaid, which pays even less.) Obama and his allies are planning to finance much of their “reform” by further cutting payments to providers.
But when Medicare payments are cut, providers contrive to do more billable services to keep up their revenue. So as underpayments increase, the government will have to force providers to ration care to hold down total payments, and penalize providers who earn too much.
Underpayments by government health care programs are essentially a hidden tax on health care covered by private insurance. Because government underpays, providers overcharge private insurers to close the shortfall. This cost shift results in ever-higher insurance premiums, and struggling employers start thinking about simply dropping their employee coverage. This is not a workable model.
The Obama-Kennedy plan is not single payer, because it allows private insurance to continue (under federal regulation). But it contains a “public option” program designed like Medicare. This is supposed to provide competition with private insurers.
Since the ultimate goal of Obama, Kennedy and their allies is single payer, it is perfectly clear that government benefits and favoritism enjoyed by the government-sponsored “public option” plan will allow that plan to underprice its private competitors. Eventually employers will have no choice but to dump their employees into the government plan – even if they are charged a penalty for doing so. This is single payer on the installment plan.
Obama recently remarked that “no one will take away” your current health plan, “no matter what”. But a week later he amended that to say that the government won’t take away your current plan – but you might lose your current plan because your employer, who owns your plan, might be forced to choose the cheaper “public option” plan.
Obama and his allies also aim to solve the uninsured problem by mandating that every American enroll in a “qualified” insurance plan. Under the Obama-Kennedy bill, if you don’t submit proof of enrollment, you’ll be tracked down and fined until you do.
The Obama-Kennedy plan would if enacted prove to have some annoying inconveniences, like rationing, waiting lines, maddening bureaucracies, penalties for non-enrollment, demoralized doctors and nurses, shabby facilities, obsolete technology, declining quality of care, and of course much higher taxation.
But don’t worry. President Obama and Sen. Kennedy can surely work those things out.
MediScam Back in the News
March 2008
About twenty years ago a Medicaid bureaucrat in Massachusetts came up with a bright idea. Since 1965 the Federal government has agreed to pay for a percentage of eligible state expenditures for medical care for the poor and disabled. This is called the FMAP, and for Vermont it is currently 59%. The state is required to raise money to pay the remaining 41%.
The Massachusetts woman told her superiors “Why don’t we tax all the health care providers to create a big pot of money, and take it to Washington to get the federal matching amount. Then we can refund the tax to the providers who paid it, and spend all the Federal money on health care programs? The providers will come out even, and the state will gets lots of free Medicaid money from Uncle Sucker!”
Her state eagerly did just that. This became known as “MediScam”, and other states were quick to follow suit. Vermont passed its legislation in 1991.
But the 1991 legislature faced up to an important question raised by the hospitals, nursing homes and home health agencies that were targeted by the new provider taxes. “How can we trust you (the state) to actually repay us for the ‘assessment’ we are required to pay?”
The legislature wrote into the law that the fund shall make hold harmless payments so that each provider gets back what it was required to pay in. And thus it was done for 16 years, through thick and thin. But as part of the Catamount Health bill enacted in 2006, that inconvenient hold harmless requirement was quietly repealed.
And now, with the state shifting money around to try to squeeze through the 2009 budget, the providers have suddenly found that they won’t be held harmless anymore. The state now sees the MediScam scheme not just as picking Uncle Sam’s pocket, but also as a way to use the “assessments” of the three provider groups to cover other Medicaid expenses.
The administration says the hospitals will take a $6 million hit this year, but they’ll be allowed to recoup that in higher rates in the next two years. The hospitals claim that it’s a $16 million hit that will go on and on.
If the state allows the hospitals to recover by jacking up the rates they are allowed to charge, that will shift more of the costs of failing government health programs to private insurance premiums. The hospital Medicaid cost shift this year is $94 million.
The 1991 legislature foresaw this also. Their law provided that “the assessment made under this chapter shall not be passed on to other payors of hospital, nursing home, and home health care.” That provision too has been quietly repealed. Now, instead of each provider getting back what it paid in, there will be “winners and losers” depending on the outcome of the rate setting process.
But regardless of whose calculation one accepts, this battle highlights a greater problem. Medicaid has steadily expanded since 1994, when Gov. Howard Dean, thwarted in his desire to enact HillaryCare for Vermont, chose Medicaid expansion as his fallback alternative.
The revenue sources proposed for expanding Medicaid inevitably failed to bring in enough to pay the costs. Equally inevitably, the uncovered costs were shifted through the system to fall on providers and private insurance premiums. That’s a significant reason why thousands of Vermonters find basic insurance coverage “unaffordable”.
The state is now projecting a $57 million Medicaid deficit for FY 2010, even with continued diversion of the provider tax. Every year these fiscal contortions will reoccur in one form or another, as the state desperately tries to keep Medicaid afloat without imposing new taxes, cutting back benefits, or taking money from somebody else’s favorite program.
The dark prospect of perpetual insider struggles over complex Medicaid financing suggests that Vermonters need to come up with a new and clear agreement on the state’s role in health care.
Where does the responsibility for maintaining one’s own health end, and the taxpayer’s responsibility take over? To whom will the state send the bill? And will the accounting be honest and transparent?
No More State Mental Institutions!
December 2007
Should the legislature vote to build a new state mental hospital in Waterbury or Burlington to replace the now-decertified Vermont State Hospital in Waterbury? That question will be at the top of the 2008 legislative agenda.
Here’s one view: “Building an enormously expensive new replacement facility for the Vermont State Hospital, at the urging of a state bureaucracy and its state employee union allies, over the objections of the Public Oversight Commission and most advocates for the mentally ill, will create a large and unnecessary burden for a generation of Vermont taxpayers, while offering inadequate recovery services for Vermonters with mental illness. It is not sound public policy.”
That’s the conclusion of a new report on the future of the Vermont State Hospital and the treatment of severe mental illness in Vermont, issued by the Ethan Allen Institute on November 26.
The report, entitled Don’t Send Me to Waterbury!, is a cloudburst of cold water on the ambitious plans of the Department of Mental Health and a special study group commissioned by the Democratic leadership of the legislature. Both have proposed either renovating the 110-year old hospital, or creating a new state-run institution in Waterbury.
The Department hasn’t settled on a final proposal yet, but cost estimates for variants of this option run up to $100 million. That would represent a very large increase in the state’s bonded debt and annual debt service, at the expense of competing state and local projects.
Based on a middle range of assumptions from a report commissioned by the Department, Vermont taxpayers could end up paying $276,000 per patient per year as the state share of an overall cost of $535,000 per patient per year. This assumes the capital cost is amortized over fifty years, and the 53 beds of a new facility are occupied every day of every year.
Mental health advocates, many of who have had traumatizing experiences at the thrice-decertified state Hospital, hailed the report, especially its sharp criticism of forced drugging and use of physical restraints as dehumanizing and unacceptable behavior, a practice which has brought sharp criticism of the Waterbury hospital by the U.S. Department of Justice. They also agreed that “public policy and practices must be shaped in close partnership with the dedicated community of Vermonters who have lived experience with mental health crises, rather than shaped by the preferences of bureaucrats, clinicians, and the employee labor union.”
Around a dozen present inmates with a history of criminal acts need to be kept under lock and key at Corrections facilities, either in Vermont or elsewhere. But for the three fourths of the present inmate population, the emphasis ought to be on assisted recovery in small, safe, secure and far more cost-effective community settings.
The report urges the Department and the designated mental health agencies to welcome new private providers of services, such as residential recovery housing and faith-based and peer-run drop-in centers. Among such programs already in operation are Safe Haven in Randolph, Second Spring in Williamstown, Home Intervention in Montpelier, and the very successful Fairweather Lodges in Minnesota.
The report calls upon Vermont’s community hospitals “to evolve to holistically address the physical and mental health of the people in their communities, and address the issue of forced medication as a serious question of medical ethics.” It pointedly asks the Department of Mental Health to abandon its “relentless quest for the construction of new high-cost state-owned mini-VSH facilities,” whether in Waterbury, the Fletcher Allen Health Care Burlington campus, or elsewhere.
So, after decades of moving toward treating mental illness in community settings, who still wants to build new state mental institutions, that are likely to continue the awful track record of the Hospital in Waterbury? The answer is, simply, the state’s mental health bureaucracy and especially the Vermont State Employee’s Association. That union has worked aggressively with Democratic politicians like Senate President Peter Shumlin to mandate a new or completely renovated facility in Waterbury, and to slip through legislation favoring continued employment for the 200 VSEA employees now working at the old Hospital.
That’s not a great idea, the report says. “Anyone [employed by the Hospital] who has been a part of the dehumanizing seclusion, restraint and forced drugging…ought to seek other types of employment.” And there is a pointed message to legislators: “legislators will need to keep in mind the interests of mental patients and of their taxpayer constituents when the VSEA presses for its special interest in preserving state employee jobs.”
Here Comes Catamount Health!
May 2006
If you are uninsured and currently eligible for the state's Medicaid VHAP program, but your employer has a state approved health care plan, you will go on your employer's plan, with a state subsidy. This is called "Employer Sponsored Insurance".
If you have been uninsured for 12 months and don't qualify for Medicaid or VHAP, and you have no state-approved employer plan to go back to, you can enroll in the new Catamount Health.
Until at least October 2009 Catamount Health will be, at least nominally, a private insurance plan. Enrollees will pay premiums based on their incomes. For example, an individual making $19,600 will pay $60 a month to get the very rich benefits mandated by the state. The new plan will be available because the state will force its two largest health insurers, Blue Cross Blue Shield of Vermont and MVP, to offer it.
If purchased from Blue Cross in the normal market, the state-mandated plan for an individual would cost around $450 a month. Catamount Health will pay Blue Cross around $300 for the same plan. The legislature believes that the $150 lower cost can be justified because the Catamount enrollees are believed to be younger and healthier than other Blue Cross customers, Catamount will pay hospitals and doctors less than Blue Cross has to pay them, and the state will absorb some administrative costs.
The money to pay for these two programs will come in part from the Medicaid "Global Commitment", if the federal government hopefully agrees to shoulder its 59 percent of the costs. The bill also increases the cigarette tax from $1.19 to $1.79 now, and to $1.99 in 2009. Small employers who don't offer health insurance or offer policies that the legislature does not find adequate, will pay a new tax of $365 per year per uncovered employee, with four employees exempted.
Now that the deal has been cut, voters ought to look closely at some key questions.
How tight are the eligibility standards? Very loose. "Vermont resident" means anyone who gets off the bus, rents a room and a mailbox, and declares an intention to remain in Vermont.
Why is the mandated plan so rich? The law mandates that Catamount Health and qualifying employer plans for an individual have no more than a $250 deductible, 20% coinsurance, $10 office visit co-pay, zero prescription drug deductible, and an out of pocket maximum of $800 per year. The liberals in the legislature believe that anything less - including especially the increasingly popular high deductible plans with tax free Health Savings Accounts - is not worthy of the name "insurance".
What happens, as is likely, if the revenues aren't enough to pay the bills? The law directs the emergency board to suspend new enrollment. Given the partisan composition of the emergency board, it is far more likely that it will urgently recommend higher taxes to avoid that requirement.
How much of a burden, in addition to a new tax, does this place on small businesses that offer insurance? They will face an enormous burden of reporting the situation of every employee, every quarter.
Finally, will this work? Simply put, no. By 2009 the private carriers will have found that they cannot possibly offer the costly state-mandated coverage for what the state is willing to pay. They will bow out, and the state will take over as the Catamount Health insurance company.
At that point the people in Catamount Health will in effect become the first enrollees in the revived Green Mountain Health plan that Gov. Douglas vetoed in 2005. In fact, the "health care reform principles" declared in the vetoed Green Mountain Health bill appear word for word in this year's law.
And bear in mind: the liberal legislative leadership that pushed this bill through vigorously opposed creating a real market in health insurance, consumer driven HSA-based plans, tight eligibility standards, mandate reduction, a defined state contribution in place of a defined benefit, and an enforceable cap on expenditures to match actual revenues. They eagerly levied a new tax on small business, hoping that small businesses will drop their insurance plans, pay the tax, and dump their employees into Catamount Health.
Both the emergency board and the Health Access Oversight Commission are heavily dominated by those same liberal politicians. They will use every opportunity to make sure that no private market alternative can possibly succeed in the two-year trial period that Gov. Douglas got them to agree to.
