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ERISA
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In 1963 the Studebaker automobile company went bankrupt, leaving half its employees without anyone to pay the promised pension benefits. Congress soon resolved such things should never occur again and convened a Congressional task force to devise a law which would make employee benefits survive, even after the parent company went under. Negotiations took almost ten years and were said to craft a law that could not be amended, thus assuring employees their pensions would be independent of the fortunes of the company itself. Somewhere near the end of this long process, someone asked why it could not extend from pensions to health insurance as well. Almost as an afterthought, health insurance acquired some new features which had never really been considered in the past. ERISA (Employee Retirement Income Security Act) was enacted, signed by President Ford in 1974 and almost immediately began to change the whole discussion of health insurance. The suggestion I would make is that this legislation takes care of interstate health insurance, and seems to have created very little dissension. It might, therefore, contain some features which peacefully solve the same problem of reconciling a mobile and itinerant population with the Tenth Amendment.
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Interstate Commerce Commission Seal
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Because the Constitution provided for only a limited set of powers for the Federal Government, and the Tenth Amendment repeated the point for strong emphasis, every power not expressly given to the Federal, and not expressly forbidden to the States, was to be a power of the States. And that included health insurance. The Court-packing uproar of 1937 considerably strengthened the power of the Federal Government to extend its ability to regulate commerce. Indeed, advocates of this movement have been at pains to describe the Interstate Commerce Clause as merely "the Commerce Clause", as if to pretend it had never said anything else. However, the authors of ERISA (the Employee Retirement Insurance Security Act) expressly included pre-emption clauses which rather unnecessarily provide that Federal Law and Regulation should supersede state powers in that area.
There was a conflict here, in which ERISA apparently had to behave as though the Tenth Amendment did not exist. The conflict was never resolved by the Supreme Court, probably because it was so evident that business was delighted to have a thousand mandated benefits in state laws undermined by Federal pre-emptions. Concerted efforts by labor lobbyists had succeeded in putting everything they could imagine into health benefits packages, which were then exempted from income tax. Health insurance became "first dollar coverage", greatly increasing its scope. Because it included many low-cost items, its insurance administrative costs were unduly high; and because it included birth control, it was even a welcome respite for the Court system from the excited lobbyists on both sides of that inflammable issue.
Unfortunately, much of the behavior in the health insurance world is political rather than economic. Consequently, big businesses were mainly interested in is having one fifty-state insurance umbrella rather than in winning arguments in public. The use of federal regulation allowed them to have nation-wide insurance with uniform benefits, and it probably allowed them a wider set of insurance choices at lower prices. Moreover, it helped the Human Resources departments of the major corporations to have their way unhampered, and get rid of such nuisances as obstetrics for male employees. In the original negotiations, labor unions were bought off by allowing them to run their own "independent" health plans, but eventually, they went back to searching law books for loopholes. And the conflict between the "supremacy clause" and the Tenth Amendment was certainly a logical one to pursue because one mandated Federal regulation, and the other precluded it. Twenty-six states place taxes on provider institutions and most of them use the tax money to draw down federal matching money at anywhere from 1:1 to 1:4 levels, which is then returned to hospitals as "disproportionate share hospital" reimbursement. Other states use tax incentives to force third-party administrators to restructure benefits in a way that mirrors regulation.
By far the commonest set of dodges take advantage of judicial opinions that the states could regulate what was insurance, whereas the Federal regulation mostly applied to "self-insurance". The feeble distinction was whether lump sums were paid to an insurance company to distribute, or whether the parent employer distributed the money directly. By extension of this principle, reinsurance was taxed, payments to hospitals were federally regulated. The principle of risk-sharing was dragged into discussions which relegate state regulation of stop-loss arrangements, especially those with low attachment points, as indistinguishable from pure insurance; while self-insurance and experience rating are state regulated. What to do about "pure" insurance with a high deductible is less clear. (This may be one subtle reason why first-dollar coverage, in some ways the least desirable insurance form, is treated as a default, while Catastrophic coverage, which ought to be the basic protection, is relegated to a status bordering on outlandish. By treating huge costs as the responsibility of local charity, this arrangement tends to make them remain so.) That is, by inserting a fictitious intermediary, the regulation supposedly changes from federal to state. The model for this would seem to be one-bank holding companies. Consequently, trial lawyers have taken to suing the fiduciaries of trustees, leading to the comment that "You would have to be a lunatic to agree to be a fiduciary." The longer all of this goes on, the more tangled it will probably become, so the Supreme Court is probably under heavy pressure to pick a suitable case, and decide it.
