Omnibus Obamacare

Presumably, the proposers of affordable health coverage considered the approach of making it affordable by making it cheaper. Unfortunately, "affordable for every American" is so expansive that some people, somewhere, would require subsidy no matter how low the price. So, a subsidy program needed to be a part of it. In addition, insuring illegal immigrants during a period of high unemployment was seriously unpopular, particularly among people who thought universality meant giving it to them first. So we can easily imagine how the proposal emerged as: "Affordable health coverage for all Americans (legal residents only) achieved by giving cash subsidies ("refundable tax credits") to lower income groups, and expanding Medicaid coverage above the threshold". Such embroidering necessarily made it harder to comprehend. Somewhere in its evolution someone also seems to have determined to rescue Medicare from its impending bankruptcy -- while we are at it, so to speak. However both ideas, universal coverage and restructuring Medicare solvency, could be expensive; combining them might make the package insupportably expensive in a recession, but it might also create an opportunity for major progress. It has been sixteen years since the Clinton Plan failed, but a book by Jacob Hacker called The Road to Nowhere outlined Bill Clinton's clever strategy for handling massive complexity: by pouring many pet schemes into one legislative package, planning later to remove unpopular prunes in the House-Senate conference committee, but reorganizing a few surviving plums into a unified plan. The Obama administration seems to be following the same path; modifying the pathway to a Budget Reconciliation Committee added the novel advantage of avoiding the Senate's 60-vote rule, thus requiring only a simple majority to pass. In the flurries of lobbying activity, hospital advocates have suggested uninsured patients just presented themselves to hospital accident rooms, effectively causing other patients to subsidize them. That was somewhat true, but extending the idea to a claim we were already paying for all indigent care, was a stretch by several hundred percent. To go further and proclaim that including indigent care under the insurance coverage umbrella would thus be cost-free, did really strain public credulity. How could it be cost-free and still cost a trillion dollars? Right from the start, this proposal was making itself hard to defend.

Universal coverage is achieved by Mandating It; cost reduction by forcing it.

The Twin Goals of Obama-care

So, at the end of September 2009, the country confronts multiple thousand-page bills from the House of Representatives containing wide assortments of ideas which may or may not survive scrutiny, and a Senate proposal from Senator Baucus (D, Montana) representing the views of the Democrat caucus within the Senate Finance Committee. The British magazine The Economist promptly snorted; Senator Baucus' bill was "Half a loaf, half-baked." Since laws passed by strict party votes are in danger of prompt reversal when the other party next gains majority control, Senator Baucus had been struggling to achieve some Republican support but apparently decided bipartisanship was not worth the delay. Andy Stern, the labor leader, had appeared on a television show offering no arguments at all, merely demanding a vote be taken instantly, presumably before public support eroded. Moderate House Representatives are characteristically most concerned with being turned out of office after passing a controversial proposal. The much more liberal leadership, with seniority because of safe gerrymandered seats, are more likely to honor extreme partisan demands.

Because the Senate thinks of itself as the sensible, deliberative body, oversight of a law remains with its originating committee; because Medicare and Medicaid are amendments to the Social Security Act, the Senate Finance Committee has always maintained jurisdiction over these three social benefit programs. In the House, with turnover every two years, continuing oversight is assumed by the Appropriations Committee, on the grounds that this is the only committee to review every ongoing program, every session. But the realities of the program mix with the quirks of the Senate, and for over forty years whatever the Finance Committee says about Medicare, pretty much goes. During the fall of 2009, this group of old colleagues could be seen on C-Span, gently joshing each other, and even more genially suggesting their disagreements. Each member of Finance belongs to several other committees, but on Medicare, they know their stuff and have a loyal staff to remind them of what they have forgotten. They are considering 550 amendments to Obamacare, and stubbornly defend the right of each committee member of either party to be heard courteously, in spite of what must be a wild frenzy of pressure by unions and partisans, to be done with it. Their patient labors have turned up one issue that party leaders -- especially the Governors -- probably wish they would leave alone.

Blow away the smoke. Obamacare is about fixing Medicaid without admitting who caused it.

The nut of the matter.

The fifty Medicaid programs are a big mess. They are run by state governments with Federal provision of at least 57% of the funds, and in some cases over 80%. Some states offer eligibility to those with incomes only half of the poverty level, others go to several times the poverty level. The tendency is to use the HMO model, but it is an individual state option. Minority groups absolutely hate HMO. The fraud level in Medicaid is by far the largest in the whole government. The quality of care is uneven, but it is always going to be somewhat substandard since it pays well below cost and deals with high-crime populations, amid uncomprehending chronic poverty. It attempts to deal with the deplorable psychiatric inpatient problem, which is in its present state because of bungled regulation. Medicaid under-reimbursement is the main cause of hospital cost shifting, which causes still other distortions. And so on. If you search for explanation of the bizarre statistics on infant mortality, the ranking of U.S. "health care quality" as 19th in the world, etc, the explanation is to be found right here. To the extent that statistics are not rigged in order to make certain countries look good, the poor rank of American healthcare reflects the hideous Medicaid programs. Even the medical profession is largely unaware of the Medicaid issues, because most members of mainstream medicine have long stopped accepting membership in the program because of its laughable reimbursement, and importantly the HMO organizational model makes it impractical to treat the poor free of charge. And finally, hear this: Senator Grassley muttered that 90% of the cost of Obamacare is aimed at fixing Medicaid, and no Democrat on the committee corrected him. When you get down to it, Obamacare is a very expensive program for making Medicaid what it ought to be, and definitely isn't. This would make a perfectly plausible explanation for why it has been so hard to see what the proposal is all about -- it's about fixing the mess which state and federal governments have created, at the same time hoping to devise a similar program for the rest of the country, a "single payer" system. Senate Finance has a difficult tap dance with this one, but they have put their heads down and are plodding on.

Many unexpected developments are still possible in an on-going debate, but it seems timely to examine the Obama proposal as presently visible, at half time, so to speak. What is so far proposed of consequence, and what problems would be cured?