Catamount Health will do nothing to "make Vermont affordable". Instead, it is certain to accomplish just what the single payer advocates have wanted all along: a rapid slide into a government-controlled, taxpayer financed health care takeover. It will just take three years longer than they had hoped.
That’s good advice, from the standpoint of patients and taxpayers alike.
The Perils of Health Care “Delivery”
April 2006
The current standoff on health care “reform” between Gov. Jim Douglas and the Democratic legislature goes well beyond a debate over which tax to raise and who will administer the proposed Catamount Health program. To grasp the width of this philosophical gulf, one only has to read the proposed Senate bill (H.861) and all of its committee amendments.
The Senate version repeats verbatim the “six principles of health care reform” set forth in the failed single payer bill of 2005, Green Mountain Health, and in this year’s House version of the bill. The bill gives credit to the language devised by the Coalition 21 group, an ambitious Snelling Institute project that fizzled late last year. A key moment in the abbreviated life of this Coalition was the eruption of vigorous and successful opposition by the single payer participants to any mention of the term “personal responsibility”.
That hostility to the concept of personal responsibility, and the corresponding enthusiasm for collectivist “solutions”, carries over into the language of the current Senate bill. And the language used in this debate is important.
For those promoting Catamount Health, the key concept is the “delivery” of health care. “Delivery” is best understood as one understands the U. S. Postal Service. The nice man or woman in the blue shirt brings the package to your door. All you have to do is receive the package.
The language of the Senate's bill says that “it is the intent of the General Assembly that all Vermonters receive affordable and appropriate health care at the appropriate time and that health care costs be contained over time.”
This pretty much gives away the game. It implies that health is not something you achieve and maintain. You don’t have any responsibility in the matter. Health is something you receive when delivered by providers.
It must be “affordable”, which means that the program requires taxpayer subsidies, or the Dean Solution, or (usually) both. The Dean Solution, named after Vermont’s former governor, is the government requiring doctors, dentists, hospitals and nursing homes to provide services at below-cost prices.
Then there’s “appropriate”. Your friendly taxpayer-financed government program is not just going to deliver any old service you think you and your doctor might think essential for better health. An elaborate government bureaucracy will have to define what is “appropriate”.
Finally there is the requirement that health care costs have to be “controlled over time.” This is necessary since the supply of taxpayer dollars is not infinite. And we know from Green Mountain Health that what is deemed “appropriate” will be decided “in light of available resources”.
In other words, the amount of money the government allocates to providers will determine what and how many services they can provide. Everywhere but in the bill itself, this is called “rationing”.
News accounts of the negotiations between the Senate and the Douglas Administration focus on whether the new program will be run by the government – that is, whether the government (taxpayers) will hold the bag when program costs inevitably exceed premium revenues. Gov. Douglas has drawn a line in the sand on this point: he says he will not accept a program where government manages the program, and taxpayers bear the risks.
The other issue in the news stories is increasing taxes to pay for the new scheme. The Governor yielded on using increased tobacco tax proceeds to (hopefully) fund a suitable program for the uninsured. But he adamantly opposes increasing sales, income or payroll taxes for that purpose. Both he and the Senators have to know that the Senate version of Catamount Health cannot be supported by higher tobacco taxes.
The Senate bill tosses in a new dollar-a-day employer tax, euphemistically called a “fee”. There can be little doubt but what this employer tax will increase steadily once the Catamount Health mechanism is in place.
The Senators may be willing to launch their plan now with uncertain tobacco revenues and a deliberately low-balled employer tax, declare victory, and leave it to the next legislature to deal with the “health care financing crisis of 2008”. The Governor should not indulge this bit of fiscal irresponsibility.
The fundamental question made evident by the language in the Senate bill is whether health and wellness are things that can be found “appropriate”, made ”affordable”, and “delivered” by a caring government, or whether health and wellness are best achieved by individuals making informed and responsible lifestyle choices.
All human experience, especially that of government-run health systems, argues for the latter response – and against ill-considered legislation based on government-controlled “delivery”.
Health Care: First Undo the Damage
April 2006
The stage is now set for what appears to be the annual end game between a liberal Democratic legislature eager to hand out “free” health care for all, and a Republican Governor worried about an overtaxed and increasingly unaffordable Vermont.
To review the game so far: last year the House Democrats passed a government-controlled, taxpayer financed single payer scheme called Green Mountain Health.
The Senate Democrats shrank that monstrosity down in the hope of getting the Governor’s assent. But the Senate plan, designed to morph into Green Mountain Health in due course, required payroll or income tax increases. So the Governor vetoed it.
In December the Governor came out with his new model: Medicaid enrollment for the eligible uninsured, premium assistance subsidies to enable lower income workers to buy high-deductible policies, no government-run health plan, and no new taxes. Not beyond all criticism, but not bad.
House Democrats were not interested. Still smarting from last year’s veto message, they rushed through their new version labeled Catamount Health. Their new bill would create a government-run plan for the uninsured with Cadillac benefits, large subsidies, no enforceable residency requirement, and laughably inadequate financing built around a 60 cents a pack cigarette tax increase.
The Senate Health and Welfare committee came up with a different version. It simply instructs the hospitals to provide free care to anyone below 200% of the Federal poverty level. It puts price controls on what hospitals and doctors can charge families of four with incomes up to $70,000. If enacted, the Senate bill would dramatically aggravate the cost shift problem. It would require providers to jack up the prices charged to private insurers, who would in turn be forced to raise premiums for their insureds.
The Senate draft bill doesn’t call this accelerated cost shift a “tax”, because the backers don’t want to be tagged with pushing through a tax increase in an election year. So they are calling it a “health care affordability and stability assessment.” The inventors of this phrase seriously underestimate the ability of their constituents to recognize a t-a-x that will be passed along to them.
The certain result - and intended goal – of both House and Senate bills is to drive out private health insurance and eventually push everybody not on Medicare into the government plan. To “control costs”, the government will then have to tell the providers how much they can spend. This will leave to the providers the sad necessity of rationing their services to stay within a politically determined budget, regardless of who has to suffer.
The sad part about this now-annual contest is all the players are trying to find a government fix for a problem largely caused by dumb government policies. Twenty years ago there were at least 17 companies selling health insurance. Young people were buying respectable coverage for as little as $20 a month. Medicaid covered the needy poor. But then politically influential Blue Cross/Blue Shield of Vermont took a dive toward insolvency.
Blue Cross pushed through a bill in 1991 to apply community rating and guaranteed issue to small group plans. A year later it succeeded in extending those provisions to individual policies. Why? Because Blue Cross knew that these mandates would drive out its competitors. Then Blue Cross could struggle back to solvency before its customer base disappeared.
Today 95% of privately insured Vermonters are covered by Blue Cross, MVP managed care, or a joint program between the two. The young people once paying affordably low premiums were forced to pay far higher premiums to support other people - their less healthy grandparents. Since the youngsters were healthy and hard up for money, they (and many small businesses) just dropped coverage and became “uninsured”.
Meanwhile, Gov. Dean and legislators of both parties enthusiastically expanded Medicaid into the unsustainable fiscal black hole it has become today. They financed much of the expansion by irresponsibly underpaying doctors, hospitals, dentists and nursing homes.
If truth be told, Vermont doesn’t need a sweeping new health care plan, for the uninsured or anybody else. Blue Cross is now fiscally sound, so just undo the public policy mistakes made 15 years ago.
Let insurers compete by offering what their customers want, restore personal responsibility for health and wellness, and promote consumer information and price transparency Give incentives to hospitals to get safer and more efficient, implement the chronic care initiative, and pay the providers at least what Medicare pays.
Tighten up Medicaid asset recovery rules, encourage long term care insurance, reduce the medical malpractice threat, and provide premium assistance for people who can’t afford to pay for the much lower cost basic benefit plans. And forget about raising taxes, whether visible or buried in misleading language in the health payments system.
There, that ought to do it.
Next Up: Medical Malpractice Reform
November 2005
Dan Foley MD is a silver-haired, grandfatherly Rutland obstetrician. In addition to the pressures and responsibilities facing a physician, Dr. Foley is plagued by the steadily increasing problem of medical malpractice liability.
It’s not that Dr. Foley is incompetent. He has practiced for many years and delivered thousands of babies. But obstetricians along with neurologists are uniquely exposed to claims of medical malpractice. When a baby is born with a defect, there are lots of mothers (and plaintiff’s lawyers) quick to conclude that the doctor made a mistake.
Then comes the lawyer’s letter demanding monetary compensation for the wrong done to the innocent child. The doctor’s medical liability insurer steps in to defend the doctor. Since costs of defending a malpractice suit run in the vicinity of $300,000, the insurer’s lawyers will consider a settlement in lieu of a more expensive trial, even when they are convinced they have a very strong defense. After all, who knows what kind of damages a jury might award at the bidding of an eloquent and emotional plaintiff’s lawyer?
The present medical liability process leads to two to four years of stress on the doctor-defendant while the lawyers argue over his fate. It causes a steady increase in medical malpractice insurance premiums. It forces doctors to run up costs by ordering extra tests to defend themselves against a potential lawsuit. Not good.
In Vermont these problems have yet to reach the levels plaguing many other states, but they have grown steadily worse for years. In 1992 new Gov. Howard Dean MD got the legislature to pass a provision for independent arbitration to screen out non-meritorious malpractice claims. Unfortunately the provision specified that the process would go into effect only upon adoption of a “universal health care plan”. That never happened, so the provision, still on the books, has never been activated.
Last year the vetoed Green Mountain Health bill contained only a minor provision that a health care provider’s expression of regret or apology is not admissible as evidence in a liability dispute. That’s about as far as this Senate, whose President pro tem and Majority Leader are both plaintiff’s lawyers, is willing to go in the reform direction.
In mid-December a BISHCA medical liability working group will release its report. Since the group was comprised of all the affected interests (providers, insurers, plaintiff’s and defendant’s lawyers), it likely will produce little agreement on any provision of consequence.
Legislators need to come to grips with this issue before it gets so serious, as in Pennsylvania, that women have to go out of state to find a doctor to deliver their babies.
The most common reform idea, adopted in 1975 in California, is capping non-economic (“pain and suffering”) damages. This will reduce malpractice premiums, which is good, but it also can lead to qualified trial lawyers turning down meritorious cases because their expected compensation (typically a third of the judgments) will not be enough to cover the high costs of preparing a complicated case for trial. There are other useful steps that could be taken.
Create a “tort formulary” that specifically lists actionable negligence by the doctor, such as intoxication, removing the wrong organ, etc. These would be subject to unlimited damage claims.
The flip side is practice guidelines, like those implemented in Maine in 1992. It would be a defense for the doctor that he went by the guidelines, or had a clear reason for departing from them. In that case, non-economic damage claims would be limited to, say, $250,000.
Create a patient negligence formulary, specifying patient failures (falsifying medical history, failure to take medications, etc.) that cancel out judgment errors by the doctor.
Create a malpractice panel to review plaintiff’s demand letters and suits. If it finds a suit non-meritorious, and the plaintiff takes the suit to trial anyway and loses, the plaintiff’s lawyer would become liable for the defense costs. A more sweeping proposal is the Health Court, that not only makes findings but also decides cases.
Disallow joint and several liability, where a successful plaintiff can recover the entire judgment from any party contributing to the injury, even if that party is only five percent culpable.
Pass the “safe apology” provision contained in the vetoed Green Mountain health bill.
These reforms would make Vermont a state where injured patients have a reasonable opportunity to be compensated for medical mistakes, but doctors are also protected by clearer rules against exorbitant malpractice judgments. The costs of malpractice premiums would drop sharply, along with the costs of defensive medicine. Perhaps most important, these reforms would let doctors like Dan Foley do their good works under a lot less stress from lawyers.
How Bad Laws Have Crippled the Private Health Care Market
November 2005
Not long ago Senate President pro tem Peter Welch declared to the news media that “There’s a significant difference of opinion between the governor and the legislature [on health policy]. The governor favors a private market approach and there’s significant evidence the approach has failed.”
Gov. Douglas does favor a private market approach, but the rest of Sen. Welch’s statement is simply wrong. There is zero evidence that the private market approach has failed. That’s because, beginning in the 1940s, state and national government interventions have increasingly prevented the private market from working.
