Philadelphia Reflections

Health Insurance

Clinton Health Plan and its replacements.

July 4, 1776: Patients in the Pennsylvania Hospital on Independence Day

According to the records of the Pennsylvania Hospital, the following 48 persons were patients in the hospital on July 4, 1776:

The records indicate the following diseases were the reason for admission of those patients. Although in Colonial times there was no medical delicacy to avoid offending readers, present privacy standards require that we strip the diagnoses from the name of the patient and list them independently. There is some overlap, sometimes making it difficult to judge which disorder caused the admission.

• Sore, poisoned or ulcerated legs: 16 cases
• Lunacy, mind or head disorders: 10 cases
• Syphilis: 7 cases
• Fever and Rheumatic fever: 7 cases
• Dropsy: 5 cases
• Gunshot: 4 cases
• Diabetes: 1
• Blindness with clear pupil: 1
• Spitting blood: 1 case
• Dislocated arm: 1 case
• Inflammation of face: 1 case
• Scurvy: 1 case
• broken arm: 1 case

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The following physicians were elected at the Managers Meeting dated 5/13/1776:

• Dr. Thomas Bond
• Dr. Thomas Cadwalader
• Dr. John Redman
• Dr. William Shippen
• Dr. Adam Kuhn
• Dr. John Morgan

The Cost of Meeting Unmet Medical Needs

For fifteen years before Medicare, I practiced medicine in Philadelphia. At that time, the backlog of unmet medical care seemed infinite, impossible to satisfy. For one thing, we didn't have enough hospitals to fix all the hernias, gallstone, rotten teeth, festering bad leg veins, positive blood tests for syphilis, and a dozen other matters. But we set about it, doubling the number of medical students in each school's class, and doubling the number of schools. We built or renovated and re-equipped 124 hospitals in Philadelphia alone, as I remember.

Well, we were successful. It is no longer true that everybody's teeth are rotten, or that one Wasserman test in six is positive. Instead of throwing up our hands at infinity of unmet elective surgical cases, we now hear suspicions that perhaps cataracts are being "harvested", cardiac pacemakers becoming universal apparel, tummies being tucked. But professional jealousies to one side, an undeniable statistic emerges. We only have thirty hospitals.

Backlogs are like waterfalls. The level seems limitless until it suddenly disappears from sight. We spent far too much money on new hospital capital construction, and that spending spree has to account for a major portion of the cost of medical care that now doesn't seem to be producing anything worthwhile. These are the training costs of what can now be seen as temporary construction.

These thoughts came to me when a visitor to the Federal Reserve from Kazakhstan talked recently about medical care in that vast wasteland. At a time when petroleum supplies are short, Kazakhstan has discovered it has possession of the largest new oil field in the world. The social scene is like Texas in the Twenties, or perhaps the Yukon fifty years earlier. Whereas today it is questionable whether to spend the money to perform a Wasserman in America, positive tests are widely abundant in Kazakhstan. I daresay the hernias, varicose veins, bad teeth, and whatnot are just as bad there as they were in America in 1960. And they are gunning up their engines to build lots of the biggest most expensive hospitals anywhere because they can afford them.

Prediction: in 2050 nobody will be able to explain why medical costs are so high in Kazakhstan. After all, at that time there will be no positive Wasserman, no hernias, no gallstones.

Replacing Employer-Based Health Insurance

Employer-group health insurance will surely decline because so many are dissatisfied with it.

Dr. Fisher

Preamble

It might take a hundred pages to describe America's dissatisfactions with its health insurance system, but we mean to limit the grousing to features which could usefully be changed. The present system served us well enough for sixty years, and we tip our hat to those who struggled during depressions and war years to cobble together some kind of health financing system, never claiming it would be perfect. For reasons that were sufficient at the time, we ended up with a dominant system which is employer-based and reflects that fact. In this book we skip the quaint history, going right to the advantages of gradually migrating to better systems, which surely means migrating away from employer group purchasing. An important word is gradual because we must fix this engine without turning the motor off.

Later on, we'll return to what's significantly awkward about employer group policies, but here let's summarize complaints in a paragraph. The predicament of employers, first, is that instead of pre-paying for health care which defines what it covers and how much the items will cost, employers now pay for "service benefits". That's merely a best-efforts description of the scope, while the associated prices no longer relate to either costs or the marketplace -- undefined scope and prices are blank-check health insurance indeed. Next, many employees feel they receive a poisoned pill. They get "job lock", where insurability is suddenly in doubt whenever they change employers. Even more, employees fear what might happen to their health care if the employer must suddenly reduce expenses. Third, being outside this system is no escape from it. Congressional tax preferences seem entirely unfair to anyone who doesn't get them. In fact, even those who do get tax breaks suspect hospital cost shifting merely taxes it back. Taken as a whole, employer group benefits are a third-party system twice removed: those paying the bills suspect their insurance vendor doesn't supervise enough. But employers are reluctant to pay insurance companies more money to supervise services because they know neither one of them can directly observe it. Economists mutter the insight that health benefits really aren't employer-stockholder money at all. The money belongs to employees in lieu of higher wages, so what right do employers have to constrain how it's spent? Both employers and employees view health benefits as a boomerang they can't even throw away without getting hurt. Fairness notwithstanding, the American Academy of Actuaries estimates the waste in the third-party arrangement is at least 30% more than people would pay with their own money; that's roughly what they get as a tax deduction. Finally, the uninsured don't complain about exclusion as bitterly as you might suppose; roughly half of them could afford to buy it. The country struggles to give health insurance to absolutely everyone, but a growing number of people absolutely don't want it. There's more to say, but this should get us started.

This book asks the reader to trace complaints back to causes, and unite around objectives. The employer-based system stands in the road of other approaches, some of them quite attractive. We could rather easily work for a system where each person selects and owns an individual policy. Right now, workers participate in a group policy owned and selected by an employer. As a matter of fairness, employees ought to own and select their own health insurance, and it wouldn't be terribly hard to do. Even if you regard fairness as a loser's argument, the switch might be made so that much better products --currently blocked -- can flourish. The main focus of this early chapter is on some potential opportunities within individual ownership of health insurance, gained by employers surrendering ownership of group policies, one by one, on request by each employee. The first of the advantageous opportunities, the Health Savings Account, already exists after a long struggle. Other alternatives which follow might be even better, but experience with this one teaches some important lessons. Primarily, almost all variants require legislation, because the existing system has resorted to the government to enforce its bargains. Furthermore, sufficient public enthusiasm must emerge to persuade insurance executives that enough market exists to justify the development effort. Both Congress and the Insurance industry must be persuaded the public is behind them, and both are tough to convince. By far the best way to convince anyone of anything is to conduct demonstration projects, experiments if you will, capturing what works and discarding what doesn't.

Health Savings Accounts

Health Savings Accounts started in 1980 and by 2007 have slowly grown to ensure 13 million persons. Because of impediments in various state laws, the distribution of HSAs is uneven geographically (see Figure 1). Since the pattern closely resembles the red and blue maps of the 2004 presidential election results, observers have perhaps unfairly attributed HSA resistance to devious politics. That may be true in part, but the pattern more likely follows the distribution of laws intended to foster employer group insurance, and thus reflects concentrated industries, especially the steel, coal, and auto businesses. HSAs, therefore, tend to be legally hampered in areas of heavy union influence, although seemingly they should not injure unions or provoke their opposition, and unions may not be mainly at fault.