First, nearly universal health coverage is to be achieved by mandates, making it illegal not to be covered, imposing fines for non-compliance. Mandates are always unpopular, but two competing mandates headed for conference committee. Because of the tax preference for purchase of health insurance by employers, we now have a largely employer-based system. Since almost all interstate employers already buy insurance for their employees under coverage of the ERISA law, representatives of large employer groups want their competitors, especially foreign-owned, to experience the same expense. Big employers thus want an employer mandate: employers who do not provide employee health benefits are to be fined. Small employers are resistant to employer mandate, applying the political pressure that increased cost would particularly hurt employment in the present recession, since small employers are the largest source of new jobs in our economy. Employer mandate might insure some uninsured people but most of the uninsured would be unaffected; employer mandate solves little of the intended purposes of this legislation. So, although an employer mandate is on the table, Senator Baucus has now proposed an individual mandate. That is, every person found without health insurance would be fined. Presumably, compliance would be about the same as with the widely-ignored mandate for automobile insurance. Individual mandate creates a political problem of what to do about recalcitrants who are both sick and uninsured, who must then fear punishment as well as illness when they appear for treatment. They are unlikely to forget the congressman who voted to create the outcome of fearing-to-seek-treatment.

A second difficulty with individual mandate is that it exposes a long-standing inequity in the tax law. The main reason we continue a largely employer-based system is that purchase cost is reduced considerably when an employer buys it for an employee. Self-employed or unemployed persons do not receive this tax-discount. It would indeed be desirable to extend this tax exemption to everyone equally, both for fairness and to create portability and mitigate pre-existing condition exclusions. But the employer-based system would lose its main reason to continue, so that consequence must be addressed. Nevertheless, the political consequence of not equalizing the tax would be worse. Compelling millions to buy individual insurance, while at the same time denying them everyone else's tax exemption for it -- is not likely to last long. Give tax exemption to everyone or give it to no one; or give it for a limited amount, but give the same thing to everyone if you hope for re-election. While tax equity is not in the pending legislation, it might as well be, and the CBO should be asked to score it as part of the cost. And finally, no mandate in sight would insure illegal immigrants, who are a large part of the uninsured problem in certain regions. It is reported that sixty percent of uninsured persons are concentrated in five states bordering hispanic United States (Mexican and Florida), a fact that ten senators and several dozen congressmen are sure to notice.

Now turn to the other main objective of this reform legislation, to reduce the high costs of medical care. The poster child of this objective, possibly the main issue for many politicians, is the approaching bankruptcy of Medicare. To skip over the technicalities, the accumulated subsidies of fifty years of Medicare recipients have created unfunded liabilities that make Medicare the largest single debtor on the planet. But ignoring how this growing debt was created, it is nevertheless accompanied by fifty years of promises to every citizen about what they are entitled to. Perhaps it was believed that uproar over reducing Medicare benefits would be softened by burying it in a nationwide reduction of all healthcare costs. But in fact this expansiveness provoked still more confusion that something was being slipped in the back door. In recent angry town meetings which frightened congressmen, held during the August 2009 recess, one speaker after another went to the microphone and said something like,"I have excellent health insurance and I wish everybody else had it, too. " Following which, something was immediately said equivalent to, "But don't you dare take my good coverage away from me to give it to someone else!" And not invariably, but often enough to make it emphatic, some would add, "I voted for you in the past, but I'd never vote for you, again." No doubt, every one of those congressmen was asking how the leaders could get them into such a fix. Why don't we try some thing else? Senator Baucus offered to pay for this reform by putting a tax on health care providers, but every worried citizen quickly sees that taxing providers will raise costs, not lower them. Credibility is waning.

An adage is becoming general: Increasing access to subsidized health care is not compatible with cutting costs, and won't even produce universal coverage. It is increasingly difficult for presidential oratory to reverse that opinion.The Congressional Budget Office has not pronounced the Obama plan an unachievable goal, but after examining an enormous pile of proposals, it amounts to that. They simply said it would cost a trillion dollars, and would still leave 5% of the population uninsured. In one sentence, the CBO probably killed this legislation.

Still, the Obama administration gamely plunges ahead, apparently driven by recollection that defeat of the Clinton health plan was followed by a mass eviction of incumbent congressmen; by this analysis it wasn't a bad plan that made trouble, it was failure to pass the bad plan, which it must be recalled was a universal HMO system. The Clintons avoided public defeat by pulling that legislation away without a floor vote. But they did escape the backlash against what would have been a ruinously unpopular program.

For one thing, the public has always been bewildered by the need for such a rush, such a collision. We are now fighting two wars and struggling with the worst depression since 1930. All three of those major projects are going poorly. Why in the world would we say that reforming health care is our major priority, right now?

This section closes the discussion of the main features of the Obamaplan, and ignores thousands of pages of proposed legislation. It is mainly made up of earmarks, boondoggles and inconsequence -- the usual contents of an annual budget reconciliation act produced at Thanksgiving or the day before Christmas. We do not here discuss tort reform, which at most will produce a study or a pilot program. Nor the public option, which Senator Baucus says cannot pass the Senate, and which former Senator Dole said he heard, but scarcely would believe, that the Public Option is just a smoke screen intended to distract the public while the rest of the bill slips past the uproar of Public Option getting defeated. The fate of the expensive but inconsequential computerized medical record will depend on the precarious health of Senator Byrd of Virginia, who has long held a stranglehold on government computer procurements.

http://www.philadelphia-reflections.com/blog/1728.htm

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Peculiarities of Obama-care Politics: A Fireside Chat

There is no better codebook to the present health care reform legislation than Jacob Hacker's book The Road to Nowhere which began as an academic thesis several years after the Clinton Plan met ignominious defeat. The episode was by then quiet and forgotten, and innermost participants in the matter felt it was safe to talk big-shot politics to a college student writing a thesis. The resulting book was easy to follow, had a strong ring of authenticity, and advanced the author's career. Advanced it so much that the same Jacob Hacker is now visibly near Democratic policy circles, even seemingly advising in a few political deals. The similarities between the Obama initiative and the Clinton strategy as related in Hacker's book, are quite striking. One might have supposed it to be a cautionary tale, not a guidebook.