The influence of government on health care began in earnest with the imposition of wage controls during World War II. Defense plants desperate for workers were not allowed to bid up the wages of the workers they needed. Thus they resorted to offering workers valuable fringe benefits – notably health insurance plans. As a result, for most insured people today the employer selects, pays for and owns the employees’ health insurance policy.
For tax reasons, employers were happier to give richer health benefits than to pay higher wages. Since employees came to see the benefits as “free” once a small deductible was met, the result was a costly overutilization of health benefits.
The Hill Burton Act of 1946 gave construction funding to nonprofit hospitals. It also required that the hospitals must accept every patient arriving at their doors. A subsequent act, EMTALA, requires federally-aided ambulance services to transport all persons demanding such service, even if they only want a free ride to the hospital instead walking to a nearby clinic.
There is a vast literature explaining how since 1962 the Food Drug and Cosmetic Act has driven up the cost of pharmaceuticals and medical devices. Under this act, the Food and Drug Administration now requires drug companies to spend over $800 million over 8-12 years to bring a new drug to market.
In 1965 Congress enacted Medicare and Medicaid to pay for health care for the aged, disabled, and poor. If these programs paid the going rate for services, the main question would revolve around the financing methods. But both programs, especially Medicaid as expanded by such as Gov. Howard Dean MD, pay well below the market price of the doctors, dentists and hospitals and nursing homes.
Since almost half of Vermont patients fall under one or both of these programs, the providers’ revenue shortfall is serious. To cover the government payment shortfall, the providers are forced to increase the prices to patients with private insurance. The result is dramatically increased premiums that make coverage unaffordable for tens of thousands of Vermonters.
The core idea of health insurance is making premiums proportional to risk. In 1991-1992 the Vermont legislature mandated guaranteed issue. That allows people to buy insurance only after they get sick.
It also mandated community rating. This eliminates age, gender, and medical history from the calculation of risk. Thus healthy youngsters of 20 are forced to subsidize the premiums for their older, sicker, but much wealthier grandparents. Since 20 year olds usually don’t have much income, they simply refuse to pay the high premiums and go without coverage. These unwise laws drove out all but a couple of the 17 insurers doing business in Vermont in 1991.
This recitation of government meddling in health care could fill a book. The bottom line is that, absent unwise government intervention, often if not commonly done at the urging of favored industries, unions, and professions, the private market could efficiently satisfy virtually all of America’s health care needs. The one caveat is that public funds are required to help those without adequate means to pay for needed care.
The private market model is familiar to buyers of automobile and home insurance. It is built on the idea of informed and responsible consumers empowered to make choices best suited to their needs, and a variety of providers tailoring their products and services to consumers’ preferences. The role of government is to protect people against public health hazards, educate people for wellness, subsidize care for the poor and helpless, and police against incompetence and fraud.
It has been a very long time since that model has had much chance to work. Before we plunge ahead into taxpayer-financed government-controlled universal coverage, maybe we ought to take another long look at how efficient markets work. There’s no evidence that markets failed. They were restricted, mandated, and then overrun by government edicts and programs that have caused almost all of today’s costly health care policy problems.
Buncombe!
September 2005
In the South in the 19th century, “buncombe” (later “bunkum”) came to mean an unbelievable tall tale that originated in the remote backwoods of western North Carolina, in Buncombe County. Today the word has earned new respect, thanks to the leadership of the Buncombe County Medical Society.
In 1995 that professional organization decided to see what it could do to cope with the problem of the uninsured. Marshaling the resources of state and local government, foundations, pharmacists, hospitals, nurses, dentists, educators, community clinics, churches, and social service workers, the Buncombe County doctors created Project Access.
When Project Access began there were about 15,000 uninsured low and moderate income people in the county of 190,000. After six years of operation, 17,000 out of 19,000 eligible people had joined the program. Each of them signed personal responsibility agreements for keeping appointments, taking medications as prescribed, and complying with treatment plans. In return they were given an access card for use with the providers.
Participating physicians agree to see 10 patients a year for primary care (20 per year for specialist care), or to volunteer eight sessions at a neighborhood free clinic. Eighty-five percent of the county’s MDs are committed to the program. Hospitals donate inpatient and outpatient services and lab tests. Pharmacists provide prescription drugs at cost; the patient pays a $4 co-pay, and local government funds subsidize the difference.
The medical society recruits doctors, keeps the database, handles funds, and reminds patients of appointments (the no-show rate is under five percent). Local state government offices verify eligibility, as in Medicaid. The state medical board created a special license for retired and VA doctors who volunteer for the program. North Carolina’s “Good Samaritan” law protects volunteer providers from most malpractice liability.
Since 1996 the providers have given $30 million in documented care. Because of the ready access, eligible people are showing up earlier for preventive care. Emergency room visits by the lower income population are less than one third that of similar populations in similar cities. Reduction in avoidable repeat visits has allowed the clinics to increase by 50% the number of primary care patients they see.
Businesses report that absenteeism is down and productivity is up among low-wage workers. Interestingly, more than half of the participants become insured after six months, suggesting that their better health and attitudes make them more likely to find and keep jobs with employers that offer insurance benefits.
The Buncombe County initiative has received dozens of awards, and the American Project Access Network (www.apanonline.org) has been created with foundation funds to package Project Access for export. There are now 27 similar projects in operation or in planning stages. They range in size from Dallas, TX to Spruce Pine, NC. Only one is in New England (CarePartners of Portland, ME).
There are several important lessons from a decade of Project Access. One is that astonishing things can be achieved when community leaders determine to get everyone working together to solve problems. Another is the crucial importance of physicians in offering that community leadership.
But perhaps the most rewarding lesson is this: the lower income people who benefit from Project Access understand that fellow members of their community are helping them at little or no cost because they care about them and their community. As a result, most of the recipients respond by taking better control of their lifestyles and health. They show up on time, follow treatment plans, and stay out of the emergency room unless there is a genuine emergency. They come to view themselves as members of a community, and they try, as best they can in often straitened circumstances, to do their part.
Why not make Vermont a statewide Project Access model? That’s an excellent idea. The trouble is that the most ardent advocates for health care “reform” here are committed to installing a taxpayer-financed single-payer system, where the government will have total control over everything. Helping people to become healthier is not their primary objective. Their primary objective is to give the government the power to make rules, give orders, impose penalties, control rationing, fix wages and prices, control providers, and demand that taxpayers foot the bill.
And if they should gain that power, all the good things that were made to happen in Buncombe County will never come to pass here. Instead of community cooperation, Vermont will become a battlefield of competing political interests, scrambling for power, status, paychecks and privileges. Amid the wreckage left behind by that struggle will be the responsive high-quality community-oriented health care system that most Vermonters want, and could have.
Understanding Health Care “Cost Control”
July 2005
A central feature of current health care “reform” proposals is “cost control”. That widely used term masks some real differences among reformers.
To those paying for health insurance - notably businesses – “cost control” means shrinking the business’s budget line item for health insurance. There are several ways to achieve this.
One way is to get out of the health insurance business and let employees deal with their own health care. This happens infrequently because key employees, including the officers and top managers making the budget decisions, would become very unhappy.
More commonly, companies switch to less expensive plans with less coverage, higher deductibles and higher copayments. They may switch to a health care purchasing group that has more muscle to negotiate lower prices from medical providers.
To the advocates of single payer health care (“Green Mountain Health”), “cost control” has a quite different emphasis. It is on “control”. If the One Big System has complete control over doctors, dentists, hospitals, nursing homes, etc., the managers of the system can rationally allocate resources, deny expensive treatments, close down excess infrastructure, curb the use of expensive technology, and mandate the use of generics instead of patent drugs.
Under Green Mountain Health and all other single payer schemes, “cost control” is achieved through the “global budget”. There is only so much money that the taxpayers can be made to put up to spend on everybody’s health care. Each fiscal year the single payer bureaucracy allocates that amount of money among all the approved providers. And Presto! Costs are controlled!
What this means, of course, is that the health care providers are given a budget number and told that that’s all they’re going to get. The government doesn’t actually ration treatments. By rationing the money, the government forces the providers to ration the treatments. That’s convenient for the government, because the aggrieved patient will blame the doctor or hospital for having to wait six months for an operation.
The hard fact that the advocates of government-controlled health systems would rather not deal with is that most of the high costs of health care are a result of government interventions.
Thanks to World War II wage and price controls, American health care evolved into a system dominated by third party payers. If your employer buys your health insurance, nobody pays taxes on it. If you buy it, you do so after you paid payroll taxes and income taxes.
Employees don’t own their insurance plan. Their employer does. When employees use insured health care, they’re spending somebody else’s money. Almost everyone will sooner or later make use of services that are “free” – services that they would never ask for if they had their own money in the game.
State and Federal underpayment for Medicare and Medicaid patients is a major cause of today’s high cost of private health insurance. The providers have no choice but to shift the costs to private patients.
In Vermont and a dozen other states, politicians decided that everyone must pay the same premium, regardless of medical risk. In no other kind of insurance is the premium divorced from risk. Under Vermont’s community rating mandate, young healthy families at the bottom of their career income ladders are taxed to pay the premiums of their grandparents, who have lots more income and assets but need more medical care.
State law also mandates that insurance must cover all sorts of benefits that the insureds may never want or need, such as pregnancy, drug and alcohol addiction, and often amorphous mental health benefits. And of course, you can’t (yet) go to another state to buy more economical insurance, because the government won’t let you.
This is only a modest sampler of foolish and costly government intervention that has driven up health care costs. There are powerful economic and political interests that do not want to see any of these government-mandated cost-inflating practices changed. They want no part of a consumer-driven marketplace, where well-informed people buy insurance to cover extraordinary health care costs, and have wide latitude to choose among competing providers.
That kind of market place is, however, growing steadily. The enactment by Congress of tax free Health Savings Accounts has been a major incentive. In other states with freer markets, all kinds of creative patient-centered health care plans are rapidly emerging.
But in Vermont, the majority of the legislature is ardently committed to creating Green Mountain Health, a government-shackled high-tax single payer system that will make past government interventions appear almost reasonable by comparison. Fortunately Gov. Douglas temporarily forestalled that with his veto, but the battle next year will be titanic.
Save Our Monopoly!
April 2005
When a cozy monopoly is threatened by antitrust action, what does it do? It goes running to the nearest legislature to rewrite the laws to protect it from prosecution and from the horrors of competition.
That is exactly what Vermont’s 12 nonprofit Visiting Nurse Associations (VNAs) are doing right now. Their lobby group, VAHHA, is pleading with the Senate to rush through a bill to protect their twelve regional monopolies.
The VNAs dispatch employees to provide home health care services to some 24,000 needy Vermonters. The VNAs have divided the state into 12 regions and agreed not to compete with one another. Medicare and Medicaid patients are their meal tickets (77% of revenues). With only minor exceptions, the 12 VNAs are the only state-approved home health care providers under these programs.
Back in 1980 Jean McHenry RN, a nurse at what is now Fletcher Allen Medical Center in Burlington, founded a for-profit home health care provider called Professional Nurses Service (PNS). Like any monopoly facing competition, VAHHA was threatened and outraged. Every time that PNS has sought state permission to offer home care to needy Vermonters who wanted better service, VAHHA’s lawyers have struck back hard.
In 2003 PNS sought state approval to allow it to use Licensed Nursing Assistants to care for some 200 patients in the Medicaid High Tech program, then severely burdened by the lack of care providers. VAHHA bitterly but unsuccessfully fought against the application, even demanding that PNS be barred from offering any state regulated services if it continued to seek additional permissions.
Emboldened by its victory, PNS went back to the state last year for permission to serve all Medicare and Medicaid patients. Again VAHHA mounted a full court defense. Again it failed. On March 24 the Public Oversight Commission by an 8-2 vote recommended that the state approve the application. As one commissioner simply said, “Hey, sick people deserve to have choices.” BISHCA Commissioner John Crowley will make the decision in May.
Late last year another serious threat to the VNAs’ monopoly appeared. Vermont is the only state in the union where the VNAs have carved up the territory and clientele into non-competing monopoly regions, denying any semblance of choice to needy patients. The U.S. Department of Justice began an investigation into the Vermont arrangement for possible antitrust prosecution.
There is one way that the VNAs can escape the antitrust hammer. That is to qualify for the “state action” exemption. This pertains where, as in electric utilities, the monopoly providers are closely regulated by the equivalent of a Public Service Board.