These HSA accounts have two components, the catastrophic health insurance policy, and the tax-sheltered savings fund. These two structures revolve around the familiar advantages of high-deductible insurance, which is considerably cheaper than fully inclusive insurance because it avoids the heavy processing costs of myriads of small claims which most people could afford to pay for in cash. That concentrates the coverage to high-cost claims which, although less common, present the dual catastrophe of often being unaffordable and almost always putting the beneficiary out of work. Almost everybody needs some kind of catastrophic protection, although the size of the deductible might vary among income levels. Secondly, to be attractive to young people and others without significant savings, the savings account feature was added, as a way of providing the funds to pay for small claims and deductibles, without losing the cost awareness of paying for services directly. This savings and insurance combination was made tax-exempt in an effort to enhance attractiveness in competition with the tax shelter now accorded to conventional health insurance provided by employers and covering the same range of services. The Health Savings Accounts, therefore, were a step in the direction of extending health cost tax exemption to everyone and shifting cost control decisions into the hands of the patient by awarding the savings to him. Permission to save unspent funds in the accounts from year to year created portability between jobs, and thus lifetime coverage. A final incentive, the ability, in theory, to strive for paid-up lifetime insurance, was thwarted in Congress by prohibiting the money in the accounts being spent on the premiums of the catastrophic insurance. It would be of some interest to know who in Congress promoted this prohibition, and what the reasoning was.

Proponents of this reform measure proceeded in their advocacy with the charming innocence of those who believed they had a splendid idea for the benefit of everyone. Anyone who resisted, must not understand the issue very well and needed only to have it explained in greater detail. This feeling was heightened by seeing groups oppose the HSA who would seemingly only stand to benefit from it. Since experience has shown that a third of those who enroll in HSAs have previously been uninsured, it would seem reasonable to expect the uninsured and those who work in their behalf, to support it. Sellers of individual health insurance were expected to recognize the enhanced commissions of selling lifetime portable insurance compared with the drudgery of flogging annual renewals. Insurance company risk was removed entirely except for the catastrophic coverage portion. Unions, who prize their ability to pressure health insurance companies on their members' behalf should welcome a role in advising members on the best choices for their money. Those who negotiate for higher wages and benefits would seemingly welcome the diminution of vague "service benefits" as a tool and the substitution of visible actual dollars into the accounts as a collective bargaining achievement. Union members individually would seem likely to carry their objections to managed care plans to the logical conclusion of reaping the rewards of cost containment for themselves, without impairing freedom to spend extra for luxuries if they please. One would have supposed union members would actively welcome the sort of insurance that gave them free choice of their doctor or hospital. Ultimately, you would suppose that union members would wish to lighten the burden of health costs of their employers if only to demand higher pay in return, or alternatively to preserve their jobs from the ravages of foreign competition. But alas, legislative experience has been quite different. Prohibiting the use of tax-sheltered accounts to pay health insurance premiums is an inexplicable clause inserted by opponents of the proposal. Prohibiting the use by employers of more than fifty employees was another. Limiting the number of people who could have these accounts to 750,000 was still another unaccountably restrictive Congressional feature. It is almost as though there was some strategy of inhibiting the spread of these policies, with the ultimate goal of calling for total elimination based on lack of interest. The original pioneers of this program, now twenty years older, trudge on in bafflement at resistance, but rather steadily enlisting new subscribers in the states where they are permitted by local law. One consequence would appear to be a resurgence of local state resistance to the interstate sale of health insurance.

In a certain way, other obstacles in the road of HSA accounts do contain some understandable logic. For the most part, they are the residuals of old state laws which once enhanced other projects with at least comprehensible goals. For example, mandatory benefits. Chiropractors, optometrists, physiotherapists and a host of other limited license practitioners fought long, hard, and expensively to lobby laws into existence mandating payment for their services as a condition for any health insurance in their state. These primarily outpatient groups see high deductible insurance as a way of raising the insurance threshold above the typical price of their services, thus excluding them from a federally subsidized system. Before ERISA was passed in 1973, special mandates were added in state legislatures by the hundreds each year. That led to interstate businesses going to Congress for relief from the need to satisfy varying requirements in fifty states. This difficulty was garrisoned by the McCarran Ferguson Act of 1945, which uniquely excludes the business of insurance from federal regulation. Just how we got here from the original antitrust dispute is hard to explain, but nevertheless, anyone can see that toppling this complicated structure would require a fierce political campaign. Therefore, by far the easiest pathway is to amend federal law to make it clear that conflicting state laws are pre-empted. Essentially, that is what ERISA accomplished, and when amendments are proposed, why employers regard ERISA as so untouchable.

Ratio of Prices to Underlying Audited Costs

Beginning this book with a discussion of the struggles of the Health Savings Account brings us to bang against what the reader will soon learn I consider the most intractable issue in American health care reform. It's an outward symptom of the issue which must be addressed if significant progress is to be made in health reform of any sort, and it won't be easy to address it. My plan is to defer analysis in depth until later, after first describing one by one how it blocks progress in every single promising proposal. Only when it seems likely the reader has become thoroughly fed up with it, will we attempt to lead through its very complicated analysis. Please be patient with a very brief introduction, first showing how destructive it is to Health Savings Accounts.

To be eligible for Medicare payment, every hospital must submit an audited Medicare Cost Report. That makes it public information, subject to the Freedom of Information Act (FOIA) of 1966, although rightly any competitive organization is uncomfortable about divulging business information. A significant item on the Medicare report is The Ratio of Posted Charges to Costs. That is, the audited costs are divided into posted charges of the same year. If a not-for-profit hospital just breaks even for the year, the ratio might be expected to be about 1.0. With the allowance of say 4% for bad debts, the ratio could be 1.04. Because Medicaid commonly underpays for its share, the ratio might have to be 1.20. But that reasoning gets you to the wrong conclusion; the ratio is commonly five or eight times greater than that. To make this idea more comprehensible, an electrocardiogram with costs of $25 carries a posted price of $380 in at least one hospital; that would create a Charge-to-Cost ratio of 15.02. Fifteen times its independently audited cost? There is considerable reluctance to defend or discuss this matter, so it, unfortunately, invites speculation, both fair and unfair.

The reason for introducing the charge to cost ratio at this point is to identify a vexing issue which makes health insurance seem so essential, while simultaneously interfering with making affordable insurance available. A person even a wealthy one must have health insurance to protect himself against overcharging. Those who cannot easily afford health insurance look to high-deductible Health Savings Accounts because that makes insurance cheaper. Unfortunately, cash savings within the accounts can be quickly eaten up by even moderate exposure to huge price mark-ups. The attractiveness of these accounts is thus limited to those young healthy people who have no real health expenses, and to residents of those regions of the country where the practice of massive overcharging is uncommon. Without encumbering this narrative with too much detail, that is the explanation for the slow steady progress of HSAs and their peculiar geographical distribution. If a representative charge for an electrocardiogram is $40, HSAs are a bargain. But if an electrocardiogram costs $380, purchase of HSAs is mainly restricted to those who have no great need for electrocardiograms. The outlook for HSAs is not completely bleak, however. At some time and in some areas the mass of subscribers will grow to a size where they can force the hospitals to confer a discount. Using collective purchasing power and the threat of publicity or even lawsuit, certain local brokers of HSAs have worked out arrangements for their members to receive market prices for their outpatient services. The most effective argument with hospitals has been that HSA holders do not create bad debts in their co-insurance. Unpaid deductibles and copayments are now the largest sources of bad debts for most hospitals.

While focused on the hospital markup issue, let's engage in some unproven conjecture about it. Hospitals actually construct these inflated prices, but at first glance, they would seem to have no great motive to antagonize cash paying clients this way, or to injure poor people, or to drive outpatient work toward free-standing clinics and doctor's offices. As a matter of fact, there is a small incentive in the rare wealthy foreigner who pays full freight, and the Medicare inpatient loophole of charge reimbursement for "outliers", cases with unusual costs. However, regulators are struggling to close such loopholes and cash payments are rare. I remember one oriental dignitary, reputed to own 8% of his country's Gross Domestic Product, who pulled out a wad of hundred dollar bills to pay a hospital but totally befuddled the hospital clerk who didn't know what to do with real money. For every instance of this sort of thing, there are a hundred instances of hospital administrators genuinely distressed by their own mandate to collect seriously inflated bills from poor people.

