Questions From A State Think Tank

 

Q: I do not understand the Congressional health reform plans. What problems are they addressing?

A: They hope to solve two problems: 1) The high costs of U.S. health care which dwarf those of countries with which we compete, 17% of GDP vs. 10% for developed European countries and around 5% for China and India, and the related high cost increases; and 2) the 50 million or so people In the U.S. who lack health insurance.

The two problems are related: many are uninsured because they cannot afford to pay for health insurance, whose average costs are about $13,500 per family.

Q: How will these reforms help to solve the problems?

A: The congressional bills want to subsidize the uninsured with about a trillion dollars over a six year period so they can afford to buy health insurance. They also propose two reforms that they claim will lower costs.

The Subsidies

Some people oppose the subsidies which will go to those earning less than $88,000 annually with large families. Because the median real 2008 household income in the U.S. is about $50,000, their concern is understandable.

Some also worry about the effect of this spending on the deficit, already swollen by the stimulus package. The Senate finance version of the bill claims they will save $400 billion but these savings, mostly from reductions in Medicare, are dubious. The elderly will fight reductions in benefits and the hospitals and doctors will fight reductions in their pay. All three are very powerful.

The Cost-Controlling Reforms

Some people oppose the other cost controlling remedies, a public plan to compete with private health insurers and an exchange, or health insurance market, run by the government.

Public Plan: Although proponents claim that Medicare is an example of an efficient public plan, Medicare is hardly efficient. Its administrative costs are understated and it LOWERS ITS COSTS OF MEDICAL CARE by underpaying, about $90 billion, the doctors and hospitals who serve Medicare patients. This underpayment is shifted to private insurers.

Further, Federal accounting ignores Medicare’s unfunded liability of $38 trillion; but this liability, consisting of the money needed to provide Medicare services to those who have paid for them, will either have to be funded or future recipients of Medicare will be denied the services they paid for. To fund this liability will require an additional trillion plus dollars a year.

The liability came about because the government charged Medicare recipients too low a price and used the money paid by future recipients and taxes to subsidize them. No wonder Medicare is so popular. But will the politicians show more discipline in pricing the new public program or will they again seek to curry favor with voters by under pricing it and borrowing the money for future generations?

The Exchange: Proponents claim that a government run insurance market will lower the costs of distribution. But why can’t the private sector run such markets? After all, retailing is a great strength of the U.S. economy.

The danger of a government run exchange is that the government will offer health insurance plans that do not reflect the buyers’ ideas of value for their money. But because it will be only the place that those who need a subsidy can shop for health insurance, they will be forced to shop there.

 

Q: Are there other solutions to the problems?

A: The country of Switzerland has universal coverage, excellent health care, and costs about 40% lower than ours as a percentage of GDP. They have achieved this enviable record in a way that should be appealing to the American people. It is the Swiss people who buy their own health insurance. In this way, they make sure they receive good value.

Poor people are given enough money to buy the same insurance as the average Swiss, so when a Doctor sees the patient, he does not know if the patient is poor or not. In the U.S., in contrast, nearly half of the doctors refuse to see a Medicaid patient because they are paid so badly by the government.

 

Q: How can you lower the number of uninsured without exacerbating our cost problems?

A: We can enable Swiss style, consumer-driven health insurance.

There are two major barriers which our legislators can fix: tax reform and transparency. These fixes will enable real health care reform and universal coverage at a price the American people are willing to pay.

Tax Reform: Right now employers buy health insurance on behalf of their employees. They use money that would otherwise be paid out as wages or salaries to buy this health insurance. It is a strange arrangement: how can you employer possibly know what you consider value? That is why we do not have our employers buy our houses or our cars or our children’s education.

The only reason for this strange arrangement is the employers can use tax free income to buy health insurance .But if they gave us this money as income, we would have to pay taxes on it. So my employer, Harvard University, takes about $20,000 from what would otherwise be my income to buy my health insurance. If they gave me back my $20,000, I would have to pay taxes on it.