Last week VAHHA put on a full court press in the Senate to get it to quickly pass a bill enshrining its valuable monopoly agreement into statute. The bill would increase state regulation so that the VNAs can qualify for “state action immunity”, and thereby slam the door on the Justice Department antitrust investigation. Every VAHHA member group that is now in on the deal would get a free pass. As for their needy patients who want more choice in how their home care services are provided – tough luck. They have nowhere else to go.
Health economist Dr. Phyllis Isely has written “The current [VAHHA] agencies are not only insulated from the need to innovate to improve services, but management is also insulated from its mistakes, and as with most with monopolies management, is prone to overinvest in capital and administrative overhead… If the home health services market is not opened up to competition, Vermonters will have a choice in virtually all markets except for those who receive home health care based on Medicare reimbursement.”
Spared the rigors of competition to serve customers that is faced by every auto dealer and furniture store, the politically powerful VNAs now want permanent statutory protection from the kind of pro-consumer antitrust prosecution that once was a great burning cause for honest liberals.
This legislature ought to be ashamed of itself if it protects well-heeled monopolies over needy patients who want and deserve a choice.
Universal Health Care Disaster
April 2005
“Universal” single-payer health care coverage, the longtime shining vision of liberals and progressives, is on the front burner in Montpelier. On April 21 the House passed H. 524. “Green Mountain Health”, by a vote of 86-58. The bill will create a publicly-financed, integrated, regional health care delivery system that is equitable, universal, well-coordinated, patient-centered, cohesive, unified, comprehensive, continuous, sufficient, fair, sustainable, and accountable.
That long parade of adjectives masks some really frightening concepts. Consider these features, translated from the bill’s fluffy language into plain English.
People covered: “All Vermont residents …will be covered” by the new System. That means that if you are a resident of Vermont, this is the System for you. No options. No choices. Not for anyone. Why not? Because the Government said so.
What about the people who flock here to get Vermont taxpayers to finance treatment for their expensive diseases? Coverage must be “subject to reasonable residency requirements.” The single payer advocates are the same people who promote election-day voter registration, but now they ask us to believe that they will support a residency requirement for sick people migrating here to get Vermont’s taxpayers to pay for their care. Not believable.
Health care covered: “all essential health care services will be covered.” Who decides what is “essential”? Not you and your doctor. Translation: a “joint health reform committee” composed of 17 legislators (12 Democrats, 5 Republicans) will define “essential”, in light of “available funds”. When the government runs out of tax dollars, Grandma can wait until the next fiscal year when more funds become available.
Delivery of care: By an “integrated, community-based system.” Translation: all providers of “essential” health care are locked into government-controlled regional “community health boards” where bureaucrats will tell doctors and hospitals what they can and cannot do.
Governance: the legislature will establish global budgets for health care, appropriate necessary funds, and establish state health care policy. The bill sets up a new Department to deal with planning, analysis, purchasing, and regulation, the “joint health reform committee” to define “essential” services, and a Regulatory Review Board to enforce the orders. This apparatus will supersede current health insurance regulation, since Vermonters will no longer have health insurance.
Make no mistake: Government will completely control this gigantic System with, presumably, typical Government efficiency and compassion. Not too reassuring.
Provider Reimbursement: How much will doctors and dentists get paid for their services? Their reimbursement will be “reasonable” and “sufficient”, as determined by the government. Translation: They’ll have to organize – perhaps even unionize – to fight for every nickel, against a state government that even now dramatically underpays them for serving its Medicaid caseload. On the other hand, the practitioners are not required to continue practicing in Vermont.
Financing: “Primarily from broad based taxes.” This doesn’t even require a translation. It means you will pay higher – much higher - payroll taxes and income taxes. The new taxes you pay may be offset by higher pay, made possible by your employer no longer paying health insurance premiums. Or maybe not. Probably not.
Cost Control: The bill requires the government to decide what services are “essential”, establish “cost containment targets”, and enforce them through “global budgets” for hospitals and caps on physician reimbursement rates. The advocates have made it clear that this combination of mechanisms will achieve “cost control”. The government controls the amount of money to be spent on health care. So Presto! Costs are contained!
Unlike the much-maligned Health Maintenance Organizations, the single payer System doesn’t set up criteria for denying care to individual patients. The Government, as in Canada, will set “global budget” limits, and leave the doctors and hospitals to do the dirty work of rationing resources to stay within those limits. If you liked HMOs, you’ll love this “integrated System.”
Accountability: The System must of course be accountable to the people. How? The Government will have total control over all health care providers. Since in the proposed government-run monopoly System all health care will be thoroughly politicized, no one should be surprised that politicians will make the key decisions. You get to vote for those politicians - Governor, Senator(s) and Representative(s). If your doctor and hospital tell you it will be a year-long wait for a hip replacement – sorry about the pain and suffering until then – your legislator is only a phone call away. Satisfied?
There are plenty of ways to achieve the real policy goal: helping Vermonters to enjoy improved health. The overall goal of the draft bill is quite different: it is to put Government in charge of an all-inclusive, taxpayer-financed, price-fixing, one-size-fits-all, bureaucrat-intensive monopoly health care System.
To the authors of the bill, that is a worthy, indeed the highest possible, goal. That is so even if in practice there turn out to be some annoying inconveniences, like rationing, waiting lines, maddening bureaucracies, demoralized doctors and nurses, shabby facilities, obsolete technology, declining quality of care, and of course much higher taxation.
Don’t worry. Your Government can work those things out.
- (This commentary was updated following the April 21 House passage of H. 524.)
The Prescription Drug “Reimportation” Mania
January 2005
The 2005 legislature is working at flank speed to push through a foreign drug importation bill. The argument seems reasonable. Vermonters want bargains. If Canadians and other foreigners can buy brand name American pharmaceuticals at bargain prices, why not us?
The answer to that is that Canadians enjoy lower prices because its provinces impose price controls on U.S. prescription drugs. Almost all of the enormous expense to the U.S. pharmaceutical industry of identifying a potentially useful drug, proving it to be safe and effective, and marketing it at full speed before its patent expires and the generic companies start making it falls on U.S. consumers.
With American consumers covering the overhead, the drug companies can make some spare change by selling drugs in price controlled countries like Canada at a few percentage points over the cost of production.
Since 1988, however, it has been illegal to import American drugs back into the U. S. from Canada and other countries. There are several reasons for this law. The most powerful one is that unlimited importation of foreign price controlled drugs into the U. S. will drive the world’s leading pharmaceutical companies (ours) out of business. There won’t be anyone left to pay the huge government-mandated costs of FDA approval.
Another reason is that consumers can’t be sure what they’re getting when they buy a bottle of pills from Canada. That’s because prescription pills are not shipped around in little sealed bottles, like aspirin, but in stock bottles containing thousands of pills. The process is an invitation to counterfeiters and even terrorists to substitute worthless or dangerous pills for the real thing. The FDA and Customs have already found potentially unsafe drugs coming in to postal centers in Buffalo, Dallas, Chicago and Seattle.
Well, never mind all that. Let’s look at the pioneering Illinois I-SaveRx online importation program. First you fill out an enrollment form. Then you take it to your doctor for verification and a medical records check. Then you mail in your doctor’s prescription (so long as it’s only for a refill – you can’t initiate a new prescription.)
Then somebody from I-SaveRx calls you to make sure your order is accurate. Then somebody else checks your paperwork to make sure everything is OK. Then I-SaveRx turns the paperwork over to a “licensed physician” (where?) for further review. Then the order is sent off to the Canadian, British or Irish pharmacy, which has been inspected by an I-SaveRx inspector. The pharmacy ships the order back into the U.S. Thirty days before your prescription is due for refill, somebody from I-SaveRx calls you to update your “health and medication profile”.
It’s probably a good bet that if the cost of all these taxpayer-subsidized bureaucratic activities, plus shipping costs, were added to the cost of the reimported drugs, the drugs wouldn’t be noticeably cheaper than what they sell for in a competitive U.S. community, big box (WalMart, Costco), or online (Medco, Express Scripts) pharmacy. And unless the I-SaveRx inspector is going to take up residence at the foreign pharmacy, there’s won’t be any dependable guarantee that U.S. consumers are in fact getting what they are paying for.
Of course, the whole scheme is clearly illegal under the 1988 Prescription Drug Marketing Act. The FDA has said repeatedly that it cannot police the safety of drugs coming into the country via internet marketing, and even the sympathetic Clinton administration refused to certify the safety of imported drugs.
None of this is likely to deter the legislature. The pending bills would start the process for buying in to I-SaveRx, obliquely admitting that the reimportation program is illegal. The bills contain no appropriation for underwriting the program’s not inconsiderable costs. Nor do they allow patients to sue the state of Vermont for damages resulting from use of a state-sponsored I-SaveRx drug that turns out to be tainted or counterfeit.
It might be a better bargain to use the same funds to encourage patients to choose much cheaper alternative treatments (vitamin B3 instead of Lipitor, saw palmetto instead of Proscar), persuade doctors to prescribe 90-day supplies and less expensive generics, teach consumers how to find the best prices, supply pharmaceutical discount cards, and toss in free pill splitters.
But who would want to take political credit for that?
“Patient Power” vs. “Service Delivery”
January 2004
Health care policy has emerged as the central political issue of 2004. Two radically different views of this issue are taking shape, associated with the respective political parties.
In his first year in office, Republican Gov. Jim Douglas has taken only two high profile steps in health policy. He petitioned the FDA to allow Vermont to import price controlled pharmaceuticals from Canada, and he had Vermont join Michigan in a drug buying pool. He also observed that Vermont needed competition among insurance providers, something that had been deliberately destroyed by the community rating legislation of 1991-92.
Sensing that Douglas might be vulnerable for not advancing a broader health care initiative, Democratic leaders in the legislature played their first card on December 30. At a news conference Sen. Peter Welch declared that “the real job killer in Vermont is a health care system with out of control costs and shrinking access, and the burden of paying for it increasingly being shifted to small business and individuals with ever higher co-pays and deductibles.” (He did not acknowledge that the higher co-pays were demanded by the most recent Democratic Governor, Howard Dean, after he saw the runaway spending projections for Medicaid.)
The Democratic program includes letting small businesses put their employees into state-run Medicaid, which would be cheaper for the businesses because the state seriously underpays the health care providers. They would expand the state-funded Dr. Dynasaur program from ages 0-18 to 0-25. The Democrats again endorsed the drug importation proposal. They have also denounced any weakening of community rating, the insurance regulation that requires young healthy families to pay the health insurance costs of their less healthy (but wealthier) parents and grandparents.
In his January 20 budget message Gov. Douglas set out his counterproposals, devoting over half of that message to health care policy. After describing the fiscal black hole facing the Medicaid program – the program the Democrats are eager to expand - Douglas proposed state reinsurance of individual and small group portfolios, tax credits for small businesses that contribute to their employees’ Health Savings Accounts, increased Medicaid payments to providers, cheaper imported prescription drugs, and more money for community mental health.
But then Douglas broke out into new territory. He proposed to “empower the patient” by collecting and posting prices for treatments. He proposed to allow insurers to offer a “healthy choices discount”, so that those who avoid health-threatening behavior (tobacco, drugs, excessive alcohol consumption, etc.) can benefit from lower insurance rates. This common sense idea is currently prohibited by the same community rating that Douglas’s opponents have nearly erected into a graven idol.
The two sets of proposals offer two diametrically opposed versions of health care policy. Douglas has adopted the “patient power” model. It’s based on consumers making informed choices in their own self interest among competing insurers and providers. Wise choices lead to better health and lower insurance costs. A key mechanism is the combination of a lower-cost, high deductible major medical policy and a tax-deductible Health Security Account. Lower income consumers are empowered by subsidies or tax credits to pay for adequate coverage, the key principle of the highly successful Swiss system.
The Governor’s opponents favor the “service delivery” paradigm. Its key concept is “universal coverage” managed by a governmental authority through regulations, price controls, budget caps, reimbursements, and rationing, principally or entirely financed by taxation. In such a system, everyone has a right to as much health care as the government thinks they need, and the idea of empowered consumers is irrelevant. In this model, patients (not “consumers”) stand in line until their number is called, take what they are given, and do as they are told, at no direct cost to them, consistent with budget realities. These policies are exemplified in the taxpayer-financed Canadian and British systems.
The reason the “universal coverage” advocates are so opposed to repealing community rating is that it would bring back the competing health insurers who departed in 1994, and restore a marketplace for the benefit of empowered consumers. They also oppose Health Security Accounts that they claim, without evidence, would benefit “the healthy and wealthy”. If the ultimate goal is a single payer system, as theirs is, every incentive for people to act in their own interest is antisocial and thus a mortal threat.