Well, if hospital top management is conflicted by devising this practice, and mid-level employees are distressed to implement it, well, who else has a motive to continue this markup? The obvious suspects are two: health insurance companies and Medicaid agencies. Obviously, sellers of health insurance rejoice in a situation where even people without important need for health cost protection must nevertheless buy it to protect against gouging. Think of an insurance executive before his home television, watching Presidents of the United States searching for ways to make their product mandatory for every citizen, and weeping because it is unattainable. Yes, health insurance companies have incentive to favor high hospital posted prices, but still it is difficult to see why hospitals would cooperate. State Medicaid agencies might also develop a motive to increase their own Federal reimbursement, and have occasionally engaged in some questionable maneuvers to do so through the arcane formulas of federal-state cost sharing. What's more, state governments are often in a position to help hospitals who play nice. In a naughty world, some of that may go on, but massive conspiracy seems implausible. So, if those with potential incentives are unable to force compliance, why do hospitals do this? Why would they persist in something they privately deplore, silently biting their lips at the criticism it provokes?

Perfect, the Enemy of Good

One problem with health insurance reform debate is there's so little mention of health. After all, without illness, the need for health insurance would vanish. So here, let's begin with the so-called statin drugs, the first really effective treatment for high blood cholesterol. Statin drugs do far more good than merely lowering cholesterol levels. Heart attacks, the commonest cause of death, declined so rapidly in the past ten years it's hard to say how low mortality rates will eventually go. Deaths from strokes, also caused by hardened arteries, declined almost as much and that's the whole purpose of treating cholesterol. Statins didn't do it all; it is about half due to prevention, where smoking cessation, aspirin, and other drugs are effective, and a half due to rescue treatments, like angioplasty, pacemakers and by-pass operations. But that's why the conquest of arteriosclerosis seems so assured; it doesn't all depend on a single drug which might later have unexpected disadvantages. Eventually, we can reasonably hope for prevention to displace rescue treatment, so maintaining the conquest of this disease should also get cheaper. This is already the most dramatic medical advance since the invention of antibiotics. No sooner do we say the mortality rate from heart attacks is down by 30% than we sense it may be down by 50%. Since it takes several decades to accumulate that rust in your arteries, the death rate from heart attacks may decline for thirty years, as we prevent rust accumulation from beginning in high school. Safety is still a question, but a small one. Right now, elated doctors whisper that perhaps arteriosclerosis has been conquered, don't say it too loud because that's bad luck.

Health insurance to cover absolutely everyone is an attractive goal but may be an unachievable digression from achievable reforms.

Dr. Fisher

Sixty years ago medical doctrine was, only two research challenges remain: arteriosclerosis and cancer. That's a little exaggerated, since HIV, schizophrenia, Alzheimers Disease, and nuclear explosions would bother us badly even after cancer is cured. But it's certainly high time to redirect the healthcare reform debates to include the massive economic changes going on, independent of any insurance reform. Let's repeat, for emphasis, we don't need universal health insurance if people don't get sick. Or put the same idea in more measured tones: Americans will almost certainly become more resistant to taxation for health insurance as this longevity extension sinks in. It may not matter that Canada, Britain, France, and Zanzibar have universal health insurance plans. Americans younger than 35 are already past the political point where the need for health insurance is self-evident to them. The conquest of arteriosclerosis could easily push that resistance level to age 50 because people form their opinions from what they see happening to friends and relatives. Employers wrap their opinion around what they see happening to their employees.

If, then, it can be feared that employers might eventually rebel at sustaining major health insurance costs for employees whose lack of fatal disease is obvious from their personnel records, the present system of employer-based health insurance coverage could crumble. At the very least, it will draw employers to proposals for individual health insurance individually selected and owned, portable between jobs. At that point, another group will rise in rebellion. The employees themselves will resolutely oppose mandatory spending for health insurance they think they don't need. Insurance against the cost of obstetrics and baby shots, yes. After retirement, Medicare will take care of the ills of old age. Costs will progressively concentrate around the first year of life and the last year of life -- ninety years apart. Everything in the middle will depend on how much risk people are willing to take, and that depends in turn on how much the insurance costs. The fate of the whole health insurance industry depends on reducing claims costs, but their track record on that is quite poor. Consequently, their future attempts will likely be quite drastic, making insurance even more unpopular. For all these reasons, it is going to be very difficult to persuade the country to accept any reform that includes the word "mandatory". People may be restless with present forms of health insurance, but it's hard to imagine them switching to an alternative from which there is no retreat.

There's a great deal more to say, but let's veer to new unwelcome consideration. For sixty years, since the administration of President Harry S. Truman, we have embroiled ourselves in a struggle to achieve health insurance for everybody. Many quite practical solutions to smaller problems have meanwhile been swept aside, as either irrelevant to the Main Thing, or hindrances which reduce the urgency of it. Somehow it has always seemed worth concentrating on the big reform of universal coverage while smaller conflicting improvements are forced to wait for the dust to settle. But the problem of 12 million or more illegal immigrant workers begins to demand solutions which have nothing to do with health insurance and may make universal coverage impractical for decades to come. Illegal immigrants appearing in the accident rooms of border states were a manageable problem until their numbers grew so substantially. Since we obviously cannot extend free coverage to the whole undeveloped world, no proposal for universal health insurance is viable without a workable feature about non-citizens. Mix in the local politics of the border states and it is entirely possible that the exigencies of overall immigration will prove greater than the need to have a uniform health insurance system. The longer it takes to face this unpleasant reality, the longer we will delay small, non-universal, solutions to health care reform.

Although it is a digression from healthcare, it seems important to make a convincing case that immigration is a serious issue. The terrifying fact is, we have grown to need immigrant labor. The experience we gained in centuries of dealing with new waves of immigrants is not much help in coping with the new phenomenon of transient laborers in massive numbers. Historically, we struggled with bilingual education and crime ghettos and mostly learned how to deal with that. Now, we need to fear the example of the rich Arab countries where transient foreigners greatly outnumber the citizens. The most extreme result is found in Kuwait, where hardly a single Kuwaiti citizen in gainfully employed; the rich citizens are helpless parasites on the labor of the illegals. Try proposing universal health care in Kuwait and see how much attention it gets. At the risk of being called an insensitive person, I'm afraid that being the richest country in the world may be exactly the reason why we can't do what Europe has done with health care. Meanwhile, this distraction keeps us from doing what we really might be doing.

* * *

In its thirty-year existence, cable television's C-span diligently filmed mountainous archives of mostly boring speeches, hearings and contemporary analyses of our government at work. The true genius of this expensive private philanthropy emerges with hindsight, as old firms which hardly anyone watched at the time can sometimes re-emerge to display what now everyone needs to know. The present case in point is to listen again to the soaring, convincing rhetoric of Bill Clinton's introduction of his Health Plan to Congress in 1993, bringing America to its feet with a realization that something was terribly broken about American health care. And then to be present in the next hour to the fumbling, circular and unconvincing solutions offered by Hillary Clinton before the sly, elaborately courteous, but pointedly probing questions of the Congress in hearings. She improved considerably with practice, but it is not lost on the viewer that she reverted to emphasizing the seriousness of the problem, rather than the aptness of the solution. The Plan was going to spend some money at first, save a lot of money later, but not harm the quality of care in the process. Just how it was going to do that was mainly supported by a passionate wish to do it because it simply must be done. Total, universal, and hence mandatory, insurance coverage would, must, shall cut costs while it extended decent care to all. All other solutions had been exhaustively examined. Without total universal mandatory insurance coverage, nothing would work.