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Affordable Care Act
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Shortly after the Affordable Care Act was passed, big business employers were given a one-year deferral of mandated coverage. The tangle with insurance exchanges for small employers (fewer than 50 employees) does somewhat justify getting that part straightened out, before taking on the much larger issue of employees in the large groups. But there is probably much more to it than that since large employers have the ability to hire assistance in the technicalities, and could probably quickly do many things small employers could not contemplate. Since it was elected to do the more difficult job first, this explanation is unconvincing. We are left uncertain: whether a big business has walked out, is bluffing its intention to walk out later, or has some other use for the extra delay. A secret Republican promise to offer more favorable terms, in exchange for help in the 2014 elections, would probably not be difficult to obtain. Meanwhile, uncertainty whether state mandates for low-cost medical items apply or not hangs over the surprisingly high deductibles being placed on insurance plans in the exchanges. For Catholic voters, it is critical whether they will be compelled to include birth control pills; for Health Savings Accounts, eliminating low-cost state-mandated benefits is important for high-deductibles to work. And for Obamacare, if state-mandated low-cost issues must be covered, it is hard to see how high deductible policies could work, how alternative co-payments can be avoided, and therefore how lowered costs can be imagined.
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Henry Kaiser
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Pre-empting state-mandated benefits is not the only issue that could be used for trade. Everybody has been curiously silent about the egregious unfairness of the Henry Kaiser tax exemption for employee benefits, with no deduction at all for the self-employed. The solution seems quite simple: preserve tax neutrality by lowering the tax exemption for employees by about a quarter, but extend the result to everyone. There are so many more employees than self-employed, that the exemption for self-employed could be paid for with quite a small downward adjustment of the exemption for employees. For this tax inequity to persist for seventy years, somebody is being pretty stubborn.
Note: Later in this book we discuss investment returns, and ERISA regulates huge dollar amounts of employee pensions, many of which are in trouble because they are underfunded. Most of the investment is subject to 1-2% fees of one sort or another, which would disappear if the investment switched to index fund investment without fees of more than 0.25%. Rather than let the City of Detroit, or the States of New Jersey and Rhode Island, go bankrupt because of unfunded pensions, it would seem worth-while for some politician to sweep out the investment advisors and purchase index funds. If it seems like a lot of trouble, just imagine what might happen if your political opponent in the next election, suggested it first.
Healthcare can be divided into many different segments. We choose to divide the discussion of it into three eras of life (childhood, adulthood, and retirement). Because the Affordable Care Act ("Obamacare") is in political and judicial flux, we must skip adulthood until it settles down. For discussion purposes, we regard the healthcare of working people as a fairly small issue, so it can temporarily be treated as cost-neutral. Keep in mind that the financing of all stages and conditions of life ultimately derive from working-age people, however. Children, retirees, and disabled persons are ultimately subsidized by working people because these dependents have little income of their own. We aren't skipping over that fact at all; it's the actual health costs of working people that are too unstable to discuss, just yet. Forgive us if we pass over them for a few months.
The Affordable Care Act purported to mandate health insurance for everyone, but actually, about thirty million people were excluded. The healthcare of seven million prison inmates, eight million unemployable, and eleven million illegal immigrants are too specialized to be included in a program which hoped to be one-size fits all. Quite properly, these outliers would be better handled by special programs, designed for their special needs. That's all that needs to be said about conflict with the Affordable Care Act, for the present. If the ACA conflicts with some of the imperatives of what we outline, we assume it will be changed. After all, that's been its philosophy from the beginning.
What that leaves to discuss is retirement, childhood, and how to connect the pieces. It's no secret all of lifetime healthcare in our scheme should be connected by a single lifetime Health Savings Account, one per person. We'll return to that after we first discuss the dependencies of retirement and of childhood. They are quite different. Medicare is not only a political hot potato, but it also comes at the end of life after savings have accumulated to pay for it. Childhood comes at the beginning of life before there has been much chance to pre-pay it. That makes such a radical difference, they almost seem to make them two different programs.
We begin the far end of life, where most of the health cost concentrates, and paying for retirement is a vital issue. We start with Medicare, which most people don't want to change.
Somehow, it seems necessary to reiterate the very simple model of the marketplace: the housewife with a basket, bargaining with a farmer at the back of his wagon. The price is set by supply and demand: she has to get home to cook dinner, he has to get home to his farm. As the vegetables in the back of the wagon dwindle, she has to pay more to get something. When it gets later and his wagon is still full, he has to lower his price.