If we want Swiss style consumer-driven insurance, the solution is simple: Give me back my $20,000 and require me to buy health insurance. The amount I spend on health insurance will remain tax free. I could also choose to remain covered under my employer. But I will likely opt to take my $20,000 and to buy a cheaper health insurance policy that protects me against financially catastrophic health care needs.

What would you do?

Transparency: I need a lot more information about the quality and prices of my health care providers and insurers so I can be a smart shopper. Right now, I know more about my yogurt than about the person who might do surgery on me and the hospital in which he practices. We need the government to require that this sort of data be disclosed.

 

 

Coming Next Week

 

Q: I do not understand the Congressional health reform plans. What problems are they addressing?

Q: Some government people and academics tell us that health care is so different from other goods and services that we need their protection. How does health care differ from other goods and services as far as the consumer is concerned?

Q: Healthcare Expenditures Rising? Why Worry?

 

  

 

In Upcoming Weeks

  

From a veteran whose wife is expecting their first child

I never go to the Doctor. Can’t I just get a policy with very low premiums that cover me in case of emergency but not for routine care?

Why do I pay so much when I visit the dentist when I have dental insurance?

I really don’t need much in the way of health insurance. But my family needs it. Can’t I have a family plan that only has a few features for me but offers comprehensive care for my children?

I own a small business. When I buy health insurance for my employees – I can’t possibly get as good a price as a large company, can I?

I work at a big company and hate it. I want to join a small emerging company. The salaries would be pretty much the same. But, the benefits at this big company are great, especially the health insurance. The insurance at small companies is terrible, right?

I just graduated from college. I did well and worked hard, but there are NO JOBS out there. I have a pre-existing condition and need to take regular medication. Am I screwed without a job?

  

From an academic

Some argue there will be no change in the demand for services.  Others argue there will be a surge of demand.  Who is correct?

Given all of this talk about comparative effectiveness research – it makes intuitive sense – I want the best/appropriate procedures and want to know the risks of having too much care.  How can I be sure that the best will be done for me?

The proposal for health information is grounded in driving competition among those who can provide solutions.  I like that – but how do I know there will be standards that really let providers know about me when I move to another provider?  Shouldn’t the government be providing greater demands for standardization?

I like the idea of having control and taking more responsibility.  But what if I’m wrong about my ability to manage my health expenses?

This idea of bundled care and getting value for money sounds pretty good.  Who will be the managers for this?  In the past – consulting firms have been the big winners?  Will that happen again?

So much of the change talked about refers to big medical centers.  What about those who live in rural areas.  Is just having insurance not enough?

Pricing seems to be such a mess in the U.S.  I want to know what medical procedures and products really cost.  There is so little transparency. Some economists say that non-disclosure clauses for medical devices are good.  Others say it prevents the market from working.  What should I think?

 

From a Doctor

Why do drugs cost so much?

Why are drugs cheaper in Canada?

Why do I have to pay more for a doctor’s visit without insurance than with insurance?  Why are hospitals so much more expensive without insurance?

Why should we pay for futile procedures on terminal points — who will decide what is futile?

How can we prevent a 2 tiered system?  Is hoping to prevent a 2 tiered system unrealistic?  Is it necessary?

What defines necessary versus luxury in health care?

Why should people who take care of themselves have to pay for people who do not?

Should we penalize people with poor self care?

Should wealthy older people have their health care paid for by the government?

Isn’t one of the reasons our health care costs more “defensive” medicine?  Why is tort reform not part of this plan?

Doesn’t U.S. healthcare cost more because we are a bunch of fat asses?

Some veterans seem to like the VA, but all the congressman seem to opt out of that system– what does that tell you?

Why does no one balk at forced auto insurance?

Why does no one question risk adjustment in the auto world or the life insurance world?

How would we differentiate increased costs from bad luck medical problems and self-inflicted ones?