However, if one problem would make this solution unworkable, it is not necessary to describe twenty others. There are billions of people around the world who do not have American health insurance; obviously, we do not expect to extend it to all of them. It would seem that we are talking about extending, giving, or mandating American health insurance to those who are within our borders. Assuming we ignore the handful of foreign tourists who pass through, that mainly means extending coverage to immigrants and those without coverage for brief periods, mainly new employment entrants and those temporarily between jobs. Switching from employer group policies to individually owned and selected policies would solve half the problem, but at the cost of extending income tax deductibility to everyone, hence eventually eliminating it for everyone. It would take a lot of persuading to convince everyone to give up that tax deduction, particularly when it is scarcely mentioned in the persuasion. But then let's look at the other half of the problem; we have 12 or more million illegal immigrants in the country, is someone proposing we mandate health insurance for them? What about next year, when several million immigrants go back home and are replaced by several million different ones? When you dig into it, this sounds less and less like a health insurance problem, and more like an immigration problem. Would it not seem wise to delay the goal of universal coverage and solve other health problems while other people with other ideas solve the immigration issue?

And then, the issue of raising taxes by eliminating the tax deduction for health insurance. A considerable portion of this revenue source would be absorbed by subsidizing the people who don't currently get the deduction, which not only includes the uninsured but those who currently pay for their own health insurance, mainly the self-employed population. The residual federal revenue gain from the net effect of all this disruption would probably fall short of its promises, but even if it produced mountains of federal revenue, would it reduce the cost of medical care? It's pretty hard to see how shifting money from one set of pockets to another would have any effect whatever on the cost of running a hospital or doctor's office or pharmacy.

Whenever the Clintons or their spokesmen fumbled a little, it was possible to believe they did not fully understand the irrelevance of their solution to the problem they denounced. And whenever the Clintons appeared glib and polished, it was possible to believe this was all some sort of ruse. They couldn't win, and others seemed to grasp this before they did. Meanwhile, potentially important progress in the improvement of medical care was totally blocked by insisting that every proposal must meet the test of universal coverage. Tort reform, increasing the share of patient cost responsibility, permitting the interstate sale of health insurance, and -- stop right there, how will that ensure the uninsured? By forcing every proposal, large and small, to be measured by whether it led necessarily to universal coverage, the debaters "framed the argument". Fifteen years later, we can see the country did get by without meeting that benchmark, and we also see how many useful improvements were pushed aside for failing to meet the standard of an impossible goal made possible.

Time To Care

Dr. Norman Makous

It sometimes seems as though Medicare has been a standard part of the scene for so long it now needs major reform, but when a doctor has practiced Medicine for sixty years he has seen a lot of contrasts between the old way and the new way, not all of them favorable to the new -- which we are now tired of, and trying to repair. That's particularly true if the doctor practiced at America's first and oldest hospital, because it sustained many traditions from two centuries before, and was among the last to yield to the imperatives of newcomers for the last forty years, their hands grasping for the purse strings. Dr. Norman Makous must either have a remarkable memory or a thick, detailed diary. He tells three hundred pages of fast-reading anecdotes about sixty years of his own medical practice, before summing up in fifty pages of reflection. One by one, he describes the innovations in his field of cardiology and how they affected him and his patients. Thiomerin, one of the first of many easy ways to pump out excess body fluid accumulation, transformed the treatment of congestive heart failure. Synthetic digitalis claimed to but probably did not much improve things over dried digitalis leaves; it certainly raised the cost. Cardiac catheterization, electro-shock resuscitation, ultra sound diagnostics, MRI and CAT scans, cardiac surgery using the heart-lung machine, and finally cardiac transplants -- all started out as headline-news spectaculars, evolved into cutting-edge advances, and then settled down into the Standard of Care that you obtained a plaintiff lawyer to sue about. All in one medical lifetime, supposedly prepared for by one Medical School course, followed by one residency apprenticeship, the specialty of Cardiology was completely transformed at least six times.

Meanwhile, the leadership of the medical profession was tenaciously resisted by those who supposedly followed its direction. Hospital administration.

Finding the Nerve to Cut Health Costs

WASHINGTON

Over the next several weeks, members of Congress will be confronted with one scary story after another about what will happen if they try to cut health care costs.

Tax the costliest health insurance plans? Workers will be denied medical care. Reduce the growth of spending on home health care agencies? Elderly patients living alone will be left to fend for themselves. Set up a commission to reduce Medicare waste? Again, the elderly will suffer. Impose a tax on plastic surgery? That’s unfair to unemployed women looking to enhance their appearance. (Seriously, the plastic surgeons are making that case.)

But here’s the thing: It is abundantly clear that our medical system wastes enormous amounts of money on health care that doesn’t make people healthier. Hospitals that practice more intensive medicine, to take one example, get no better results than more conservative hospitals, research shows. And while the insured receive better care and are healthier than the uninsured, the lavishly insured — those households with so-called Cadillac plans — are not better off than households with merely good insurance.

Yet every time Congress comes up with an idea for cutting spending, the cry goes out: Patients will suffer! You’re cutting bone, not fat!

How can this be? How can there be billions of dollars of general waste and no specific waste? There can’t, of course.

The only way to cut health care costs is to cut health care costs and, in the process, invite politically potent scare stories.

I’m as skeptical as anyone of the ability of the United States Congress to formulate good policy, but the last few days have offered a reason to hope that its members may be summoning the political courage to endure the scare stories.

That would be a big deal. Health costs, through Medicare, are the main source of the huge long-term budget deficit. In recent years, they have also caused insurance premiums to rise so quickly that employers haven’t had the money to give workers a decent raise. David Cutler, a Harvard health economist, estimates that the measures already in the health bills will increase the typical family’s income $2,500 a year by the end of the decade.

Real health reform also has the potential to save lives. Because we now pay doctors to provide more care rather than better care, we have not given them an incentive to reduce hospital-acquired infections and other avoidable errors. A new amendment from three senators — Susan Collins, a Maine Republican; Joe Lieberman, the Connecticut independent; and Arlen Specter, the Pennsylvania Republican turned Democrat — would increase the financial penalty for giving patients such infections.

Even this idea, however, has its own scare story. The Washington Post reported on Sunday that hospital groups were & quietly steaming; over it and suggested their support for health reform could be in danger.

•

One piece of encouraging news came on Saturday, when the Senate finally began listening to its own health care advisers.

To help it oversee Medicare, Congress set up an outside board of doctors, economists and other experts in 1997, called the Medicare Payment Advisory Commission. Medpac, as it’s known, tries to figure out which services Medicare may be paying too little for, thus creating shortages, and which ones it may be overpaying for.

Perhaps the single clearest example of an overpayment is home health care. Home health agencies, which care for Medicare patients with specific health needs (as opposed to those receiving general long-term care), have been proliferating in recent years. Yet, according to the most recent data, they still had fat profit margins on Medicare, 16.6 percent. One reason, the Government Accountability Office found, was that fraud was rife.

So MedPAC has recommended cutting home health payments, and the Senate bill would do so, by 13 percent over 10 years. On Saturday, the Senate rejected a Republican amendment, supported by a few Democrats, too, that would have blocked that cut.

The home health provision is actually typical of the cost-cutting measures that have made it into the Senate bill: it’s pretty good. It won’t be perfect, obviously. Some people somewhere may indeed have to stop working with a home health agency they like and find a new one. But that’s not a reason to waste billions of dollars a year subsidizing an industry’s profits.

The real problem with the Senate bill is that it doesn’t go far enough to cut costs and improve care. Here too, however, there are positive signs. For months, centrist Democrats have been saying that cost containment was one of their biggest priorities, but they had not done much to help the cause. That has now started to change.

“ Senators are now really focused on cost containment,” says Mr. Cutler, who has been advising some of them.

The day before the Senate defeated the home health care amendment, Senators Collins, Lieberman and Specter introduced an amendment with some measures to push medicine away from the insidious fee-for-service payment system. The cost-cutting momentum continued on Tuesday when 11 of the 13 freshman Democratic senators announced their own package of measures. Neither proposal is earth-shattering, but both would make a difference.