As the political year progresses this debate will be waged in earnest. Vermonters will have to understand the implications of these diametrically opposed policies, and make their choice in November.
Choice for the Home Bound
January 2004
A wheelchair-bound Vermont man – let’s call him Scott – needs a lot of help. Under Vermont’s Medicaid law, he is entitled to a range of health care services, such as an aide’s help in his home. But unfortunately for Scott and thousands of other Vermonters, he has no choice about who will provide those services. Unless he has private means to go outside Medicaid, which he does not, Scott will have to take what his Visiting Nurse Association (VNA) offers, on its terms, when it finds it convenient.
Vermont has twelve regional nonprofit Visiting Nurse Associations (VNAs), one dating back to 1906. Prior to 1965 these charitable agencies were funded by individual contributions, foundation grants, United Way, health insurance, and town meeting donations. The advent of Medicaid and Medicare in that year transformed them into sizable businesses, overwhelmingly dependent on state and federal money to serve a far wider range of consumers.
And like most businesses, the VNAs found life to be much simpler, more predictable, and more profitable when government bars any competition. Only Vermont, among the fifty states, continues to do just that, by making home health care subject to the Certificate of Need (CON) process. The process requires health care entities, including home health agencies, to prove their competence and, more importantly, that they will meet a “need” that is not being met by the existing providers. The VNAs were grandfathered in at the beginning.
Since 1980 only two non-VNA applicants have ever been able to obtain even a limited CON. The one current survivor, the 200-employee Professional Nurses Service Inc., has battled for years to get its limited CON expanded so that it can offer a full range of services on the same basis as the VNAs. A year ago it sought permission to use Licensed Nursing Assistants, instead of the more expensive Registered Nurses, to provide Medicaid-financed services to disabled people like Scott. The competing VNAs are authorized to this, but the CON prohibits PNS from doing so.
On December 3 the Public Oversight Commission, over intense opposition from the VNA trade association, unanimously recommended in PNS’s favor. On January 9 BISHCA Commissioner John Crowley accepted the recommendation and approved PNS’ petition for this very limited expansion.
The VNA may do a great job, striving to serve its customers conscientiously; or it may do a hit or miss job to better accommodate the interests of its staff instead of those of its customers. Facing a monopoly, what can dissatisfied low-income, disabled customers do?
If they don’t like Price Chopper they can take their food stamps to Shaw’s, but if they don’t like the VNA they are stuck with the basic rule of a monopoly: no competition, no choice; providers’ interests first, consumers’ interests later.
Medicare is the big, lucrative home health care market. The VNA regional monopolies know that with this limited victory in hand, PNS will soon seek full qualification to serve thousands of Medicare consumers as well. The VNAs will certainly not sit idly by while the state lets competition into what is now their monopoly preserve.
The VNAs claim that private competitors would “cherry pick” among Medicare patients, accepting only those that could be served most economically. Their critics reply that the VNAs are really doing the cherry picking by leaving the needs of many service-eligible Vermonters unmet. The VNAs would rather, say the critics, let authorized Medicare services go unprovided, than allow competitors in to meet consumer needs. From the point of view of the consumers – elderly, feeble, and handicapped Vermonters like Scott - the expansion of choice among service providers would be a Godsend. With real competition, providers would put their customer’s needs first, or the customers would take their business elsewhere. The Certificate of Need requirement for home health care should be repealed outright, as Maine did in 1991 with very positive results. The state should screen and license competing home health and personal care providers, including the 12 VNAs, and set up a quality survey and reporting system for the benefit of consumers.
That will certainly inconvenience the VNAs. They can rightly claim to have done a lot of good for a lot of needy people over many years. But public policy should not aim at preserving comfortable monopolies for any group, no matter how worthy. It should steadfastly aim at empowering consumers and citizens, and expanding their choices about their lives.
Repeal Community Rating
November 2003
A main tenet of modern liberalism is that government must take from those who have a lot, and distribute benefits to those who have little. Thus it is always baffling when liberals demand that the poor be taxed to shower benefits on the rich.
The latest example of this Robin Hood in Reverse policy is the liberal opposition to Gov. Douglas’s plan to back off from strict community rating in health insurance.
Community rating says that everyone buying health insurance must pay the same premium for the same benefit package, regardless of age, gender, or anything else that affects their health care costs.
Health insurance is the only type of insurance where community rating applies. In auto insurance, drivers with driving violations pay higher premiums. In life insurance, young people pay low premiums, and old people, soon likely to die, pay very high premiums.
Community rating forces healthy young people to pay higher premiums to cover the elderly sick. This may seem charitable, but consider this: a young couple in their twenties is typically trying to pay for a home mortgage, cars, children, and often college loans. They are trying to meet these responsibilities when they are at the low end of their career income curve.
But their grandparents have long since paid off their educational loans, paid off their home mortgage, and seen their children grow up and depart. The breadwinner, with 40 years of work experience, is usually earning his or her highest income.
So, let’s fix the insurance law so that statistically less healthy Grandpa and Grandma get the lower, subsidized insurance premiums, and send the bill for the difference to the much healthier grandchildren! Does this sound fair or reasonable?
But that’s exactly what Vermont insurance law has required since 1992. This illogical and pernicious policy was adopted for one reason: to fend off the insolvency of Blue Cross and Blue Shield of Vermont.
The result was the destruction of the state’s competitive health insurance market. Insurers who were marketing very affordable coverage to healthy young people abandoned Vermont, as the backers of community rating intended. Blue Cross, with considerable regulatory assistance, emerged from its near-disaster status to gain a near-monopoly on the small-group and non-group insurance market in Vermont.
Worse than this bit of corporate welfare is this: any serious health care reform requires restoring personal choice and responsibility for health-affecting lifestyle choices, and market competition in care and risk protection. Robin Hood in Reverse community rating drives out competition and choice, and forces people who choose healthy lifestyles to pay for the problems of those who don’t.
In 1999 Gov. Dean’s insurance commissioner, probably without legal authority, removed the +/- 20% premium variation allowed by the 1992 law, and imposed the nation’s strictest community rating principle: zero premium variation for age of the insured.
Douglas now proposes to roll back this rule. Liberal legislators have vocally protested. They are willing to ignore the awkward fact that community rating taxes the relatively poor to benefit the relatively rich. They correctly see any weakening of community rating as a step back from their goal of socialized medicine.
Douglas’s customary caution may serve him badly in this instance. An administrative rule change to expand the premium rating band is not likely to attract any more insurers into the state. It has, however, brought down upon the governor the wrath of single payer liberals. Sen. Peter Welch, the Senate Democratic leader, was quick to call Douglas’s proposal the single biggest mistake that Douglas has made in office.
If Douglas is determined to lay the groundwork for health care reform based on responsibility, choice and competition, he needs to do much more than roll back Dean’s rating rule. He needs to persuade the people and their legislature to march off in a different direction. Repealing community rating outright, and allowing premium discounts for healthy lifestyles, are key items in a reform agenda.
Reviewing three years of community rating, the Burlington Free Press editorialized in 1995: “The [community rating] law… must be repealed. It had the best of intentions, but has resulted in driving people who were paying their own way off of insurance, and toward dependency on the state. Lawmakers should be bold enough to admit a failure. The plan was a fine piece of economic theory – as supporters, we share in the guilt – but reality has proved smarter.”
Eight more years have gone by. It’s time for legislators to do what the Free Press bravely did - admit this was a big mistake, give community rating a decisive burial, and move on to craft a market-oriented reform agenda that will lead the nation.
Drug Reimportation - A Disaster in the Making
November 2003
The political pressure to allow Americans to legally import prescription drugs from foreign sellers is building to a climax. The Mayors of Springfield MA and Burlington are trying to organize bulk purchases of lower priced American pharmaceuticals from Canada. Even Gov. Jim Douglas says that Congress should “seriously consider making Canadian drug reimportation available” to Americans.
The drug companies have opposed reimportation by raising the drug safety argument. How can Americans be assured that the prescription drugs they get from some foreign country over the Internet are not just worthless starch pills, or worse yet, pills contaminated by terrorists? As a lengthy investigative major report in the Washington Post has shown, that’s a very real concern. In fact, when Congress earlier tried to authorize purchase of foreign drugs, the Clinton Administration refused to certify the safety of the imported products, long before 9/11.
The drug safety issue is important, but the real issue is even more important. That issue is the life or death of America’s world-leading pharmaceutical industry.
The economics of the pharmaceutical industry work like this. Companies spend millions on basic research to identify compounds that have promise of treating various illnesses. The most promising compounds - out of thousands tested – go into three lengthy phases of Food and Drug Administration trials. Finally, if the new drug proves safe and effective, it wins FDA approval.
At this point the company has spent, on average, over $800 million dollars and as much as eleven years. Even if one quarrels with this calculation, made by a Tufts University economic team, the cost to get the first new pill approved is undeniably many hundreds of millions of dollars.
To recoup this enormous investment, to generate funds to finance continuing R&D, and to earn a return for their shareholders who put up the capital, the companies have to market the new drug as hard and fast as possible. The patent clock is ticking. Within 20 years, often much less, the patent will expire and the generic drug manufacturers will flood the market with cheap copies. After that happens, the originating company has little or no chance of recovering any more of its investment.
In Canada, provincial drug approval boards fix prices for various prescription drugs, most of which originate in the U. S. or Switzerland. These prices are usually just above the cost of making and distributing the pills. The U. S. companies can make pocket change selling at these government-controlled prices, but the Canadian patients pay almost nothing toward the enormous cost of developing a new drug.
U. S. patients (and government programs) are paying those costs. That’s why most prescription drugs are more costly in the U. S.. To put it bluntly, Canadian and other foreign patients are parasites on American consumers. Their country’s price controls are in effect involuntary foreign aid from us to them.
Selling these underpriced drugs back into the U. S. from Canada means an equivalent amount of the same drugs will not be sold here at U. S. prices. The more widespread this practice is, the less able the U. S. companies are to maintain their R&D efforts. They may give up the small profits they are making by freezing exports to countries like Canada. Otherwise, if they keep on shipping $1 pills to Canada to watch them come back as twenty-cent pills in the U. S., the industry is finished.
That’s always the baneful effect of price controls. Instead of trying to impose price controls directly in this country, where the effects would be more obvious, the reimportation politicians want to import the price controls from Canada. Thus Canadian governments do the dirty work, and politicians like Sen. James Jeffords can ludicrously tell Vermonters that when they buy cheap U. S. drugs abroad, it’s “the free market at work.”
Instead, Congress ought to direct its attention to reducing the enormous costs of pushing a new drug through to FDA approval. It should consider returning to the rule prior to 1962: manufacturers would have to prove only that their drugs were safe. They would not have to prove they were effective, which is what eats up the hundreds of millions of dollars. Patients and doctors will discover quickly enough whether a drug delivers on its promise.
Reimportation, today’s hot “solution”, is a disaster in the making. It will end up costing American patients and taxpayers dearly, both in extended hospital time and reduced quality of life.
Single Payer Health Care: Reform or Affliction?
September 2002
The recurring campaign for single payer health care will resume next weekend with a statehouse rally to fire up activists and command media attention. The goal of the organizers is to persuade the 2003 legislature and new governor that a government controlled health care system will better serve the health needs all Vermonters, and save money to boot. It’s worth looking closely at just what is being proposed.
Single payer advocates believe that every person has a right to enjoy all “necessary medical care.” Patients could choose any doctor or hospital. The government does not own or employ the doctor or hospital, but all providers are compensated according to a schedule set by the government.
The government determines the type and location of medical facilities to ensure that all benefits are equal and available to everybody. The government levies progressive income and payroll taxation to pay for all health care. No one can be allowed to use their own money to purchase health care covered by the single payer plan, because that would introduce another payer and inequality.
There must be public accountability for the use of taxpayers’ money. That means every provider must operate within a government–fixed budget. Single payer offers rigorous control of the total cost of health care because of one simple fact: once the budgeted amount of tax dollars is used up, there is no more money and no more health care.
Since there is only one payer for health care (other than for minor copayments), there will no longer be any health insurance companies.