Boiling it all down, the Clinton strategy was to confront a House-Senate conference committee with a vast pile of often conflicting proposals sent to a House-Senate conference committee to sort out. In fact the proposal really wouldn't exist until the President sent that committee his list of deletions. It existed only in the sense that Michelangelo's statues resided within the stones from which they were carved. It's very hard to oppose such an omnibus bill, until the outline appears. From that point forward, passing it would be a matter of rushing it ahead of the criticism. It would also not be the first time a few little zingers, never discussed by either the House or the Senate, got slipped into a conference bill, which would likely be seven or eight hundred pages in length. And the timing for release of the omnibus legislation could be selected, quite likely the day before Thanksgiving or Christmas when newsmedia were away from work. Or else after a long series of preparatory news events, building public expectations before a spectacular revelation day. Either way, it was useful to control events. And everyone could claim it had never been done before.

As matters turned out for the Clintons, some industrial heavy hitters decided they wouldn't play this game, and the Clinton health proposal was withdrawn. Nose-counting, yes, but no vote. It remains a matter of dispute among professional politicians whether quiet retreat saved Clinton from far worse debacle, or whether his transparent retreat triggered the Republican Congressional resurgence in the following election, the one which propelled Newt Gingrich into the Speaker's chair. Ordinarily, you don't get a chance to do these things twice, once each way, but maybe this time it will be different. No doubt, the bitter 2008 nominating contest with Hillary Clinton had some effect on Obama thinking. If politicians keep doing the same thing, the public eventually catches on, and this time it is almost certain the arcane antics of budget reconciliation will get minute scrutiny. Budget reconciliation is supposedly limited to budget matters, circumventing filibuster and cloture in the Senate rules for one main reason: to assemble the overall effect of myriads of plus and minus offsets before new debt is authorized. True, the rules must be lax for a mammoth rush job like that, but that opens the doors for less justified rush jobs. Pulling fast ones about health care, under present conditions of foreign and financial affairs could prove hard to forgive.

Senator Edward Kennedy's death, Senator Byrd's incapacity, and the contentiousness of the health reform topic make it uncertain the Democratic Senate leadership can assemble 60 votes in favor of any healthcare proposal; one betrayal and you're dead. The Democratic Massachusetts legislature took away the right for Republican Governor Romney to fill a vacant Senate seat, and restored it for a subsequent Democrat governor. Since Massachusetts is finding difficulties with their new mandated health insurance law, there will be political consequences for such cynical behavior. In circumstances like this, every single Democrat senator can hold the proposal for ransom, while every single Republican senator will unite in opposition. When the majority shifts to Republican, which could be rather soon, the roles will be reversed in an almost certain effort to repeal whatever has passed this year. Since a 2010 Republican senate with 60 votes is almost inconceivable, grievances will carry forward to the 2012 Presidential campaign. The public wonders whether healthcare legislation is worth hindering Iraq, Iran, Afghanistan and the national debt. The Democrat Congress must worry it is not worth the political damage from hammering it through. Quiet withdrawal is damaging, but defeat is cataclysmic. Is a health insurance reform victory worth the risk, not only of defeat but that a disaster in some more important national issue will be blamed on the healthcare distraction?

Former Senate Majority Leader Bob Dole has appeared on television, and revealed a remarkable insight about Senate behavior. Senator Baucus has told the press that a Public Option cannot pass the Senate, so he is not including it in his proposal. Extreme left-wing members of the Democratic party have said they will "take a walk" if the Public Option is dropped, but it is included in the House version and can be restored in the conference committee. This maneuver thus removes Public Option from senate debate, still hoping to preserve those 60 votes. Essentially, Public Option is a proposal for the Government to go into the health insurance business itself, in order to create pressure on the insurance industry. In 1965 this was impossible, in 1992 it was unprepared for, in 2009 it is merely chaotic. It is widely rumored the Public Option is a punishment for the reluctance of the health insurance industry to cooperate more fully with the President, or at least a threat of what could happen if they don't cooperate soon. Bob Dole was a gracious, gentle old man, musing about what might be going on. You don't suppose, he mused, the Public Option might be nothing more than a red flag in front of a bull, to be surrendered with a great show of disappointment. But actually, just a feint creating an uproar, to divert attention from the real zingers in the rest of the bill, which can then pass through unnoticed. But, no, Bob Dole didn't really imagine such a thing. It was just a wild thought he happened to have.

Political observers agree that rancorous partisanship is the worst in a century. Just about everyone agrees gerrymandering is the cause. Changes in the way voter redistricting is conducted, some say the use of computers, have made gerrymandering much more effective. When safe seats arise in this way, it is only a matter of time before the seats are filled with heedless, reckless partisans, beholden to no one. The seniority system then takes over, and safe-seat partisans get control over committees and party discipline. This happens to both parties because incumbents unite to achieve it. Contestants for the dwindling number of uncertain districts are forced to be more cautious, tend to be more competent. But once elected, they are powerless in the face of the more unrestrained partisans who control matters. And more likely to be singled out for sacrifice in the next election. Scientific gerrymandering has coarsened and hardened the political atmosphere, considerably reducing public control of its representatives. It should be noted that Senate seats cannot be gerrymandered, but state legislative seats definitely can, leading to a coalition between state legislators who are almost always party hacks, and U.S. Representatives, who are increasingly so. It is said that in New Jersey and Florida, it is possible to predict the next ten years of politics with precision, if you only know how the gerrymandering was arranged. The Senate could probably devise a Constitutional amendment to fix this problem, with no chance of passing the House, or getting ratified by the States. Therefore, the main hope for representative government lies in the national party leadership of some party intervening into the party nominations for safe seats. Even that, would take extraordinary luck. It remains to point out that 2010 is the year for a census, 2012 for redistricting.

There's lots more; in politics there always is. A main hidden causes of the present crisis in health care financing lies in the Medicaid programs, run by the states, but mostly financed by federal taxes. Nursing homes are not originally included in the 1965 legislation, but most states receive strong pressure to pay for elderly indigents in nursing homes, stranded because they have run out of savings. Perhaps it would be a good thing to include nursing home coverage in a reform bill, but Obamacare is advertised to reduce costs not raise them. So in variable degree the circumvention has grown up of paying for nursing homes with money intended for hospitals, but then underpaying the hospitals. The prevailing estimate is that Medicaid programs only pay hospitals about 70% of the actual costs. Hospitals escape insolvency by raising the reimbursement demands on Medicare (to about 106% of costs) and private insurance (to something approaching 150% of costs). Various other accounting tricks account for the rest. The outcome of all this is that nursing homes are in effect supported by Blue Cross and other private insurers of younger people, raising premiums to employer groups and individuals by something estimated like $900-1500 a year. Because this juggling lacks straight-forwardness, results are inefficient; only about 42% of hospitals actually break even. As might be expected, knowledgible employer Human Resources departments and hospital administrations know about and object to this system, and are cooperating with Obamacare more than might be otherwise expected, but only in the hope this cost-shifting can be adjusted more in their favor. Mandating that all employers must participate would of course increase the base to share this exaction, but would ultimately link all corporation treasuries to all government deficits. The dream of the service unions would be to use this excuse to mandate unionization of hospital employees.