Among other things, the freshmen’s proposal would do more than the current Senate bill to push insurers to use a standardized payment process. Right now, doctors and hospitals often have to fill out different forms for different insurers. “There’s a lot of money there,” Len Nichols, head of health policy at the New America Foundation, says.

Intriguingly, officials from a rainbow of special interest groups showed up at the freshman senators’ news conference to praise the proposal. To me, their presence highlighted both the biggest strength and the biggest weakness of the proposal. On the one hand, it has a real chance to make it into the final bill. On the other hand, it, like the Collins-Lieberman-Specter amendment, also fails to fix the single biggest flaw in the Senate bill.

Last month, Senator Harry Reid, the Democratic leader, gutted an independent commission — a more powerful version of MedPAC, meant to shield Medicare payment decisions from political interference — that many economists consider necessary. Mr. Reid’s bill would allow the commission to take action only if Medicare spending was rising even faster than total health spending. If total spending rose 8 percent one year and Medicare spending rose 7.9 percent — a miserable situation — the commission would have to sit on its hands. AARP, unfortunately, has emerged as an opponent of a strong commission.

But without one, health reform will be hobbled. And the Senate may be the only hope for changing it.

The House has shown little interest in cost control. President Obama and his administration have pushed aggressively for it, but they have limited leverage. Mr. Obama can’t credibly threaten to veto any of the health reform bills that now seem likely to emerge from Congress.

So after the 11 freshmen announced their plan on Tuesday, I caught up with Mark Warner, the Virginia Democrat who is the group’s leader, underneath the Capitol building and asked him how he and his colleagues would deal with the inevitable scare stories still to come: How do you respond to a lobbyist who effectively accuses you of killing patients?

“I don’t know any other way than you take incremental steps,” Mr. Warner said, “and you hope you get to the tipping point where fear and misinformation don’t have an effect, because people see these things don’t do what they are accused of doing.”

That, obviously, is the long-term strategy. In coming weeks, we’ ll see how well Mr. Warner and his colleagues deal with the immediate pressure. The Grim Reaper is a tough opponent.

A Fair Plan for Fire Insurance (and Health Insurance, too?)

Penn Mutual

The Fair Plan (sixth and Chestnut, Philadelphia) is a fire insurance company with unusual features. Some day, it is to be hoped some scholar will write a book about the highly mixed motives of the people who created it, compared with the unexpected ways it did or did not fulfill original expectations, of both its creators and its enemies. The Fair Plan only issues fire insurance on houses, if other insurance companies have turned that house down as a bad risk. Such risky houses would normally draw higher premiums for fire insurance, but the Fair Plan insures these risky houses at normal rates. Therefore, it loses money, which is made up by the other regular fire insurance companies in the state in proportion to the business they do, obviously thus raising the price of fire insurance for everybody. But in this way, Pennsylvania guarantees that everybody can get fire insurance. Is this a good idea? Might this be a way to give health insurance to all those people who can't get health insurance? Let's talk about the Fair Plan.

We'll set aside discussion of whether the Fair Plan was a product of cynical politicians pandering for votes, or whether it was a noble gesture for fairness and equality for our poorer citizens. It very likely had elements of both motives in it, but that doesn't matter any more. It's a form of hidden taxation, of course, and it has the result of making Fire Insurance seem more expensive in Pennsylvania than in other places that do their social work with real taxes. Go too far with that, and people will end up buying their insurance in Bermuda instead of boarded-up former fire insurance companies in Pennsylvania.

As the story is now told, the regular insurance companies had a choice of taking the "substandard" applicants in turn ("Assigned Risk") or creating a new company (Joint Underwriting Association). They decided they preferred the JUA. So a company was formed which specializes in nothing but bad risks, including a few arsonists and other unmentionables, but mostly poor people in bad neighborhoods. If we are ever thinking about following the Fair Plan model in health insurance, it would run the risk of being accused of creating a two-class healthcare system. But no one seems to bring up that rhetoric about fire insurance, primarily because there is comparatively little intrusion of politics in the matter, This system is given orders to spread the extra cost of universal fire insurance out to the policy holders of all fire insurance, and it does it very efficiently, without extending its mandate into setting firefighter wages, running fire departments or repainting scorched woodwork. The fundamental decision was whether to spend Society's money this way. Once that decision is taken, the task is to do it efficiently. Notice, this is not compulsory fire insurance; it is compulsory availability of fire insurance.

After the Fair Plan had been running for ten or so years, a funny thing emerged. There were years when the Fair Plan made a profit! The fire insurance industry had absorbed the Fair Plan into their scheme of things, and felt free to increase the number of applicants they rejected, during years when money was tight or business was bad. If you had compulsory availability of fire insurance, the provision of a company which could not refuse an application made it possible for every other company to refuse when it pleased. When the economy encouraged rejection, a better class of applicant came to the Fair Plan, which made the plan more profitable. When economic conditions reversed, this reversed, and the Fair Plan again lost money. For this reason, the insurance industry is very anxious to prevent the Fair Plan from becoming political, or getting tangled up in worthy but extraneous ventures. And that's probably a good model, too, if we are considering adopting a similar system for the health insurance world: stick to your mission.

Since this simple, tested idea never seems to get into the discussion phase of present agonizing over health insurance for the uninsured, it's one clear sign that such discussions at present are not terribly serious.

Political Parties, Absent and Unmentionable

King George III

BECAUSE America had recently revolted to rid itself of King George III, the Constitutional framers of 1787 sought to construct a government forever free from one-man rule. Inefficiency could be accepted but central dictatorial power, never. It is unrealistic however to expect a wind-up toy to keep working forever, and our Constitution creates the same worry. After two centuries, some chinks have appeared.

Founding Fathers

Political parties existed in 18th Century England and Europe, but the American founding fathers seem not to have worried about them much. Within ten years of Constitutional ratification, however, Thomas Jefferson had created a really partisan party which naturally provoked the creation of its partisan opposite. James Madison was slowly won over to the idea this was inevitable, but George Washington never budged. Although they were once firm friends, when Madison's partisan position became clear to him, Washington essentially never spoke to him again. Andrew Jackson, with the guidance of Martin van Buren, carried the partisan idea much further toward its modern characteristics, but it was the two Roosevelts who most fully tested the U.S. Supreme Court's tolerance for concentrating new powers in the Presidency, and Obama who recognized that the quickest way to strengthen the Presidency was to weaken the Legislative branch.

Dramatic episodes of this history are not central to present concerns, which focuses more on the largely unnoticed accumulations of small changes which bring us to our present position. Wars and economic crises induced several presidents, nearly as many Republicans as Democrats, to encourage migrations of power advantage which never quite returned to baseline after each crisis. Primary among these migrations was the erosion of the original assumption of perfect equality among individual members of Congress. A new member of Congress today may tell his constituents he will represent them ably, but when he arrives for work he is figuratively given an office in the basement and allowed to sit on empty packing cases. This is not accidental; the slights are intentional warnings from the true masters of power to bumptious new egotists, they will get nothing in their new environment unless they earn it. Not a bad idea? This schoolyard bullying is a very bad idea. If your elected representative is less powerful, you are less powerful.