Where, one might inquire, is it written that one has a “right” to have his or her health care paid for by somebody else? The answer of course, is that nowhere is such a thing written. The right to “free” health care is not contained in any constitution. Of course it is perfectly conceivable that Vermont’s Five Supreme Legislators could manufacture a suitable right out of the same whole cloth they found so convenient in the school financing and gay marriage cases.
But whether or not there is a right to “free” health care, the rest of the single payer proposal boggles the mind. Who decides how much care is “medically necessary”? The government. Oh. Who decides how much each doctor, dentist, chiropractor, psychiatrist, hospital, laboratory and clinic will be paid for each of the many thousands of modern services, tests, and procedures? The government. Oh.
How much will a hospital be allowed to spend in a year? The government sets the budget numbers. Oh. What happens when, a month before the end of the year, the budget has been used up due to an outbreak of West Nile virus, or just careless management? The government will allocate, or mandate, or penalize. Oh.
There will be no more health insurance premiums. That’s a saving. But there will be higher taxes – far higher taxes. One study favored by the single payer advocates projects an increase in the payroll tax from 7.65% to 16.35% (for the self employed, from 15.3% to 24%.)
The same study – paid for by the taxpayers, incidentally – says that the state would have achieved a net savings of 5% - $118 million - if single payer had been in place in 2001. The main reason for the savings is said to be the efficiency of having only payer, a smart, lean, efficient government health care bureaucracy. But today’s high administrative costs are first and foremost due to the maddening bureaucratic jungle of Medicare and Medicaid rules. It’s hard to see how putting everyone into single payer Medicare would produce anything but negative savings.
The other major source of savings is projected to come from bulk purchase of prescription drugs. A state-funded effort is already under way to create a New England purchasing pool to negotiate (or force) such discounts. One may well be skeptical about the likely result of those efforts, but in any case it’s hard to see how a single payer system would realize any greater savings.
There are a lot of steps that could and should be taken to improve personal wellness and the efficiency of health care providers.But it shouldn’t take a reasonable person long to see that an all-inclusive, taxpayer-financed, one-size-fits-all, government-rationed, price-fixing, bureaucrat-intensive health care monopoly is not very attractive.
Such systems have worked poorly everywhere they have been tried, including notably Canada. They feature politicized decision making, crushing tax burdens, vast bureaucracies, long waiting lines, dispirited doctors and nurses, shabby facilities, obsolete technology, and poor quality care beyond the scratch, scrape, sniffle and immunization level.
The single payer people deserve some credit for idealism, but Vermont’s patients, taxpayers and economy deserve better than the afflictions of their proposed “reform”.
The Hogan Commission Report
November 2001
Former California Governor Jerry Brown once observed that in matters political "you paddle on one side, then you paddle on the other side, and your canoe ends up going down the middle." That's an apt metaphor for the draft report of Governor Dean's Commission on Health Care Availability and Affordability, chaired by former AHS Secretary Con Hogan. The finalized version is expected to go to the Governor and legislature in mid-December.
The introduction to the report reads like the introduction to a Bernie Sanders-Cheryl Rivers socialized medicine tract. "We do not have a health care system in Vermont. No one is in control. No one is responsible for ensuring that high quality medical care is adequate for the needs of the public. No one ensures that medical charges are appropriate or that they are paid in full... There is no global budgeting" or "public accountability" for health care institutions.
At this point the logical reader would naturally expect the conclusion: "Therefore, we (the government) must take control. Vermont needs a Health Care Czar who will make sure everybody gets all the high quality care the government thinks they need, all charges are appropriate, all budgeting is under government control, and everything not required is prohibited."
Instead, the report makes a U-turn. It proceeds to deny that putting the government in charge of everybody's health care is a good idea. The commission (not including Rivers, who will file a dissent on this point) rejects single-payer government-monopoly health care because it doesn't believe government could manage it or pay for it, and that in any case there is no consensus for such an idea. The report also declines to support price controls on pharmaceuticals, about which Rivers will also doubtless have a lot to say, since she now has a very nice taxpayer-funded job peddling that nostrum around the Northeast.
Having completed this rhetorical about-face, the report makes a number of important and useful observations and recommendations. Among these are:
- "The primary responsibility for maintaining wellness and paying for health care rests with the informed individual and family, not with the government."
- "Competition in health care and [insurance] coverage... tends to control costs, foster efficiency and maintain affordability", and should be maximized.
- "Community rating [of insurance premiums] has the effect of lowering costs for older people and those with medical conditions while raising them for younger healthier people. It does not provide incentives to avoid freely chosen risky behaviors." Young people often drop coverage rather than pay the high costs of subsidizing the premiums of their richer parents' generation.
- "There is a disconnect between the consumer receiving health care and the entity paying the bill... Third party payment tends to shield consumers and provider from understanding the cost consequences of their behavior and of the health and medical choices they make."
- Individual health insurance premiums are only partially tax deductible, and are thus penalized compared to fully-deductible employer premiums
- There are "enormous inefficiencies in the administration of health care" within the health care industry. Solving this problem deserves a full-fledged study.
- Vermont's abysmally low Medicaid provider reimbursement levels should be increased to merely low Federal Medicare reimbursement levels. (From the hospital standpoint this is modest progress, but it's still like being beaten up by the band instead of the football team.)
The report recommends an experimental "Incentive Plan for Medicaid". Under it, 7000 enrollees in VHAP (expanded Medicaid) would get a state-funded smart card for health care expenses. The enrollee could use half of the balance at the end of the year to pay for job training, college credit, and similar programs. This is in effect a Medical Savings Account, but without the essential high-deductible private insurance policy. In deference to its collectivist members who dislike the idea of personal responsibility, the commission has to call it something else.
Although the draft report criticizes the malign effects of community rating - not the least of which has been the near destruction of the individual and small group health insurance market in the state - the commission can't bring itself to recommend getting rid of it. It's a pity that the Hogan commission is unable to produce a principled and consistent reform program. Given the composition of the group, it should not come as any great surprise. The commission has gained ground by endorsing some important principles and rejecting some disastrous ones, but a sound and persuasive health care reform program still lies in the future.
Command and Control Health Care
September 2001
Nine years ago Vermont set out to create a health care system built upon the noted management practices of the recently dissolved Soviet Union. Now Gov. Howard Dean MD, the architect of that strategy, is not happy with the results. He says the state government needs even more power to control health care.
According to Gov. Dean's flagship piece of legislation, Act 160 of 1992, rising hospital costs would be controlled by a central command-and-control agency to be known as the Vermont Health Care Authority. Every year the Authority would adopt a health care resources management plan controlling "the distribution of health resources in this state." Then it would adopt a unified health care budget, consistent with the management plan, that would "establish the total amount of money to be expended annually for all health care services provided by health care facilities and providers in Vermont" This budget would "serve as the basic framework within which health care costs are controlled, resources directed, and quality and access assured."
To put it simply, an all-powerful government bureau would determine what health resources Vermonters needed, where they would be located, and how much would be spent on them. This remarkable (for this country) proposal passed the Senate on a vote of 25-4. (Sen. Cheryl Rivers (D-Windsor), the most ardent backer of a command and control system, ultimately voted against the bill because it didn't go far enough fast enough.)
To be sure, there were some important differences between the Dean plan and the USSR system. Hospital administrators who overspent the budget allocated to them by the Authority would not simply be shot. But the Authority was authorized to go to Superior Court to get a court order to back up its orders and rulings. The regulators also had other ways to put pressure on restive health care providers, such as withholding a Certificate of Need required for any new equipment or facilities.
Rutland Regional Medical Center had enough spunk to take on the Authority. In 1995 it took an appeal to the Supreme Court, challenging the Authority's power under the law. The Authority amended the challenged rules, and the day before oral argument in the Supreme Court, RRMC withdrew its appeal.
Earlier this month, in one of his periodic outbursts at hospitals, insurers, and pharmaceutical companies for increasing the cost of health care, Gov. Dean denounced Vermont hospital mangers for their "unwillingness to manage costs". He promised to "put some teeth in the Public Oversight Commission," the bureau that has now replaced the defunct Authority.
And what would those teeth look like? Presumably, the all-powerful commission would simply decree a final, binding budget for every health care provider. And what if hospitals overspend? The commission would order them to lay off staff, reduce salaries, close wings, or discontinue services. It would if necessary remove their administrators, dismiss their boards, and put them into state receivership. All this is the logical final step of the 1992 act.
Even the governor concedes that the state is drastically underpaying all health care providers for services provided to the state's burgeoning Medicaid population. The Governor is proud of the fact that children from families of four earning $51,000 a year can get into Medicaid and have their health care bills paid by the taxpayers. However, the taxpayers can't afford to pay the actual cost of those services, so the providers shift the costs of the shortfall to their other customers, resulting in higher insurance premiums, followed by more people dropping insurance coverage, thus swelling the number of people on the rolls of the Medicaid program, which underpays, etc., etc.
The next time their doctor-Governor starts blaming everybody else for rising health care costs, Vermonters should tune him out. True, there are serious inefficiencies in the health care system. Energy costs have been rising. The pharmaceutical companies have to recover the R&D costs -- typically $400 million - of new drugs. The federal Medicare program also underpays providers (but far less, percentagewise, than Dean's Medicaid). But a major - perhaps the major - factor is the continual expansion of government mandates, controls, bureaucracy and underpayments that are likely to become Howard Dean's real health care legacy to Vermont.
Facing Up to Vermont’s Health Financing Problem
September 2000
Health care financing is emerging as one of the contentious issues in this year's state campaigns, and well it should. Gov. Howard Dean has celebrated Vermont's progress over his nine years in office, and has offered Vermont's policies as a model for the nation. In a statement released in June, an eleven member group of state officials and others dependent on state health financing reported with pride that the number of uninsured in Vermont had dropped from 10.8% in 1993 to 6.8% in 1997.
These figures result from a "state sponsored survey" which does not compare with the uninsured statistics compiled by the Census Bureau. The Census CPS figures show that in 1992, when Gov. Dean began his first year in office, the Vermont uninsured rate was 8.5%. Six years later (the most recent available) the rate had risen to 9.9%.
However these figures are unreliable. Because CPS uses such a small sample in Vermont, the percentages tend to jump around wildly. Further, if one arbitrarily chooses a time interval with a low beginning point and a high end point, one can show a quite remarkable increase. Thus health analysts place little stock in the CPS numbers for a small state like Vermont.
Gov. Dean, however, liked the result of the 1994 CPS survey. It showed that Vermont's uninsured rate had dropped to 8.6%, putting Vermont second in the nation. In an op ed piece in June 1997, the Governor was pleased to take credit for this high ranking. At the time he wrote, the 1995 CPS figures had been out for six months. They showed that Vermont had slipped from second to 23rd.
Over the past nine years the Governor and legislature alike have bought into the idea that the Holy Grail of health care is a low number of uninsured. Drive that number down - success! See it rise -- failure! And so every policy step focuses on driving down the uninsured rate without paying a lot of attention to what is actually happening in the insurance marketplace..
What has happened over the years 1994 to 1998 is this: Vermont's insurance "reforms" produced a drop of 30% in private individual insurance coverage and 24% in small group coverage, and nearly destroyed a competitive insurance market in the state.
Individual and small group plans are those used by the self-employed and small businesses with fewer than 50 employees. Because of Gov. Dean's 1992 "reforms", a series of new state coverage mandates, and the departure of most of the companies selling such policies, many of the people formerly covered found that health insurance had become unaffordable. Many of them found their way, as intended, into Medicaid, which increased by 26% over the same period.
This program, called VHAP, has been expanded to the point that the children in a family of four earning over $50,000 can get "free" health care from the state, and Gov. Dean has petitioned the Federal government to allow VHAP to cover the parents of those children as well. (So far the Clinton administration has said no.)
This transfer of uninsureds to Medicaid means that the Medicaid budget must rise. Last spring the Joint Fiscal Office projected that VHAP will be $42 million in the hole by 2006, even with no new eligibles.
If more and more people are showing up at hospitals and doctor's offices on the government's nickel, and the leaders of the government are unwilling to ask for tax increases to pay the bills, what happens? Gov. Dean has vigorously ruled out any tightening of eligibility. The remaining option is to further underpay the providers. The hospitals can't turn patients away, the state won't pay their full costs ( in some cases, not even half of the costs), so the hospitals have to raise rates for everybody else. This has been the strategy of choice.