The participation of physicians in the Obamacare effort is riven by their own politics. For surgeons, the premiums for Malpractice insurance can run to $200,000 a year. An appalling proportion of obstetricians have been sued by their patients, to the point where women have no doctor to deliver their babies in certain parts of the country. For doctors in this high-risk category, relief from the plaintiff lawyers is the most pressing of all problems. On the other hand, many physician specialties have almost no malpractice risk, and are much more exercised about the reimbursement freeze, which has been in effect since the administration of Lyndon Johnson, and has been severely undermined by inflation. With physician ranks divided by two different priorities, the way is open for a ruthless politician to promise both and reward neither.

Senators Baucus, Grassley and Snowe come from sparsely settled states. Former Senator Daschle is from South Dakota, and there are perhaps twenty states potentially in this category. With a sparse population, it is difficult to develop sufficient insurance business to support effective competition; these states need to combine into regional areas to do so. On the other hand, populous states like New York, California, etc. are adamantly opposed to regional groupings, for obvious reasons. These population disparities create different attitudes about modifying the 1945 McCarran Fergusson Act, which limits insurance regulation and control to individual states, and thus makes it difficult to achieve interstate health insurance sales and portability. The fact that large employers have already achieved this freedom through ERISA makes them unwilling to see the problem, or waste political capital achieving it for others.

And finally, Obamacare raises some questions about judicial remedies. Certain Op-Ed commentators have raised a question of the constitutionality of mandates and pre-emptions, depending on how they are phrased. The U.S. Constitution was only narrowly ratified, in large part because the states were fearful of government getting bigger and more powerful than necessary. It was in response to this strong feeling the the Tenth Amendment reinforces in no ambiguous words, that anything not specifically assigned to the national government was to be the province of the state governments. If ever there was an original intent, it was that one.

http://www.philadelphia-reflections.com/blog/1729.htm

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Obamacare for Lobbyists

In the construction of a major legislative package, the White House and significant Congressional committees maintain strong control over the major concepts and compromises. To get this into legislative language, staff lawyers and officials of involved executive departments supply the meat to put on the bones, so to speak. But in the obscure technicalities of the industry under consideration, particularly those with no particular political weight, experts and lobbyists from the industry itself have considerable ability to shape things. It may even go so far as to provide "suggested" language. In the health insurance field, for example, actuarial advice and opinion is not otherwise readily available to the legislative process.

Here are a few significant areas where the lobbyists have considerable influence:

Is Preventive Medicine always and everywhere less expensive? As heads nod vigorously in support of prevention, notice that in general usage it suggests several different things. The implication is that small interventions for everyone are always less expensive to society or society's insurance plans, than large expenses for a few. That is clearly not absolutely true, and unfortunately in an insurance world, it may seldom be true. Take for example a tetanus toxoid booster, which ten years ago cost less than a dollar for the material. Recently, I was charged by my corner drugstore $85 dollars for the material in preparation for a vacation trip. If you do the math, I feel it is rather likely that $85.00 times the millions of Americans who could be at risk for tetanus is far greater than the cost of having tetanus, even dividing by ten for the conventional advice to have the booster every ten years. This becomes more certain if one adds in the cost of administration. The vaccine is quite effective, we had almost no cases in the Far Eastern Theater in World War II whereas the British who did not vaccinate routinely had large numbers of often fatal cases. Furthermore, even if the patient survives, the disease is hideously painful. Is it better to vaccinate routinely? Yes, it is. Is it cheaper? I'm not entirely sure, because I have no access to the information about production costs of tetanus toxoid. But it seems likely that something unsatisfactory has transformed a preventive procedure from clearly cost effective to probably not cheaper. This is likely a malpractice liability problem for the vaccine maker, not a preventive care issue. In the case of small pox vaccination, it is clearly more expensive to vaccinate everyone in the world than to sustain a few fatal cases; the approach currently being taken is to limit vaccination to countries where there are still a few cases, hoping to eradicate the disease from the planet. Over and over, examination of individual vaccinations shows the answer to be: better, yes, cheaper, no; with the ultimate answer depending on accounting tricks in the calculation of cost, cost inflation because of third-party payment, and related perplexities.

Routine pap tests, routine annual physical examinations, routine colonoscopies and a whole host of other routines are in general question as to cost effectiveness. Much of the current denunciation of "Cadillac" health insurance plans boils down to the elaborate prevention programs enjoyed by Wall Street executives, college professors, industrial unions, and other privileged classes. The inference is rather strong that unrestrained pursuit of preventive approaches will escalate costs rather considerably. While self-interest is a possibility if physicians are consulted, reliance on bean-counters is far worse. Without some form of patient participation in the cost, this issue is essentially unsolvable. To launch a host of double-blind clinical trials to find out the truth will lead to answers of some sort, which will quickly be undermined by price/cost confusion, leading to increasingly futile regulation. Only by including preventive costs in the deductible can a true balance be observed; which is to say, universal preventive care admiration cannot even be adequately assessed except in the presence of a substantial open market for the product. The fact is that most "preventive" care is really "early detection" or "early management". When the goal changes so subtly, it is often not possible to say what is worth while, except by placing a price on pain and suffering. The abuse of the monetization of pain and suffering in the malpractice field, ought to be a gentle reminder of that.