Houses of Congress

Partisan politics begins with vote-swapping, evolves into a system of concentrating the votes of the members into the hands of party leaders, and ultimately creates the potential for declaring betrayal if the member votes his own mind in defiance of the leader. The rules of the "body" are adopted within moments of the first opening gavel, but they took centuries to evolve and will only significantly change direction on those few occasions when newcomers overpower the old-timers, and only then if some rebel among the old timers takes the considerable trouble to help organize them. In the vast majority of cases, after adoption, the opportunity to change the rules is then effectively lost for two years. Even the Senate, with six-year staggered terms, has argued that it is a "continuing body" and need not reconsider its rules except in the face of a serious uprising on some particular point. Both houses of Congress place great weight on seniority, for the very good purpose of training unfamiliar newcomers in obscure topics, and for the very bad purpose of concentrating power in "safe" districts where party leaders are able to exercise iron control of the nominating process. Those invisible bosses back home in the district, able to control nominations in safe districts, are the real powers in Congress. They indirectly control the offices and chairmanships which accumulate seniority in Congress; anyone who desires to control Congress must control the local political bosses, few of whom ever stand for election to any office if they can avoid it. In most states, the number of safe districts is a function of controlling the gerrymandering process, which takes place every ten years after a census. Therefore, in most states, it is possible to predict the politics of the whole state for a decade, by merely knowing the outcome of the redistricting. The rules for selecting members of the redistricting committee in the state legislatures are quite arcane and almost unbelievably subtle. An inquiring newsman who tries to compile a fifty-state table of the redistricting rules would spend several months doing it, and miss the essential points in a significant number of cases. The newspapers who attempt to pry out the facts of gerrymandering are easily gulled into the misleading belief that a good district is one which is round and compact, leading to a front-page picture showing all districts to be the same physical size. In fact, a good district is one where both parties have a reasonable chance to win, depending for a change, on the quality of their nominee.

So that's how the "Will of Congress" is supposed to work, but the process recently has been far less commendable, and in fact, calls into dispute the whole idea of a balance of power between the three branches of government. We here concentrate on the Health Reform Bill ("Obamacare") and the Financial Reform Bill ("Dodd-Frank"), which send the same procedural message even though they differ widely in their central topic. At the moment, neither of these important pieces of legislation has been fully subject to judicial review, so the U.S. Supreme Court has not yet encumbered itself with stare decisis of its own creation.

Three branches of government

In both cases, bills of several thousand pages each were first written by persons who if not unknown, are largely unidentified. It is thus not yet possible to determine whether the authors were affiliated with the Executive Branch or the Legislative one; it is not even possible to be sure they were either elected or appointed to their positions. From all appearances, however, they met and organized their work fairly exclusively within the oversight of the Executive Branch. Some weighty members of the majority party in Congress must have had some involvement, but it seems a near certainty that no members of the minority party were included, and even comparatively few members of highly contested districts, the so-called "Blue Dogs" of the majority party. It seems safe to conjecture that a substantial number either represent special interest affiliates or else party faithful from safe districts with seniority. The construction of the massive legislation was conducted in such secrecy that even the sympathetic members of the press were excluded, and it would not be surprising to learn that no person alive had read the whole bill carefully before it was "sent" to Congress. It's fair to surmise that no member of Congress except a few limited members of the power elite of the majority party were allowed to read more than scattered fragments of the pending legislation in time to make meaningful changes.

The next step was probably more carefully managed. No matter who wrote it or what it said, a majority of the relevant committees of both houses of Congress had to sign their names as responsible for approving it. Because of the relatively new phenomenon of live national televising of committee procedure, the nation was treated to the sight of congressmen of both parties howling that they were only given a single day to read several thousand pages of previously secret material -- before being forced to sign approval of it by application of unmentioned pressures enabled by the rules of "the body". When party members in contested districts protested that they would be dis-elected for doing so, it does not take much imagination to surmise that they were offered various appointive offices within the bureaucracy as a consolation. As it turned out, the legislation was only passed narrowly on a straight-party vote, so there can be a considerable possibility of its likely failure if the corruptions of politics had been set aside, with members voting on the merits. Nevertheless, since this degree of political hammering did result in a straight-party vote, it leaves the minority party free to overturn the legislation when it can. The prospect of preventing an overturn in succeeding congresses seems to be premised on "fixing" flaws in the legislation through the issuance of regulations before elections can open the way to overturn of the underlying authorization. Legislative overturn, however, is very likely to encounter filibuster in the Senate, which presently requires 40 votes. Even that conventional pathway is booby-trapped in the case of the Dodd-Frank Law. The Economist magazine of London assigned a reporter to read the entire act, and relates that almost every page of it mandates that the Executive Branch ("The Secretary shall") must take rather vague instructions to write regulations five or ten times as long as the Congressional authorization, giving the specifics of the law. The prospect looms of vast numbers of regulations with the force of law but written by the executive branch, emerging long after the Supreme Court considers the central points, years after the authorizing congressmen have had a chance to read it, and well after the public has rendered final judgment with a presidential election. The underlying principle of this legislation is the hope that it will later seem too disruptive to change a law, even though most of it was never considered by the public or its representatives.

Bill become a Law

The "regulatory process" takes place entirely within the Executive branch. Congress passes what it terms "enabling" legislation, containing language to the effect that the Cabinet Secretary shall investigate as needed, decide as needed, and implement as needed, such regulations as shall be needed to carry out the "Will" of Congress. Since the regulations for two-thousand-page bills will almost certainly run to twenty thousand pages of regulations with the force of law, the enabling committee of Congress will be confronted with an impossible task of oversight, and thus will offer few objections. The Appropriations Committees of Congress, on the other hand, are charged with reviewing every government program every year and have the power to throttle what they disapprove of, by the simple mechanism of cutting off the program's funds. Members of the coveted Appropriations Committees are appointed by seniority, come from safe districts, and are attracted to the work by the associated ability to bestow plums on their home districts. By the nature of their appointment process, unworried by the folks back home but entirely beholden to the party bosses, they have the latitude to throttle anything the leadership of their party wants to throttle badly enough. The outcome of such take-no-prisoners warfare is not likely to improve the welfare of the nation, and therefore it is rare that partisan politics are allowed to go so far.

The three branches of government have become unbalanced. These bills were almost entirely written outside of the Legislative branch, and the ensuing regulations will be written in the Executive branch. The founding fathers certainly never envisioned that sweeping modification will be made in the medical industry and the financial industry, against the wishes of these industries, and in any event without convincing proof that the public is in favor. This is what is fundamentally wrong about taking such important decisions out of the hands of Congress; it threatens to put the public at odds with its government.

Justice George Sutherland

There is no need to go further than this, harsher words will only inflame the reaction further than necessary to justify a pull-back. And yet, the Supreme Court would do us mercy if it doused these flames; the Supreme Court needs a legal pretext. May we suggest that Justice George Sutherland, who sat on the court seventy years ago, may have sensed the direction of things, short of using a particular word. Justice Sutherland recognized that although it is impractical to waver from the principle that ignorance of the law is no excuse, it is entirely possible for a person of ordinary understanding to read law in its entirety and still be confused as to its intent. He thus created a legal principle that a law may be void if it is too vague to be understood. In particular, a common criminal may be even less able to make a serious analysis. Therefore, at least in criminal cases, a lawyer may well be void for vagueness. In this case, we are not speaking of criminals as defendants or civil cases of alleged damage of one party by a defendant. Here, it is the law itself which gives offense by its vagueness, and Congress which created the vagueness is the defendant. Since we have just gone to considerable length to describe the manner in which Congress is possibly the main victim, this situation may be one of the few remaining ones where a Court of Equity is needed. That is, an obvious wrong needs to be corrected, but no statute seems to cover the matter. The Supreme Court might give some thought to convening itself as a special Court of Equity, on the special point of whether this legislation is void for vagueness.

We indicated earlier that one word was missing in this bill of particulars. That would be needed, to expand the charge to void for intentional vagueness, an assessment which is unflinchingly direct. It suggests that somewhere in at least this year's contentious processes, either the Executive Branch or the officers of the congressional majority party, or both, intended to achieve the latitude of imprecision, that is, to do as it pleased. Anyone who supposes the general run of congressmen voluntarily surrendered such latitude in the Health and Finance legislation, has not been watching much television. Given the present vast quantity of annually proposed legislation, roughly 25,000 bills each session, the passage of a small amount of vague legislation might only justify voiding individual laws, whereas an undue amount of it might additionally justify a reprimand. However, engineering laws which are deliberately vague might rise to the level of impeachment.

Medicare: Restating Mathematics for a Social Goal.

It's hard to believe any problem could be too big to solve, just as it boggles the mind to think of a corporation too big to fail. But if we say the same thing often enough, we come to believe it. People who tell you Medicare is the third rail of politics, are mostly telling you they hope so.