But the Industrial Revolution changed the balance: as mass production grew, more people were hired, including an accountant to keep track of what it cost to make something. The factory couldn't sell below average cost, else it went out of business. Price was still set by supply and demand, so if there was a margin of profit, there could be disputes about how to divide it. If the factory got big enough, some of the workers inevitably had no idea what their contribution was worth. That became increasingly true on both sides of the equation, both for the buyer and the seller. The use of a Health Savings Account at least re-simplifies the price matter for the buyer, who has to authorize each transaction. Ultimately, he says yes he will pay the medical price, or no he won't. Only when he is too sick to care, should the insurance take over the bargaining. Unfortunately, he has no idea whatever about the audited costs of the other party in the transaction, so he has to rely on supply-and-demand to make the price seem right and fair.
In a typical hospital of three or four thousand employees, or a typical drug company with fifty thousand of them, the typical employee may have no idea of the fairness of the top boss, the CEO, or his lieutenants getting big salaries. The employees and stockholders might be underpaid, or the customers overcharged. There was plenty of proof that both injustices could occur, but no proof whether in general, the public was charged fairly for a vitally necessary product. Enter insurance and government control, to fill that gap.
Insurance prices are set by insurance competition, so the anti-trust statutes at least try to be satisfied insurance was not a monopoly. Healthcare is one step removed, and not very transportable. So health anti-trust is a somewhat more local thing, although consumer groups tend to look for foreign comparisons. Governments are a slightly different matter; they can be as unfair as they please as long as they get re-elected. But in a sense, King George III of England and Benjamin Franklin together, long ago discovered the real resistance to that idea. When London's St. Paul's Cathedral was struck by lightning, Ben Franklin (then living a few blocks down the street) was quite reasonably called to consult. He said the church needed a needle-shaped lightning rod. But King George wanted a copper ball, and he was King. In time, King George got his copper ball, but lost much of his kingdom for his royal heedlessness of facts. In the long run, Franklin won the argument, but lost his British loyalty. Apparently, he said words to the effect, "Who the hell do you think you are, telling me about lightning rods?" Historians will differ about which of them was being more unwise.
Fundamentally, the issue in pricing seems to be the currency. No one denies the government must control the currency, and very few want to see a return to the gold standard.
Getting more specific, it seems reasonable to allow the the government to water the currency in order to preserve the nation's health -- during some sort of national disaster. But it is totally unreasonable to watch the currency get watered in order to balance the Federal budget without raising taxes, or some other contrived excuse to lower interest rates. The suggestion of funding healthcare with huge internal reserves may not seem pertinent to this imbalance, but it is.
The very idea of a few elected officials making such a decision without public support, calls into question the wisdom of using the power of the public purse to serve as a fail-safe mechanism for overspending on healthcare. If a hundred million voters stake their future healthcare on a stable currency (in the HSA way), it would not prohibit government from acting as re-insurer of last resort. But it would make it a whole lot harder to water the currency, in the name of better healthcare.
The American Medical Association feels unappreciated and misunderstood, and that is indeed a pretty accurate appraisal of things. In 1976, when I was offered an opportunity to be nominated to the AMA House of Delegates, I naturally was flattered to represent a thousand physicians. But I must admit that an extra incentive was the opportunity to learn what the AMA was all about. Since that is not exactly a superior qualification for election. I kept it quiet until now, but I can tell you that it is a very common feeling among new delegates. Even up to the time of being invited to give this lecture, my thoughts were formless or subliminal, and it is actually a welcome opportunity for me finally to coagulate my thoughts in order to say something useful to you tonight. Some would say, it is about time I made up my mind.
It seems helpful to begin with a broad historical perspective. Most of you know that the AMA was founded in Philadelphia in 1847 and that this Philadelphia County Medical Society is older than the AMA, and older than the Pennsylvania Medical Society. That was entirely natural, since Abraham Lincoln was then a small child in a log cabin in the forests of Illinois, whereas Spruce Street was lined with mansions, and the Pennsylvania Hospital was one of less than a dozen hospitals in the whole country. Things changed dramatically during the Nineteenth Century, but it would be important for you to recognize that by the year 1900, only seven percent of American physicians were members of the AMA. The AMA was founded as an elite brotherhood, adhering to a Hippocratic Code of Ethics, protected by stringent entrance restrictions, and internally disciplined by active boards of censors. If you were a member of the AMA and had not yet been thrown out, the public could be assured that you pledged active allegiance to Code of Ethics.