Outpatient Care is Not Necessarily Always Cheaper Than Inpatient Care. Because hospital inpatient care is reimbursed at roughly 106% of cost, while hospital outpatient care is reimbursed at roughly 150% of cost, hospitals favor outpatient care, while reimbursement third-parties favor inpatient care. Hospital management is resistant to wage increases in the inpatient area, less resistant in the outpatient and home care programs, so true costs are steadily rising in the outpatient area. Personnel shortages follow, as does friction between hospitals and office-based physicians. Wherever the balance currently happens to be, it is likely that in time outpatient care will inevitably be more expensive than inpatient, as it was in 1751 when Benjamin Franklin founded the Pennsylvania Hospital and raised funds on this plea. If to this is added the cost-shifting of administrative costs, it is uncertain just where we now stand. The one thing which is very clear is that the present pushing of truths of the past will lead to distortions in the future. Even addressing these shifts on a continuing basis while destroying market mechanisms with third-party reimbursement will lead to continuously bizarre situations. Those who propose universal third-party reimbursement for every cost and for every person will some day be doomed to perpetual ridicule.

The Donut Hole: Deductibles versus CopaymentsTo understand why the donut hole is a good idea, you have to understand why copayment is a flawed idea. In both cases, the purpose is to make the patient responsible for some of the cost in order to restrain abuse. The question is how to do it; the donut has not been widely tried, but the copayment approach is very familiar: charge the patient 20% of the cost, in cash. This idea finds great favor with management and labor in negotiations, because the savings are immediately known. If the copayment is 10%, then the employer cost will be decreased 10%; if it is 50%, the cost is reduced 50%. In midnight bargaining sessions, such simplicity is much appreciated.

Health insurance companies like it, too. It affords the opportunity to sell two insurance policies for the two pieces, adding up to 100% coverage, thus doubling the marketing and administrative costs, an advantage only to the insurance intermediary, but totally undermining the idea of restraining patient overuse. In practice, having two insurances for every charge has led to mysterious delays in payment of the second one, even though they are often administered by the same company. Physicians and other providers hate the system, not only because it involves two insurance claims processes per claim, but because it often makes it impossible to calculate any residual after insurance until months after the service has been rendered. Patients often take this long silence to imply payment in full, and disputes are common.

So, the idea of a donut hole was born, with certainty about what was owed on two levels, one for small common claims, and another for big ones. The patient either paid cash in full or was insured in full, and arriving at the Paradise of full coverage has to be purchased in cash within the deductible. Unfortunately, once that threshold was crossed, the sky was the limit. The idea was generated that if the two levels of the donut hole were calculated from actual claims data, there would be a clear separation of minor illnesses from major ones. Since the patient would ordinarily be uncertain how far he was from triggering the donut hole, the restraint of abuse might carry over even into areas where the facts were not as feared. It is too early to judge the relative effectiveness of the two patient-responsibility approaches, but it is not too early to watch politicians pander to confusion caused by a new and unfamiliar approach.

Plan Design The insurance industry, particularly the actuaries working in that area, have long and sophisticated experience with the considerations leading to upper and lower limits, exclusions and exceptions. The legislative committees would be wise to solicit advice on these matters, which ordinarily have very little political content. However, the advisers from the insurance world have an eye to bidding on later contracts to advise and administer these plans. They are not immune to the temptation to advise inclusion of provisions which invisibly slant the contract toward favoring a particular bidder, and failing that, they look for ways to make things easier for whichever insurance company does get the contract. The donut hole is a recent example of these incentives in action; no member of any congressional committee was able to explain the donut for a television audience, so it was ridiculed. The outcome was a race between politicians to see who could most quickly figure out a way to reduce the size of the hole. The idea that the size of the hole was intended to be an automatic adjustment to experience, seems not to have occurred to any of them. Asking industry experts for advice is fine, but it would be well to ask for such advice from several sources.

http://www.philadelphia-reflections.com/blog/1734.htm

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What Obamacare Should Say But Doesn't

TAX EQUITY. All tax exemption stimulate overuse, because they amount to a discount. Federal tax exemptions now mainly extend to two consumer purchases: health insurance and home mortgages. We currently have a national crisis in both at the same time. The tax-subsidized-home-mortgage housing bubble preceded the financial panic, and tax-subsidized health care has led health costs into a second unsupportable bubble. More importantly, giving a tax subsidy to employers but not to self-employed or unemployed persons has created the uniquely American system of employer-based health insurance. Tax preference makes insurance a third more expensive for the uninsured, paralyzes portability with job-lock, and provokes hospital internal cost-shifting which further escalates costs for those who lack the tax preference. Equalizing taxation is not merely equal justice, it is the key to individual ownership of health insurance, which immediately creates portability and largely eliminates pre-existing condition exclusions, a related issue. It is impossible to imagine mandating individual coverage to large populations who are excluded from exemption, simply because of the nature of their particular current employers. For this purpose, it does not matter whether tax exemption is given to everyone, denied to everyone, or only extended to part of the cost. The choice between these three determines its revenue effect.

If health insurance is mandated, the tax treatment must be uniform.

Hidden Cost

Once the tax is equalized, this proposal becomes 1. INDIVIDUAL OWNERSHIP OF HEALTH INSURANCE POLICIES, already proposed in Congress, but seemingly without hope of adoption. However, healthcare reform cannot be permanently settled without it. It must be understood, however, that eliminating the tax preference will be resisted by those who already have it, because of the rather strong likelihood its benevolence would be reduced for them, in order to pay the revenue cost of extending it to all. Since re-adjustment would positively be the ultimate outcome, those proposing mandatory individual coverage must score the revenue cost of implicit tax adjustments of mandatory coverage, even though unmentioned in this year's bill. The CBO should provide a sliding scale estimate for negotiating purposes.

2. PROVIDE MANDATORY CATASTROPHIC COVERAGE THIS YEAR, ADD TO IT LATER. Since Health Savings Accounts enjoy Republican support, this cost reduction by itself could transform chancy reform into bipartisan victory. To add the Savings account feature would have a revenue cost, and that should be the battleground of debate, not the reduction of full coverage to partial coverage by catastrophic insurance. Giving up the quest for total coverage nevertheless concentrates on relieving the most threatening feature of non-insurance, the most bang for the buck. For diehards hoping for first-dollar coverage, a catastrophic base still provides a simple pathway for future expansion after this much has been digested. Isn't Universal Catastrophic Coverage a better outcome than a pitched, prolonged and partisan battle? Must we be reduced to accusing certain interest groups of having the incentives they obviously do have? Grown-up negotiating takes that in stride.