Lyndon Johnson, Wilbur Cohen, and Bill Kissick did indeed bite off more than they could chew, but Medicare really isn't that complicated. It amounts to taking the employer-based health system floating on an enormous tax deduction and substituting three ways to pay for it. The first was to charge premiums to the old folks, which wasn't enough, only covering about a quarter of the cost. The second was to apply a 3% wage tax to younger working people, called a payroll withholding tax, which prepaid another quarter of it, by means of a gimmick called "Pay as you go". And the third, which amounted to half the cost, was supplied by taxes. The year 1965 was the time when the post-war balance of American payments turned from positive to negative, and there was something called the Vietnam War to be paid for.

So after a while, the national budget had to be borrowed, and after the manner of governments, it was borrowed by selling bonds. The largest purchaser of 10-year treasury bonds is China. So, in a general sort of way, half of Medicare is borrowed from the Chinese, and half is paid for by the clients. The debt service is temporarily bearable, but eventually, it must be confronted, and China may have to choose between absorbing the costs or going to war. Our own choice is between kicking the can further down the road, or having the confrontation right now. That is to say, right now there is time for a long-term peaceful solution, but if we delay much more, that option will disappear.

I don't plan to run for office, so let me make a proposal. Instead of continuing the pay as you go system, the withholding tax receipts should be deposited into the Health Savings Accounts of individual citizens who earned them. They should be invested into inexpensive total stock market index funds, redeemable on the employee's 65th birthday or whenever he joins Medicare. That is, redeemable by Medicare, with the residual redeemable at the death of the subscriber. The wage owner would scarcely feel the difference, but the growth of the funds would be substantial. With luck, it would pay for Medicare's deficit of 50%, putting a permanent end to Chinese borrowing, but probably not much more. It would not, for example, pay for existing debt, or retirement costs. Remember, retirement costs are legitimately regarded as a natural outgrowth of Medicare's prolongation of longevity.

The invisible costs of Medicare would eventually be paid for in two other ways: the J-shaped costs of Medicare in the last four years of life, and the contingency fund.

J-Shaped Curve All healthcare costs with the exception of premature birth, genetic disorders and the like, are migrating to older age groups. One of the main causes of disruption is the migration of costs from working people to people on Medicare. But within Medicare, costs are also migrating later in life. Half of Medicare costs are paid for the last four years of life. Since Medicare extends twenty years and growing, half of the total Medicare cost would disappear as a result of lifting this burden and placing it somewhere else. This is called the Last Four Years of Life Reinsurance, one component of the First and Last Years of Life reconstruction of healthcare finance. It will be discussed separately in later sections of this book, but a vital point is removing the cost of the last four years of life, which constitute half of Medicare cost. The consequence is to cut the remaining cost of Medicare in half, potentially funding half forward, half backward.

The Contingency Fund at Birth. And the half which is funded forward can be further reduced by investing at birth and earning investment income for eighty years. By adding the withholding tax receipts from age 25-65, the combined fund can probably pay for Medicare. Just to be certain, a contingency fund could be added at birth, amounting to around $100 at birth and growing to $25,600 at age 80, or other variations of the 256 to one ratio. We have alluded to this concept in other areas. Its power concentrates in the nature of interest rates as well as principal to concentrate at the end of debt. That is, they rise at the end, and prolonged longevity takes advantage of this fact, parallel to the tendency of healthcare costs to rise at the end of life.

For the purpose of the reader following this without a calculator, take the happenstance that money invested at 7% will double in ten years. In nine ten-year periods of extended longevity, the money will have nine doublings (90 years). Follow the bouncing ball: 2,4,8,16,32,64,128,256, 512. In ninety years, a dollar turns into 512 dollars. If the family of a newborn, or in the case of poverty the government, deposits a dollar at birth there is a 500-fold increase at death at 90. There is no sense in being more precise about all the variables in a century, and many people are more skillful than I in manipulating them. But if to this is added another doubling, the ratio becomes 1024 to one, achieved by not liquidating the fund until ten years after the death of the owner. (This feature is added as a safety-valve.)But after the most sophisticated manipulation, it is safe to predict this outcome: The revenue would exceed the need in the last four years of life, even if the seed money turned out to be a hundred times the dollar postulated in the example. There would almost surely be money left over at the end, which might be used to supplement Social Security, although we suggest funding children as preferable during the transition phase.

So that's how you could restore Medicare to some sort of solvency, plus something left over for other purposes.

What's The Matter With a Partial Answer?

It has to be noticed that developing lifetime health insurance is hampered by the considerable pregnancy and newborn costs which intrude at the beginning of the earning period from ages eighteen to forty-five. Otherwise, there is a reasonably manageable medical cost at the end of life, potentially preceded by a long period of negligible medical costs where compounded interest could be at work. So the thought naturally arises we might somehow pay for pregnancies in some novel way, essentially borrowing those costs against the future. What's involved here?

Instead of taxing each affected individual working person to subsidize his newborns and terminal care, the necessary subsidy could take place between three insurance plans, assuming the three costs to fall in separate insurances. Everyone owes a debt for being born, and everyone needs to save enough for getting old and dying. Society's benefits and costs of having children are not confined to those who have children. An unhealthy incentive to delay the first child has been created by paying for pregnancies this way, spreading the consequences to higher education and disrupted careers. Instead of regarding neonatal care as an expense of pregnancy (which we currently regard as part of the mother's health cost), just reverse matters, and include pregnancy costs as part of the baby's own debt for being born. Any move assigning pregnancy costs must somewhat fudge the transition cost of getting born without paying for it or even asking for it. Attitudes depend to some degree on whether people generally want children to help on the farm, to help care for their own old age, as entertainment or plaything, or accidentally. The theoretical fact is that pregnancy costs might be judged fairly split between the child and his parents if it were only practical to do it. Once those practicalities are addressed by covering the first and last years of life with entitlement, transfers become relatively easy. If we must have entitlements, birth and death are certainly inescapable ones.

Unfortunately, once the finance is made practical, other issues assume greater importance. Science is beginning to make single parenthood more feasible, while easy divorce makes multiple parenthood possible. Easy sharing of the costs could reasonably be resisted as a moral issue we never had, and now don't need. The longer you live, the more interest you earn on those first 26 years. But the longer you live, the more medically expensive you become, toward the other end of life. There is still a great deal of argument about what is a fair division, and much time will elapse before final resolution can be considered a settled matter. But ultimately, serious savings could occur from keeping the first and last years of life in mind as the only universal medical costs, extracting maximum savings as one argument for choosing accounting tricks to settle the pregnancy part of it. What would be left would be accidents and occasional health calamities, which paradoxically are the only parts of current health insurance which truly fit the current insurance model.

Let's give an example. Lifetime health expenses are said to be somewhere around $300,000. If you have $40,000 in a Health Savings Account on attaining the age of 65, you can passively achieve $300,000 by age 86 (which we hope is at least average life expectancy) by letting the HSA grow untouched. In this example, all other sources of health insurance revenue are available for other purposes -- they are the "profit" from using compound interest, but it is unnecessary for that to be exclusively the case. Now, the problem transforms into achieving $40,000 by age 65. That could be reached by investing $150 at birth, or $2400 at age 26. Both are achievable, neither is easy.

But it's nice to have some choice, which including the first 26 years will give you. You can even do it twice, once in the child's account, and secondly in your own. My guess is that about a third of people could spare $40,000 at age 65 right now, trading a single payment for Medicare for its present wobbly finances. With overlapping populations, 2/3 of people could afford to spare $75 from each parent of a newborn, or $150 for a single parent, in return for eliminating the obstetrical premium within their health insurance. Considering the problems of young parents, some might prefer to combine $150 with $4800 for both parents at age 26 into a financing package of $4950 spread over ten years, from 26 to 36. But notice it gets harder, the longer you wait. Finding $80,000 for both parents now aged 65 gets really hard to do, but at least the child is all paid up. If you wait, it gets pretty hard to do this without extending the retirement age to 70, sacrificing five of your thirty years of retirement, but reducing the amount you need to save by about a sixth. Nothing like these choices would be readily accepted. But the policy axiom remains: the younger you start, the easier it is to stretch the distance. And the more attractive it becomes to treat some or all obstetrical costs as the responsibility of the person getting born.