Well, as you know, the news media now jeer, and the AMA now despairs, that membership has declined to slightly less than half of all practicing physicians, a fact which is probably correctly attributed mostly to the rather high dues. Again, you should know that at the peak of membership in the 1930s, when it is fair to say that almost every physician was a member, the dues were free.
What happened to the ama was the Flexner Report in 1914. At that point, the AMA enlarged its traditional posture of self-discipline in a naughty world to active involvement in the processes by which medical excellence is produced. The Flexner report was devoted to examining the scientific content of the medical educational process and membership in the AMA came to stand for scientific as well as ethical excellence. Without intending for it to happen, the AMA had stumbled on the real secret of medical prestige, and after that, the AMA had no problems with attracting membership.
Throughout the Nineteenth Century, the major accomplishment of the AMA had been to establish the state licensing process. As a result of its formative activity in lobbying legislatures to create state boards of medical licensure, and it's later spectacular success in specifying the best medical educational process, the AMA has long played an influential, indeed dominant role in both areas. The Joint Commission on Accreditation of Hospitals was another AMA project, and so was Blue Shield. None of these secondary power centers (now dominant in licensing, education, hospital regulation, and health insurance) was established as an AMA vassal,but their formats were established from the beginning using the AMA model, their early leaders were all AMA leaders, and to this day, the AMA is certainly where to be if you want to learn the ropes. It must surely be frustrating to the enemies of the AMA to see how fruitless it has been to resist the power of the AMA in these areas, because so much intangible power rests in the experience, savvy, and contacts of the AMA in these areas, because so much intangible power rests in the experience, savvy, and contacts of the AMA leadership. They know where the bodies are buried, and they know all about the personalities and politics of the process. You could spend three lifetimes as an outsider just trying to learn what is going on. By the time you learned, the situation would have shifted just enough so the information wouldn't do you any good.
So, you can see that in some ways the AMA is an object lesson in the way that society often gives power to idealistic leaders, and then Idealism struggles to check the corrupting pressures of Power. The ancient Greeks thought it was a good idea to have philosopher kings, but history teaches us that even they acted more like kings than philosophers. Since this seems to be the universal nature of human behavior, it is vital that we search for self-regulating mechanisms in our institutions. The one I suggest for the AMA is the very unpopular suggestion that we be careful how we lower the dues, and we must never achieve automatic membership of the entire physician community. We must be cautious of defining success in the Morris Fishbein sense of getting rid of all dues because then the staff and leadership won't need to solicit membership. When we stop scratching and scrabbling for members, the members lose their ultimate power to impose their wishes on the organization. No one now needs to sign a petition or make a speech, and it is definitely counterproductive to threaten the leadership that you are going to resign. Rather, the invisible hand of the perceived wishes of the membership is raised in every vote at every Trustee meeting we must care of this or that, we must be careful of our image, else the membership might not like it. The paradox is that the AMA is now much more representative of members than it ever was in its heyday. When Morris Fishbein was coining a fortune in cigarettes advertising in the JAMA, the wishes of the membership be damned.
The thought I would next pursue is that the bumper stickers, paraphrased as "If you don't like the AMA just try to practice medicine without it." The . AMA is the largest medical publisher in the world, and while New England Journal has more prestige at the moment, it wouldn't take a charismatic editor more than five years to put the JAMA back on top of the prestige heap. The AMA News is by far the best medical newspaper in the world, and it supplies an absolutely unique information role.
The AMA has a program in the health care within our prisons which has almost no visibility, but which I can assure you is something you can be very proud of as a humanitarian effort conducted for its own sake. The AMA is extremely active in such abstruse but vital projects as creating medical nomenclature coding, uniform insurance billing forms, medical manpower surveys, health economics monitoring, and clearinghouses for personal exchanges. Whenever we have had a war or physicians draft, the AMA has been the only organization capable of coordinating the civilian and Military medical needs of the country. The AMA seems to be the only organizations which give a hoot about the Veterans Administration or military medicine. There is a very large building in Chicago filled with a thousand salaried people doing many other very necessary things, and doing them quite creditably, without getting very much public credit for it.