Given these facts, it is startling to hear Gov. Dean blame higher Medicaid costs on higher patient utilization. After all, who has been taking credit for sending more people to more providers on the taxpayer's nickel all these years? Why wouldn't there be higher utilization, when more and more people are offered services for free? (After being outlawed in the 1992 "reform" act, small patient co-payments have now been resurrected to slightly discourage this free lunching).
The Governor's most recent solution is for hospitals to get tough with people who show up asking for these services! In other words, the government gives itself credit for sending thousands more people to use health care services; the patients pay almost nothing; the government drastically underpays the providers, forcing them to shift the costs to private customers, causing more people to abandon their now-unaffordable insurance; and now the Governor insists that hospitals ration services to bail Medicaid out of a coming fiscal crisis.
There is a lot more to this story, but the outline should be clear. Since 1991 government policies have deliberately destroyed a once-competitive insurance market, shifted thousands of Vermonters from private coverage to taxpayer paid coverage, and sent taxpayers ever increasing bills. The solution is not lecturing hospitals on the need for them to ration health services. The solution lies in backing the government out of the mess it has made, and adopting a new health care policy based on personal responsibility, tax equity, reduced mandates, a high-risk pool, and honest payment for what the state forces providers to deliver.
Transcending the Drug Price War
July 2000
In a move highly applauded by Vermont's Congressional delegation, the U. S. Senate on July 19 passed a measure allowing pharmaceutical wholesalers and retailers to reimport U. S.- origin drugs from countries where they are price controlled (notably Canada), and therefore in many cases cheaper to consumers. This, according to Sen. James Jeffords, lead sponsor of the measure,will "unleash market forces" that would get the pharmaceutical industry to lower prices in the United States.
What is more likely to happen, if the measure becomes law, is that the pharmaceutical companies will freeze the quantity of their products exported to or made in Canada. If American wholesalers are allowed to reimport a million Prozac pills from Canada, those pills will come back to displace the identical pills now sold at a higher price in the U. S. Since the manufacturers make very little by selling price-controlled pills to Canada and make a lot by selling the same pills in the U. S., they will have enough sense not to provide Canada with low-price pills that can be sold back into the the U. S. to displace the far more profitable U. S. pills.
With Canadian drug quantities frozen, the Canadian provincial single payer health care systems will have to decide whether to resell the pills to bargain-hunting U. S buyers, or provide them to sick Canadians. Politically, sick Canadians will win this contest.
Some quick fixes will pay off for a short period of time, but none of the politicians who have made this their issue have any long term solution other than price controls, rationing, and forced discounts, all of which will have predictably bad results. Gov. Howard Dean has proposed a New England state buying pool to bargain with the manufacturers for the lowest price. Such market aggregation can usually can get a lower price, for a while, for those lucky enough to be in a pool. Once others find out they are being charged higher prices to make up for the pool discounts, they will get smart and organize their own pools. When there is no one left from whom the sellers can extract the higher price, the prices level out again.
A lasting solution to the high cost of drugs does not lie in gimmicks that may work only until everybody else catches on to the game. A long term solution would include steps such as these:
- Reduce consumer reliance on heavily promoted, high-priced prescription drugs. Before the 1938 Food, Drug and Cosmetic Act anybody could buy any drug that was correctly labeled (except narcotics). But after that Act the FDA allowed manufacturers to dispense with detailed labeling if they made the doctor the consumer's purchasing agent, through prescription. So the drug companies went heavily into prescription-only drugs, reoriented their marketing from consumers to physicians, and shifted the required labeling from the consumer package to the Physician's Desk Reference. Increasing self-medication by informed consumers is now much more feasible because of internet resources, CD-ROM libraries, and large user groups of co-sufferers exchanging information. Many safe and effective drugs could be sold over the counter much more cheaply, without prescription, with little chance of catastrophic results. As a half way measure, governments might allow doctors to certify informed patients as "qualified users", akin to the experienced and affluent "qualified investors" who are allowed to buy stock in high-risk new companies not yet approved by securities regulators for public sale.
- Relax the very expensive "efficacy" requirement of the 1962 Food and Drug Amendments. Before 1962 manufacturers only had to show their products were safe - not that they actually cured a condition. This 1962 law change took consumer decisions away from doctors and gave them to research experts. It led to the present requirement of enormously costly clinical testing, into the hundreds of millions of dollars spent for every new drug brought to market. People should be allowed to buy drugs that aren't conclusively proven to be effective, so long as they are known to be safe. If the drugs don't work, the users and their doctors will find out very quickly, and so will everyone else. Without the enormous costs of clinical testing, the cost of many drugs would nosedive. The FDA should also allow the use of drugs approved for use in other industrialized countries.
- Improve public and physician knowledge of non-patentable treatments, such as vitamins, minerals, and herbal remedies. Every primary care doctor knows, or ought to know, that a preventive regimen of Vitamins A, C, and E produces a sharp statistical drop in cardiovascular problems. Such vitamins, and herbs like saw palmetto for enlarged prostate, are cheap and effective, and their use is accelerating dramatically.
- Invest in plant vaccine research. Dr. Charles Arntzen at Cornell is well on the way to modifying banana plants to carry anti-microbial genes that will vaccinate the eater against such afflictions as e. coli diarrhea. This field is in its infancy, but shows high promise of helping people avoid a wide range of diseases at almost no cost.
Solutions such as these go beyond the current political battles between the drug companies and politicians eager to deliver election-year benefits to important blocs of voters. They would lead to dramatic changes in the way the pharmaceutical industry works, in the way FDA regulates drugs, in the way doctors treat patients, and in the way patients manage their own wellness. The drug companies and the FDA, long locked in a love-hate embrace, will not welcome such a new and unsettled regime. But these changes, unlike destructive price controls, rationing and forced discounts imposed by government on the manufacturers, or clever purchasing schemes that work only everybody else catches on, will actually make a difference.
Dr. Dean's Road to a Single Payer Health System
December 1999
It's perfectly clear that the Number One issue before the 2000 General Assembly will be the exploding cost of health insurance. Now, seven years after Gov. Howard Dean's "landmark" health care "reform" bill of 1992, the following things have happened:
- The 17 small group and individual health insurance companies once competing in Vermont have shrunk effectively to three. Companies covering the majority of Vermonters who are in managed care will be gone from the state by March. The remaining companies have announced premium increases of from 20 to 40 percent.
- Thousands of young families have been priced out of the health insurance market by "reforms" which have required them to subsidize the health care of their older, sicker but richer parents' generation.. New mandates, such as "parity " for hard to define and rarely cured mental illnesses, have pushed up health insurance costs.
- Taxpayers are now paying the health care bills for over half the people of the state, including children from families earning over $49,000 a year. Gov. Dean says this is "great".
Gov. Dean has worked hard to create a national reputation for his accomplishments as a young doctor-governor. So it's worth examining how he now proposes to deal with the impending crisis in health care costs. Asked at the Warren Rotary Club on October 21 what his next move would be, he replied "It's a very difficult question to which I do not have the answer. And I get paid to have the answers, so that's a pretty scary proposition."
Since then Gov. Dean has been busy generating thoughts on dealing with the crisis. Here, taken from his public pronouncements, are seven of his current ideas, with clarifying material added:
- Hospitals and doctors are inefficient. The public needs to be mobilized to put more cost-containment pressure on providers [even though, as I pointed out in 1992, "there is no such thing as an informed consumer of health care."].
- We have too many insurance mandates driving up premium costs [which I was proud to have signed into law].
- The hospital cost shift which is driving up private insurance premiums is caused by government underpaying for the increased utilization it produces, but the federal government [Medicare, which I can't influence] is the real villain because it underpays more severely than Vermont Medicaid [which I made my national reputation by expanding, and can do something about].
- We need to reimpose the Medicaid patient co-payment [which I abolished by signing Act 160 with much fanfare seven years ago.]
- Insurers should be allowed to vary premiums by region [another practice I was pleased to outlaw in 1992].
- Mandates on employers to provide coverage is the only way to get universal coverage, other than through a single payer system.
- If managed care companies pull out, the state itself must create its own state-run managed care program.
Some of these items are, quite clearly, an implicit repudiation of things that Gov. Dean was quick to take credit for when they were enacted. But what is noteworthy about the Governor's current thinking is his determination to constantly push government ever more deeply into health care, in what will prove to be the vain hope that new government controls will alleviate the problems caused by past government controls.
The ultimate result of this way of thinking is, of course, a single payer health care system. Howard Dean MD was an early and enthusiastic backer of single payer, endorsing Sen. Cheryl Rivers' single payer bill of 1991 and urging Vermonters to "learn from Canada and England." A cynic might observe that Gov. Dean's actions these past seven years have been designed precisely to drive Vermonters into a de facto single payer system.
Here's the recipe: drive out the private insurance carriers, thus removing their political resistance to single payer. Enroll thousands more in government health care programs which severely underpay providers. Force providers to shift the cost of these shortfalls to private insurance, thus making it unaffordable to more and more people, who will then be gathered into Medicaid at taxpayer expense.
Give the task of managing care for this expanded population to Blue Cross/Blue Shield of Vermont, for all practical purposes a subsidiary and beneficiary of state government that cannot leave the state, and cannot be allowed to fail.
If this is the sad route which our legislature chooses to follow, the State will wind up as the single payer for everybody not insured under Federal single payer (Medicare) and not employed by large self-insuring companies like IBM.
Then Vermont won't have to worry about that pesky surplus any more. Like single payer Quebec, our state government can then start looking for places (like Plattsburgh) to send patients who might die while on years-long waiting lists for government-rationed treatment, and combing the Third World for new doctors to replace those who depart Vermont for states where their professionalism and talents are more appropriately rewarded.
“Reforms” that Increase the Uninsured
November 1998
Vermont's health care future is again under study, this time by a special House committee headed by Rep. Paul Poirier (D-Barre). The committee began its hearings on September 11th with an enthusiastic presentation by a Maryland-based advocate of Canadian-style single payer health care.
To its credit, the Committee also heard phone testimony from a skeptic, Carrie Gavora of the conservative Heritage Foundation. Gavora made reference to a new study by Melinda Schriver and Grace-Marie Arnett of the Galen Institute. The title of this eye-popping report is "Uninsured Rates Rise Dramatically in States with Strictest Health Insurance Regulations."
The Galen report examined the actual outcomes in the 16 states where legislatures enacted liberal health care "reforms" from 1990 to 1994 to increase access to health insurance. The most important "reforms" in Vermont were guaranteed issue and community rating. These were imposed in 1991 for the small group market, and in 1992 for the individual market. (The study did not include the costly "mental health parity" mandate enacted in 1997.)
From the standpoint of liberal legislators, guaranteed issue means that an issuance company can't say no to an applicant, and community rating means that people don't have to pay higher premiums just because they are older. From the standpoint of the insurance companies, guaranteed issue means that people will wait until they are sick before buying to buy insurance, and community rating means that relatively poorer and healthier young families will be forced to pay higher premiums to subsidize the richer but less healthy generation of their parents. Both points of view are perfectly valid.
The Galen study examined the change in the uninsured populations in the 16 "reform" states, including Vermont, compared to the change in the 34 "non-reform" states (8.14% to 1.01%). The "reform" states ended up with more citizens uninsured, fewer citizens covered by private insurance, and fewer citizens covered by individual insurance.
It's not hard to see why this happens. Take community rating. Health insurance costs vary significantly with age. Young families incur far less in medical costs than the 50-65 year old. If the government requires insurers to charge one flat premium to all regardless of age, then young people's premiums will go up, and older peoples' premiums will go down.
That's fine for the older people (who are more likely to vote). It's not so fine for young families, who are still in lower-earning jobs, paying on a home mortgage, and trying to save for college for their kids. What happens? Unless their health insurance is provided by their employer, many younger families drop their insurance and hope for the best.
In Vermont, the number of uninsured rose from 50,000 (10.1% of the population) pre-reform (1989-90) to 72,000 (13.5% of the population) post-reform (1995-96). The 9.1 percentage point decline in private coverage was almost matched by an 8.2 point increase in government coverage through Medicaid.
What is obviously happening is that "reforms" in the private insurance market are driving people and insurers out of that market. As more Vermonters become uninsured thanks to "reform", the Dean Administration is expanding taxpayer-financed health insurance to take them in. In fact, in his recent campaign Gov. Dean reiterated his support for full taxpayer-funded health care for families of four earning $48,000 a year.