The States Are in the Road

3. PRE-EMPT STATE LAWS WHICH INHIBIT CATASTROPHIC COVERAGE. State mandated benefits now severely limit high-deductible insurance in many states, and are the main reason Health Savings Accounts have been slow to spread. The provisions of ERISA shield employer-based health insurance from the unfortunate health coverage mandates in question. ERISA could not have been successful without this pre-emption, so unions and management unite in absolute concern to isolate ERISA from congressional meddling, although for different reasons.

4.MODIFY McCARRAN FERGUSON ACT. This act effectively makes the "business" of insurance the only major industry restricted to state rather than federal control. It should be amended to permit the sale and portability of health insurance policies across state borders and interchangeability of individual policies when people change state residence, thus greatly increasing competition and reducing prices. Once more, present law discriminates in favor of the employees of interstate corporations, who are also exempted by ERISA.

The Supreme Court Needs Help, Too

5. LEGISLATE OVER-RIDE OF 1982 MARICOPA CASE. This unfortunate U.S.Supreme Court 4-3 decision, was never tried and upholds only a motion of summary judgment. It prohibits physician groups from agreeing on lower prices, and has been taken to mean physicians are excluded from exercising control of HMOs and Managed Care. By some quirk, the full tape recording of the 1982 U.S. Supreme Court arguments can be heard on the Internet.

6. CONVENE BLUE RIBBON COMMISSION TO REPAIR PSYCHIATRIC INPATIENT CARE. The 1983 BRA switched hospital inpatient reimbursement to payment by diagnosis(DRG). Abuse of the psychiatric exclusion then led to "corrective" legislation which has essentially reduced American's psychiatric inpatient care to a national disgrace. Rather than make headlines, a commission should devise a workable methodology for psychiatric hospitals, relying neither on present approaches, nor on DRG. But accepting overpayment as a better outcome than no care at all.

6. DRUG PATENTS ISSUED ONLY TO DRUGS APPROVED BY FDA AS MEETING A NEW STANDARD. This additional standard -- confirmed unique advantage -- would exclude "me-too" drugs from higher prices from patent protection but not to competitive, generic-level, prices. It would also strongly encourage comparative effectiveness research in order to meet this standard, since cost effectiveness would be considered. Such drugs must continue to meet safety and efficacy standards. This might also be considered to be a modification of the efficacy standard, to include cost effectiveness.

If Congress simply must micro-manage --

A few tips

7. MANDATE DISPLAY OF COSTS NEXT TO PRICES (whenever prices are displayed, as in bills, price lists, etc.) FOR ITEMS COVERED BY HEALTH INSURANCE. Some high mark-ups are justified, but the public has a right to criticize them. This would not prohibit, but would considerably hamper, cost-shifting. It should be presented to provider groups as forestalling the prohibition of cost-shifting because of abuse. For this and other reasons, it would enhance provider competition.

8. REIMBURSE HOSPITALS ONLY ON RECEIPT OF ASSURED POST-DISCHARGE HANDOVER OF MEDICAL RESPONSIBILITY. Unfortunately, hospitals do need increased incentive to improve communication after discharge, which now increasingly occurs on a Saturday. Payment by diagnosis, otherwise a good idea, results in sequestration of medical charts in the accounting department.

9. Similarly, REIMBURSE HOSPITALS FOR LAB WORK ON THE LAST DAY OF HOSPITALIZATION ONLY AFTER DEMONSTRATION OF REPORTING. Such lab work, frequently obtained within hours of discharge, is sometimes overlooked and may even be unobtainable for the previously mentioned reasons, which in this case also apply to the hospital's own physicians.

10. RESTORE ORIGINAL FORM OF PROFESSIONAL STANDARDS REVIEW ORGANIZATIONS (PSRO). These physician organizations effectively regulated many issues which are now the subject of complaint. They were lobbied into ineffectiveness in 1980, and together with Maricopa, essentially turned medical oversight over to insurance companies who thus receive no physician advice except from their own employees.

Treat liabilities like debts.

Accounting, for Congressmen

11. SUBJECT MEDICARE TO DEBTOR DISCIPLINES. The present convoluted accounting of contractual obligation liability escapes being treated like debts. But Medicare is now the largest debtor in the world, rapidly becoming more indebted; coping with a Medicare insolvency without inflating the currency is hard to imagine. In any other such situation, the creditors would impose controls. a. Suspend new entitlements and restrain cost of living increases until stated goals are reached. b. Merge Medicare and Medicaid, bringing accounting and cross-subsidy issues to an end.

No surgeon can pay malpractice premiums with Medicaid reimbursement.

Now hear this.

12. TORT REFORM. Malpractice costs mainly affect surgeons and obstetricians, who sometimes pay annual malpractice premiums of $200,000. Not only does this provoke defensive medical behavior, it provokes local physician shortages which in turn lead to hospital cost-shifting and other responses. The only tort reform which has proven value is to place a limit on awards for "pain and suffering", the traditional catch-all cost expander.

http://www.philadelphia-reflections.com/blog/1730.htm

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Obamacare, Executive Summary

Ever since 1965, effective legislative control of Medicare and Medicaid has rested in the Senate Finance Committee. The Health Subcommittee of the House Ways and Means Committee has seemingly equal power, but the difference between a two-year term and a six-year one makes a difference after forty years, in terms of collective memory and experience. It has not been explained why President Obama is in such a rush to pass healthcare reform, but he is, giving it a higher priority than two wars and the worst depression since 1935. All of the health committees of the House have completed their bills and partisans have been hectoring the Senate Finance Committee to get on with the job. But this committee of highly genial and courteous friends have five hundred more amendments to review together, and they are doing their job. If the President applies too much pressure, he will have to deal with the entire Senate, who cherish each others' privileges. This little comedy has turned much more serious since the Senators have come to realize that 90% of the trillion-dollar cost in ten years is generated by upgrading and streamlining the Medicaid program, which had received scarcely any attention up to then.

The soaring goals of the program are to extend health insurance to all Americans, and to rescue impending Medicare insolvency by making all healthcare costs grow at a slower rate. To accomplish universal coverage, mandates are proposed, with financial penalties for non-compliance. Mandating that more employers provide health insurance for employees seemingly is insufficiently broad. Mandating that all individuals obtain coverage to avoid fines is broad enough, but compliance is likely to be resisted, particularly if equal tax exemption is not included. Equalizing the tax preferences solves several problems, but two remain: it raises the revenue cost considerably, and it undermines the whole reason for employers to offer group coverage. That might well begin the process of unraveling the employer-based system, but it is still difficult to believe that millions of people would permit this cost burden to be put on them when they see that others retain it and enjoy substantially lower costs. In fact, the President was willing to be seen as a quibbler rather than agree that mandatory insurance was a tax. He almost certainly had in mind the Constitutional provisions about equal justice under the law.