The United States of America is a republic, not a democracy as we sometimes tend to say. The American Medical Association is a much purer form of a republic, and its retention of some republican forms which the National government has lost has been a very useful political education for me. I take my seat in the House of Delegates by presenting a little yellow card, signed by the current president of the Pennsylvania Medical Society. If I have the card, I am seated; no card, no card. The cards are given to the State societies in the proportion of one card for every thousand AMA members. The AMA sees to it that the State Society Presidents are in person at the meeting to adjudicate credentials disputes. States may elect their delegates in any way they like and there are several methods. In Pennsylvania, the election is made by the Pennsylvania Medical Society House of Delegates, where membership is roughly one for every hundred members, sitting by countries. Philadelphia County has 30 delegates, and three AMA delegates, although there is nothing official about that.
The AMA House of Delegates meets twice a year for a week. Since you cannot retain your seat without tending to the political fences, a delegate must also attend the state and local meetings. A delegate must thus expect to devote four full weeks a year to the experience, and he need not expect to be influential at the AMA until he has been there at least five years. The AMA delegates feel very strongly about personal commitment; you can be tolerated if you are pretty eccentric, but if you don't come to a meeting, you are instantly ostracised, and probably will be quickly replaced.
The delegates have two main duties. They are an electoral college and they are a legislative body. The House of Delegates elects the President of the AMA and the Trustees, who run the organization between meetings of the House. The House also elects the members of four Councils, who are the specialists in matters of science, legislation, medical practice, and governance. The 70 officers, trustees, and councilors are the leadership, the Curia so to speak, and House of Delegates meetings are highly charged with the politics of these elections as well as the shadow of elections coming in future years. I am inclined to think the candidates take the elections too seriously and the delegates do not take them seriously enough, but it is a matter about which you cannot be entirely certain. There is absolutely no doubt that every delegate has ample opportunity to know every candidate very well, and it is likely that the House makes relatively few mistakes in its choices.
Acting in its legislative role, the House of Delegates usually receives a very thick handbook of agenda, two weeks before every meeting. Most newcomers are overwhelmed by the unexpected volume of detail and are quite unprepared for the ensuing experience of holding up their hands and voting on two or three hundred issues in the course of a week. There is a knack to mastering the process, of course, but mostly the knack comes from making the awful acknowledgment that you really must spend all evening studying the handbook, every evening for the two weeks before each meeting. You don't have to do it, of course, and some members are obviously bluffing. But if you expect to be effective you must do it, and if you want to get effective you must do it, and if you want to get effective you must do it, and if you want to get promoted you have to be seen to be effective. Business starts at 7 AM sharp, often in a city where you must cope with three hours of jet lag, and it goes straight through to midnight. The fact that you are eating breakfast o at a reception does not change the business nature of the day. Only a profession of workaholics could produce three hundred delegates and three hundred alternates, the majority of whom will put up with this grind for ten or fifteen years. Some of our decisions may be wrong, but we sure try hard to make them right.
In closing, I think I should say something about the AMA lobbyists. The AMA is rightly known as having the most effective lobby in Washington, but you ought to know what that means. Since we are a national organization, and every congressman has a doctor, and every congressman lives where there is a county medical society, it is possible to create an organization which can influence the entire Congress, but only with a massive organizational effort. Congressmen too are overload with work and live in a constantly confusing environment. Just to be able to get them to listen to your story is an achievement, and it is necessary to work very hard at repairing this network of contracts. AMPAC raises campaign contributions, and this is one way of reaching some congressmen. Knowing who is on what committee, how he leans, who can influence him, and when the timing is right is an enormous organizational job. Sometimes extraordinary measures are needed, was true in April 1984 when mandatory assignment of Medicare benefits looked as though it might pass. The AMA flew in 125 state medical society presidents and other key contracts and led each one up to the appropriate doors at the critical moment. As you know, the effort was successful.
Most lobbying, however, is far less dramatic. The Federal Register is published weekly and averages seventy thousand pages a year. Perhaps a twentieth of that fine print pertains to medicine in some way, and it must be culled out, studied, decided about, and lobbied with the staff assistants and bureaucrats who are producing it. here are no major victories in this sort of work and you lose a lot of arguments. But there is little doubt that the steady pressure, the constant alertness, and the presentation of superior information have the effect of pushing this avalanche of legislation in directions which are much more favorable to medicine than if the effort were not undertaken.
And fellows, it all takes money. We can raise money by forming captive malpractice insurance companies, or getting advertising in our journals, or charging for computer networks, or speculating in real estate. But who pays the piper calls the tune. In the long run, the member will only control their society if the society remains heavily dependent on their dues. You really must choose between three alternatives. You can have no one represent the profession in an era when everyone else is represented. You can be represented by a bureaucracy which constantly reflects your wishes because it constantly hungers for your dues. The decision is yours and you can expect, in the long run, to get what you pay for.
Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.