If one is a friend of single payer, Canadian-style health care, things are going along just fine. State government is well on its way to paying for health care for all but the upper income groups. At some point, with families of $48,000, then $68,000, then $88,000 incomes getting "free" health care will say "shy not just abolish private insurance altogether and go to a full fledged government-run system?" This thought is likely to occur to as many as nine members of Rep. Poirier's committee, including him.
It may be too much to make the accusation that enactment of Vermont's "reforms" of 1991-92 was a cynical scheme to hasten the arrival of single payer. Certainly many conscientious legislators thought they were doing to right thing at the time. But with the results now in, the 1999 legislature ought to see clearly what "reform" is doing to Vermonters, and set off down a different path.
Instead of taxpayer-financed, government-run, monopoly health care, legislators could build a far better system upon individual responsibility for wellness, fewer costly state mandates, premium rating by age, tax-free medical savings accounts, a high risk pool for the uninsurable, and full tax deductibility of all health insurance costs by those who do not have workplace coverage.
It's not too late - yet.
Megamedicine: Coming Soon to Your Town
January 1997
The 1997 legislature's showcase effort will be to achieve something that can be labeled "property tax reform", a term which has come to mean finding a different set of taxpayers to shoulder the ever-growing burden of feeding the clamoring maw of the public education system.
But a legislature is a many-ring circus, and something else will be going on in a side ring which may prove to be even more lasting in its effects than whatever fix is decreed for education financing. That is the push for more health care "reform".
In a campaign rally on October 11, House Speaker Michael Obuchowski, flanked by former Senate President Peter Welch, reaffirmed that "universal single payer coverage for all Vermonters" remains the goal. Welch, for his part, zeroed in on the avenue for reaching that objective: managed care.
Under managed care the government or employer pays a flat rate per person premium to a health maintenance organization (HMO). If the HMO has to pay for a major operation, it loses money on that patient. If the patient is healthy, the HMO pockets the money.
Legislators of both parties have already embraced the idea of managed care, and have prescribed it for Medicaid-eligible and other lower income families (Gov. Dean's "Vermont Health Assistance Plan").
Now appears the Vermont Health Plan. This is an enormous health care organization comprised of Fletcher Allen Health Care, Dartmouth Hitchcock Medical Center, Rutland Regional Medical Center, and Blue Cross/Blue Shield. When all the details are ironed out, this will be a mega-HMO. It will bear a strong resemblance to the "Health Alliance" envisioned in Hillary Clinton's health care plan of unhappy memory.
The incentives in an HMO are quite different from those faced by the independent doctor. Like any major corporation, the HMO is run by its finance managers. The doctor-employees of an HMO are under pressure from the bean counters in the finance office not to run up too big a bill with a patient, because it damages the bottom line. Typically HMO doctor-employees are not allowed to share the treatment protocols with patients ("the gag rule"), and doctors who overspend on treatments can see their pay docked at the end of the year.
This naturally means that patients, small and insignificant before this mighty hospital-insurer combine, become as David before Goliath, but without the rock.
With the doctor converted from independent patient advocate into a salaried employee of MegaMedicine Inc., where is the independent voice sticking up for the patient's interests? Every hospital has somebody called something like a "patient relations manager". This person's job is to lubricate disputes between patients and management. But her paycheck comes from the hospital, and her job security depends on her not becoming too expensive a problem.
Former Sen. Welch, a leader of the single-payer forces, has the predictable solution to this managed care rationing: creation of a new government body which will decide how much care each patient should properly receive. Richard Davis, a nurse and single-payer advocate from Brattleboro, envisions trained advocates who will walk each patient through the medical system to make sure the right choices are made in the patient's interest.
Since the advocate must be financially independent of the provider, somebody has to pay for that service. Davis suggests sending the bill to the patient, the insurer, or a foundation, but somehow one suspects that before long the single-payer backers will hit upon the idea of sending the bill to the taxpayers.
Anyone who has read the chapter in Marx's Capital entitled "What Capitalist Accumulation Leads To" will recognize what is well under way here. Elimination of individual responsibility for wellness, through low-deductible third-party insurance coverage, tax discrimination favoring employer-based group plans, and community rating of policies. Government control of hospital operation and budgets. Conversion of independent professionals into corporate employees. Emergence of assembly line managed care MegaMedicine under increasing government control. Transformation of commitment to community into commitment to profitability, even for "nonprofits". Government intervention into care given to each patient. Government-funded patient advocates to keep this huge machine from rolling over individual patients. And finally, virtually complete government control of the entire system.
Before long - maybe ten years - we will have a health care system that looks like Russia's, at least before Russia's totally collapsed because there wasn't enough money in the system to pay for it, and not enough freedom to allow it to evolve to meet new circumstances.
At last the single-payer people will have what they have always dreamed of - "free" health care for all! But they won't like it, and neither will anyone else, save those who are profiting nicely from well-paying jobs in this humongous medical monopoly.
Health Care: Collective or Individual?
January 1996
The health care provisions of the Balanced Budget Act of 1995, recently vetoed by President Clinton, have brought the idea of Medical Savings Accounts to widespread public attention. Part III-C of the Act, most of which will ultimately become law, offers MSAs to employees and the self-employed and as part of Medicare Plus for senior citizens.
What are Medical Savings Accounts and why are they suddenly growing in popularity? Before answering that question, it is important to understand some fundamentals of health care economics.
First is the fact that health care, like all other valuable goods, is in great demand. Since there is essentially infinite demand and finite supply, some way has to be found to ration that supply. As in most markets, the rationing mechanism is usually price - you allocate your available resources among purchases of health care, food, clothing, shelter, etc., plus savings and investment. You can have as much from the health care market as you choose to pay for, plus what you can get without paying a price (charity care, care from relatives, exercise, etc.). If you are poor or old, the government will subsidize those costs (Medicaid and Medicare) - up to a point.
Second, because unexpected events may produce enormous and unavoidable health care costs (disabling illness, car crashes, etc.), prudent families purchase insurance. They insure against catastrophes, not normal maintenance expenses; for example, you insure your car against collision damage above some modest deductible (like $500), but you don't insure against tire wear and windshield wiper failure. The premium cost charged for covering those entirely predictable events would be equal to the expected profit, so nobody would buy it.
Third, during World War II employers, limited in the wages they could pay by wartime wage and price controls, began to offer "free" health insurance as a way of attracting and retaining workers. The IRS decided that this was a tax deductible fringe benefit. The unions, whose highly-paid senior members were facing very high marginal income tax rates, eagerly bargained for ever-more inclusive health care packages in place of taxable wages. In 1965 the Federal government created two major insurance programs for the poor (Medicaid) and the retired (Medicare).
The net effect of all these developments was the creation of a health care economy where third party payors (insurers and government programs) now pay for 95% of all hospital bills, and 80% of physicians' bills. From the standpoint of the covered individual, especially if his or her insurance premiums are paid by their employer or a government program, health care is virtually a free good. There is no longer a powerful rationing mechanism operating at the consumer level. True, people do not have appendectomies simply because they are virtually free. But at the margin, people do demand more health care services because they no longer have to make rationing decisions.
If individuals no longer make most of the rationing decisions about health care purchases, who will? Patients ask for more services than they are willing to pay for. Hospitals and doctors need to keep the revenue flowing to cover costs, including the costs of non-paying patients and, especially, patients sent to them under government programs which do not pay the full cost of the treatment provided.
To counter these cost-inflating factors, insurers and governments impose their own rationing. This amounts to intense bureaucratic second-guessing of provider decisions, accompanied by a mind-boggling array of protocols, reviews, audits, and investigations.
This process is indisputably leading society toward health care overwhelmingly rationed by government, insurance companies, HMOs, and providers. In such a system the needs of the patient, and the doctor-patient relationship, are ignored in a titanic cost-containment battle among other parties who have no knowledge of the patients and little concern for their well-being.
The solution for this unhappy and exceedingly costly state of affairs is to restore health care rationing to informed consumers, instead of huge, bureaucratic entities, public or private. When you are paying for it yourself, you pay a lot more attention to what you are buying, and what else you could use those resources for. Since over half of the health care expenses of people under age 65 are directly attributable to choices made by the individual (alcohol, tobacco, drugs, obesity, nutrition, exercise, high risk activities, etc.), the prudent consumer acts to minimize such expenses and use the money saved for other things. It is still wise to insure against extraordinary and unpredictable expenses (car crashes, natural disasters, etc.), but insuring only against such possibilities is completely different from the present low-deductible third-party payor system. The search for a mechanism to implement this principle most commonly leads to the Medical Savings Account, although there are some other techniques that offer the same result.
Here's how an MSA plan typically works. The individual establishes an MSA with a trustee, who would commonly be a bank or insurance company but might also be an employer, labor union, or other association. The individual (or employer) makes tax-free contributions of $2000 a year ($4000 if a family plan) to the MSA. This is used to pay for a low-cost high-deductible major medical policy. The contributions not needed to pay the premium accumulate tax free in the MSA, and may be drawn upon to pay the individual's medical expenses up to the point where the insurance coverage kicks in. Funds withdrawn for any other purpose are taxable income, and subject to a penalty for withdrawal.
If at the end of a tax year there is an unspent balance in the MSA, that remains available to meet the following year's expenses. Since 90% of insured families do not incur as much as $2000 in health care expenses in an average year, most families would see a build-up in their MSAs which would allow them to buy even cheaper insurance policies with up to perhaps $10,000 deductibles.
MSAs have been in use for years at hundreds of companies offering "cafeteria" benefit plans. Unfortunately, under present tax law the unspent balance in an MSA reverts back to the employer at the end of the year, so the insured sees no benefit from his or her efforts to stay healthy. And self-employed individuals have not been able to have tax-advantaged MSAs at all.
Where MSAs have been tried, they have been exceptionally popular. In effect, they provide a tangible financial incentive to individuals to manage their wellness. This has been shown to stimulate better health practices and the use of cost-effective preventive care. It also gets rid of up the great bulk of small insurance claims, and their costly adjudication.
Not everyone, however, likes the idea, and some critics are absolutely vitriolic about it. At the root of the criticism is the principle of individual responsibility for health care decisions. Building on this principle guarantees the rejection of collective responsibility for health care decisions, embodied in such schemes as the Clinton Health Security Plan, the Canadian single-payor plan, and various "managed competition" proposals. Each of these politicized schemes and their clones is based on a rationing of health care by a government-controlled bureaucracy, which issues orders and makes payments to providers. A lot of people in political life have a great fondness for such proposals.
Interestingly, the "Big Five" of the health insurance industry (Cigna, Metropolitan, Travellers, Prudential, and Aetna) have been notably cool, at best, toward MSAs. These companies see their future not in insuring health care risks, but in processing insurance claims and making rationing decisions for large self-insured employers and government-controlled programs. They are nervous about inroads on their business being made by more aggressive mid-size health insurers who are willing to actually insure against risk, and to market their wares to thousands of customers instead of just bidding for government and large corporate work.
A particularly intense opposition comes from the people who manage employee benefits for employers and their associations. If present employer-paid insurance becomes individually purchased insurance, which could well happen down the road when MSA-type plans are widely accepted, their highly paid services would no longer be needed. The employer would need only deposit cash into the employee's MSA.
Another more subtle argument is the claim that healthy people would flock to high-deductible policies and MSAs, while the chronically sick would stay with low-deductible policies. Thus, the argument goes, there would be few healthy people to share costs with the sick, and the sick could never afford the skyrocketing premiums. But the sick are not worse off with an MSA and a high deductible. They would have the money in the MSA to pay the deductible, and thereafter their costs would be covered by insurance.
Designing an MSA plan for persons who have no dependable income presents a problem, but not a totally unsolvable one. Even poor people on Medicaid, if not totally disabled, will respond to the incentives and modify their behavior. So long as they remain income-eligible, they will continue to cost the taxpayer money, but they will almost certainly cost less. Under the Balanced Budget Act, seniors who choose Medicare Plus can choose to have the government make an annual cash payment directly to their MSAs, and from that purchase their own coverage and pay cash for their non-covered medical expenses.
The MSA idea does not solve every problem for every individual. It is a technique, one of several, for restoring the health care rationing decision to the informed, cost-conscious consumer, who can exert a surprising amount of control over the likelihood of incurring health care expenses. Offered a tax free incentive, people will get informed and will, on balance, make better choices about their own health care than any number of government functionaries and insurance company bureaucrats struggling to contain costs within some government-set ceiling. If you don't believe that, then collectivized health care is what you want. At least for the others.
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