Because of demography, Medicare is certain to become insolvent in a few years, unless something major is done. Nevertheless, it seems unnecessarily expansive to propose mandatory universal standardization under regulation of all health care for everyone, in order to reduce the costs of Medicare. At some point, achieving uniformity becomes dictatorial, and certainly narrows the scope for competition in the industry. Probably the major factor in alarming elderly Medicare recipients that their benefits will be the main way of paying for achieving solvency is that neither they nor the administration seem to see any alternative. When they learn of the costs of reforming Medicaid, they will be even more alarmed about impending Medicare benefit reductions.

Indeed, the discovery of how wasteful and impaired the Medicaid program has become begins to suggest that this problem alone should be teased out and throughly studied before making these problems more difficult in the name of uniformity. There is, unfortunately, a serious Constitutional issue in the Tenth Amendment, and the pettier political problems are tangled. There is a legitimate question whether this performance demonstrates that the state governments are simply incapable of running these programs, balanced against the warning that mixing them up with other issues could make the problem too big for even the federal government to handle. It is not completely fanciful to compare it with the problems of King George III, who discovered that America was just too big and the communications just too difficult to manage across an ocean.

Myriads of other issues have been raised in healthcare reform debate, and most of them can be dismissed as micromanagement. The possiblity is real, however, that the sort of intensive study and review which this topic requires, will turn up other issues like the Medicaid program, so large an issue that it is far better to begin by isolating it and testing its premises from top to bottom.

Essentially, this is what people mean when they advise the President to press the reset button and start over at another time. Whether he takes this advice or not, we offer twelve suggestions that would be comparatively simple to implement, but have a disproportionately positive effect. They can be disputed as to value, but not on the basis of simplicity to explain, simplicity to implement. For example, to offer only catastrophic (high-deductible) insurance rather than the whole package from first to last dollar. To extend the tax preference to all who are mandated to comply with it. To state an additional standard of unique proven value for patent protection of new drugs. To legislate a reversal of the unfortunate 1982 Maricopa decision of the U.S. Supreme Court. To reconstitute the PSRO program in its original form, and several other small technical rules that would have disproportionate effect. And to mandate some progress in Malpractice reform.

And then get on with the business of conducting the two wars which are going badly, repair the financial system of the country from near-paralysis, and make some progress in Iran, North Korea and other aspects of foreign affairs. Otherwise, with the President making a speech every day, often in a foreign country, the public will begin to wonder who is running this one.

http://www.philadelphia-reflections.com/blog/1733.htm

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Glutes, Abs and Pects

Union League of Philadelphia

Robert Matsey, the director of Executive Fitness at the Union League, recently entertained the Right Angle Club with a discussion of new trends in muscle building. Which is to say the old theory of Dynamic Tension, as featured in adolescent magazines by Charles Atlas, is being superseded by platform stabilization, a much more popular approach among senior citizens. Since a few members of the club are already in the Medicare age range, and more are approaching it with concern, the talk was greeted with great interest.

Personal Trainer

Bob Matsey has a degree in marketing, so it all comes down to this: the more powder you use in a cannon, the bigger bang it makes. But if said cannon is sitting in a canoe, the extra gunpowder doesn't add much firepower. The new approach stabilizes the platform to magnify the cannon power, without paying so much attention to adding directly to the gunpowder. No one said that weight lifting and pushups don't bulk up your muscles; but if you want to climb stairs and lift things, it will get you farther to stabilize the pelvis and shoulder girdle than to split your seams with muscles that can't do much. Or, worse still, that will lead you to throw out a lumbar disc -- or a cervical one -- struggling to perform a simple task. All of which leads to a complicated discussion of the function of the hamstring muscles of the back of the thigh, which is mainly to overcome the inappropriate architecture we inherited when we became two-legged animals. And, as well, to overcome the tendency of a young straight back to curl up with age and inactivity, and press your nose toward the ground. One of the main causes of back pain can be traced to shortened tight hamstrings, a condition which destabilizes the platform of the pelvis.

Sitting down is the great enemy of posture and bearing; fifty years of it leads straight toward turning a former soldier into a skinny old geezer. Sitting down to a dinner table turns people into fat old geezers, deep inside which is a skinny geezer hidden by the fat.

Muscles

Every medical student is puzzled to learn that most energy expended by muscles is used to lengthen, not shorten, muscles. Without getting into the biochemistry of this issue, it can be taken to explain the tendency of muscles to shorten up when under-used. And, in turn, explains why stretching works a lot better than "body building" against a resistance. It thus may help to understand why it is sometimes easier for skinny old retirees to re-build their muscles into proper balance and coordination, essentially training infantile muscles to work together the right way. Those who have struggled to "work through the pain" may actually reinforce bad coordination, and will require still more sweat on the brow to force things to work the right way all over again. For example, there are two kinds of hamstring muscles, short ones and long ones. The short ones stabilize the pelvis, but if you whip things into obedience, you may be improperly recruiting the long hamstrings to act as stabilizers, making you in effect "uncoordinated" and awkward. RNT stands for reactive neuromuscular training, a process which amounts to improving a muscular coordination flaw by forcibly exaggerating it. The scientific basis for this jargon is a little hard to follow, but it does soon become very clear that RNT is quite uncomfortable. It makes a sort of argument for a compulsory draft into the armed forces at an early age, to beat bad muscle coordination out of the whole public at an early age, before they start sitting themselves to death in front of a computer.

A great deal of emphasis nowadays is placed on gluteal strengthening, a sort of unnatural posture training which can unfortunately be easily dismissed as worthless. In the spirit of defending this particular fitness training, a lady at a nearby table in a fancy restaurant was heard to exclaim to her luncheon partners, "What I mind most about growing old is that I have lost my ass!" Since obviously this disability is greatly to be avoided, get some gluteal training, ladies.

Along the same lines, the economics of fitness centers was recently explained with considerable seriousness, but not by Robert Matsey, who disassociates himself firmly. The trick, explained the outside expert, is to get people to sign up for a whole year of training when they first come in, full of enthusiasm. Since most of them will drop out of attendance after a couple of weeks, it is possible to run quite a profit running a fitness center with hardly anyone showing up.

And finally, Tom Hawes, former president of the Right Angle, rose to link this discussion with the current debate about health care reform Relating how an elderly couple in Florida went to a physician specializing in sex counseling, asked him to obseve their technique and comment on it. He later told them their technique was surprisingly good, and he had no recommendations. The charge for this service was $50, readily agreed to. Nevertheless, they returned with the same request three more weeks in a row, until the doctor asked them what they expected to learn from all this. "Oh, that's not the idea. She's married, and I'm married, so we can't go home. The motel charges $100 and you only charge $50. "

"But the beauty part is that Medicare reimburses us $43."

http://www.philadelphia-reflections.com/blog/1744.htm

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Only Three Things Wrong With American Healthcare

Although Congress is offering several thousand pages of proposals for healthcare "reform", none of them even mentions the three main difficulties, to say nothing of fixing them. Let's be terse about this:

1. Health insurance is fine, but if you make it universal, there is no impartial way to determine fair prices. Somebody must haggle with the vendor in order to introduce the issue of what is the service worth? The customer doesn't care what it costs to make, or whether the vendors are being paid fairly. If everyone is insured, no one cares what it costs. Not only do all costs rise, but they rise without coordination, without a sense of what each component is worth, relative to alternatives.

2. Employer-based insurance is fine, but it ends when employment ends. You just can't stretch employment-based insurance because you can't stretch employment.

3. State Medicaid programs are fine, but just about all fifty states are going broke trying to pay for it. Extending it to more people by raising the income limits just makes things worse. Items 2. and 3. are related. Trying to do both -- expand Medicaid as employment shrinks -- during a recession is incomprehensible. Item 1. (price confusion) gets drawn into this because the States try to pay less than it costs, hoping to shift the deficiency through hospital cost-shifting, utterly confounding the information which prices provide. The doctors have no way to tell which is the cheapest approach to a problem, so they don't try. Without control over prices, we can only control volume.

That's really all there is to this mess. Not one word of the current legislation even mentions these problems, so of course the legislation blunders. Even a child can see that compulsory expansion of benefits to universal coverage will fail if you can't pay for what you already have. No one will make sacrifices for a new system if the sacrifices seem futile. They are futile, so leave me alone.

The current administration has been compared with bank robbers who see they are trapped, and decide to shoot their way out. Let's see them try to shoot their way past the first Tuesday after the first Monday in November.

http://www.philadelphia-reflections.com/blog/1754.htm

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Ethics of Obamacare

Arthur L. Caplan

The Right Angle Club was recently addressed by Arthur L. Caplan, Director of the Center for Bioethics of the University of Pennsylvania. His topic was Healthcare Rationing. It was interesting to hear the viewpoint of someone who views the 2010 mandatory health insurance system primarily through the lens of its ethics; just like the Tea Party objectors, he sees the new system as merely a rationing system to be viewed with concern. However, his initial salvo is similar to that of the bill's proponents before it was enacted: "Every system always rations in some way or another." If you expected the outcome to be rationing from the beginning, your focus is naturally fixed on just what sort of rationing results, perhaps measured by whatever kind of rationing you had formerly hoped for, yourself.

Ethics is, after all, a system of constraining native, unconstrained, outcomes into something deemed more suitable. That's a definition which could be equally well applied to reform of all sorts, and repeatedly tends to cast reformers as underdogs fighting the establishment. Since the American healthcare system in 1950 could fairly be described as rationing healthcare with money, and its history from then to now has been one of jumbled similarity to 1950, most discussion accepts a financial rationing description for what Obamacare changed. There is much uneasiness about totally supplanting the marketplace with insurance, since universal insurance leaves no room for setting prices -- except by government proclamation, filtered through some sort of insurance bureaucracy. There was a time when many people thought that was better than paying for it yourself, but now that it's here, there are growing doubts.

UPENN

There's surely going to be a last-ditch effort to overturn Obamacare, whether through Congress or the Courts, and failing that, through stalling it until the President can be replaced in 2012. Let's assume for the moment that such efforts fail, and are not followed by armed rebellion. If the central issue is how do we find more acceptable methods of rationing, two proposed methods have begun to seem attractive. The first is proposed by Congressman Ryan of Wisconsin, to the general effect of taking what we now spend, chopping it up, and issuing vouchers for the same amount less net middle-man costs. This approach stops the rise of costs right where they are, and thus pleases Congress. But the thing to be rationed is redefined as well. It rations future cost rises, net of any savings wrung out of the system by competition for voucher money. It's fair to claim this system should not deny the present level of care to almost anyone. It has a price, however. If you want future miracles, you have to pay for them.

Obama Care

A second proposal depends on the observation that most healthcare costs are concentrated in the first year of life, and the last year of life. Strip those costs out, and what is left would almost surely be manageable, particularly in view of how the concentration of costs in those two areas steadily increases. Essentially, this system promises to take generous care of the helpless when they are born and when they die. Healthcare costs during the years of school and employment, however, could more confidently be left to people who are sentient and reasonably healthy, so that's where the inevitable rationing would be concentrated. Once more, the payment system has been modified to avoid such third-rail issues as euthanasia for Grandma or for self-inflicted diseases, or even for abortion. Those would be left to the public to manage during stages of life where there is reasonable likelihood that the patient's own wishes can be paramount. For now, we pass over the technicalities of last-year-of-life insurance, but it could fairly begin with reliance on reimbursing Medicare after the fact, while traditional first-dollar insurance for pregnancy and newborns, or even mandatory government reimbursement, might seem acceptable even to strong conservatives.

So, what's proposed here is a substitute for both the traditional system, and the bewildering command and control system of Obamacare. It shifts the subject matter for rationing away from those areas that frighten the public the most, toward either: rationing future unknown scientific advances, or, rationing healthcare during the years when it is comparatively predictable, and involves patient cooperation during the years of reason. That's the summary; other proposals are welcome.

Regrettably, after the November 2 election, we first must endure a lame-duck Congress, followed by two years of White House-Congress gridlock. There will unfortunately be scant tolerance for ethicists, during that grievous national experience.

http://www.philadelphia-reflections.com/blog/1993.htm

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