Before concluding this approach is impossible, try to remember it is quite unnecessary to make lifelong healthcare free to the last penny, although some will demand it. In fact, first-dollar coverage (i.e. making all healthcare seem free) is a big part of what got us into this mess. If we only achieve a quarter or a third of this promise, the national aggregate would amount to a stupendous amount of money. A more realistic goal might be to reduce projected medical costs by a third, offset another third with investment income, and pay a third in cash. All three of those approaches seem comfortably achievable.

As this chapter is being written, Obamacare has been struggling for three years to achieve its twin goals of reducing the cost of medical care, while improving its quality and scope. The public has long been skeptical that the two goals are incompatible. During those three years, we have achieved a cure for Hepatitis C. That cure will save millions of lives and eventually the costs will decline. In time, the public will be able to see the difference between the results of the two approaches. During that time, biological science has discovered the relationship between sleep and the circulation of spinal fluid through the brain, probably the greatest advance in physiology since Harvey discovered the circulation of blood in 1628. In another field, Joachim Frank has identified the function of the Ribosome, making strips of protein the way a zipper works, and very likely the step at the beginning of cellular life, operating at room temperature and without caustic chemicals. These three discoveries are surely less than 1% of the scientific advances of the last three years, giving promise of vast advances in the cheap production of protein drug therapies, saving of lives, and ultimately the extension of life expectancy at a lessened cost. During these past three years, what has Obamacare accomplished, at enormous cost, and widespread turmoil in the medical system?

As we approach the elections which will serve as a national judgment on Obamacare, it still remains difficult to say what it is. It clearly will raise costs, not lower them. It will extend a few subsidies to people who were uninsured, but the subsidies could have been extended without so much uproar. In any event, a number of people will have worse insurance after the dust settles. A regulation factory has been established, pumping out confusion, but changing comparatively little after three years of trying. It begins to seem incredible that there is so little to show for so much uproar, and there is room to doubt anything dramatic will emerge so late in the process. If the goal is to establish a regulation factory to shift control to the regulators, the public is quite right to ask what good will come of that; at the present rate of revelation, the eventual product will just be an expensive nuisance. So it seems fair to compare the final product with the Veterans Administration health system, which has been operating on a large scale for more than fifty years.

The Veteran's Administration health system is in the news, finally. Perhaps we should examine what is the matter with the VA, as at least a source of ideas about the forces which hem in any government health system. For example, whether it is a municipal, state or federal hospital system, it seems to be much better at constructing new buildings than maintaining them. Perhaps it is time to convene a study or a series of studies to address this discrete issue. Why is the system of control by budget relatively successful in an environment of designing and building a project, and so unsuccessful in running it?

Second, is there an inherent problem in setting the rules by the Congress or Legislature, instead of an appointed board of overseers? No doubt, there is an occasional abuse of power by a trustee of any organization, but lower-level administrators do not act as though this a big problem for them in private institutions. So what is it about governance by politicians which encourages the endless intrusion of politicians into the admissions, purchasing methods, hiring and disciplining processes of public hospitals? Does it make a problem to have control at the highest level be unified in a Congress or City Council, or is it the other way around, with too little authority vested in the operating divisions? Every administrator complains about staff physicians intruding into daily operations, but is it possible that the public institutions have gone too far in hierarchy, or else possibly not far enough? Most physicians hate administrative work, allowing a few tyrants to emerge, who do like it. When these would-be dictators are in administration because they are poor physicians, trouble is almost inevitable, and it cannot be improved by giving the power to nurses, pharmacists or other professionals who are normally lower in the pecking order than the professionals who now report to them. There is no good substitute for physician control, but what if all the physicians in a health system would rather quit than do administrative work? Maybe, just maybe, the private sector has something to teach us in this delicate issue.

To go on, politics may play the same disruptive role as professionals harnessed as administrators. Administrators detect and quickly resent a Union or American Legion official placed in a role which can disrupt the official power structure, just as if a pharmacist were appointed, or a nurse practitioner, or even an eminent neurosurgeon.

Finally, some new title should be applied to the type of corruption which is seen when union officials get their way in disrupting the day to day business of a health system. Quite recently, I was forced to hear the Director of local city Veterans Affairs say to an open meeting of strangers that he was totally and permanently disabled with a service-connected disability, and also working full time for $50,000 a year. Furthermore, he had recently declined an offer to work at a higher government level, at $200,000 a year -- plus, of course, his 100% permanent disability payments. There is more than a small chance he was making some exaggerated boasts, but even so, it is appalling to hear such indiscrete remarks being offered, without the slightest sign that he recognized the revulsion such remarks made on his audience. It seemed obvious to all of us that he heard such remarks so constantly, that he regarded such politics (new word needed) as reflecting a normal, legal and desirable state of affairs. If Obamacare contemplates anything approaching what seems to be the normal attitudes prevailing in the VA, it really will not matter much what is written in its regulations. In defense of the VA, a more compassionate history may reveal a plausible explanation.

It is my view that Congress is more responsible than they themselves realize, and the problem is worse than we think. Things have been trending in the present direction for fifty years, but the adoption of the DRG system of hospital payments came along in the 1980s. It was a brilliant rationing system, but it did not work well in Psychiatry, where the diagnosis has little correspondence to the cost. After a few convulsive experiments, Psychiatric hospitals were offered a payment system so unsuitable they could not exist with it. One by one, inpatient psychiatry disappeared no matter what the patient's finances were, and there is really only the Veterans System left. The situation was so egregious that admission officers simply ignored any rules which prevented admission of a case which clearly needed it. The distinction between service-connected and non-service-connected was most readily shoved aside, since humanitarian and medical urgency so clearly over-rode the rules. After twenty years, the disregard for administrative admission rules spread out to almost every condition, and it is going to be very hard to put the genie back in the bottle, when so many involved participants never wanted such non-medical constraints, from the very beginning.

Building a network of modern buildings in every section of the country, running an organization dominated by unions and their counterpart the American Legion, within a system which most doctors in the country avoid if they can, the VA is a quiet disgrace, slouching along for half a century. The underfunding, the political favoritism, the squelching of pride and achievement and the waste, are all about what you would expect from a union-dominated or politically dominated system. But most disheartening is to watch reform efforts squelched. Under the leadership of Dr. Dan Blain, a system of Dean's Hospitals had been created to infuse the high standards of neighboring teaching hospitals into what seemed like systems similar toward medicine, reformed by the Flexner Report in 1914. For a few years, it seemed to be working, but in time the financial ethics of teaching hospitals seemed, not to raise the standards of the VA, but to be dragged toward imitating their behavior. The medical school doctors assigned to VA hospitals served out their time, then agitated to be transferred back to the teaching hospitals, with difficulties in replacing them with the same quality, slowing winning. When you begin to see elevator operators running the self-service elevators, you can be pretty sure the administrators have lost the battle. There are thank goodness, plenty of exceptions. But nobody seriously expects them to change things very much. If you like what you see at the VA, you are going to love Obamacare.

Adrift With The Living Constitution

Senator Joe Sestak

Former Congressman Joe Sestak visited the Franklin Inn Club recently, describing his experiences with the Tea Party movement. Since Senator Patrick Toomey, the man who defeated him in the 2010 election, is mostly a Libertarian, and Senator Arlen Specter who also lost has switched parties twice, all three candidates in the Pennsylvania senatorial election displayed major independence from party dominance, although in different ways. Ordinarily, gerrymandering and political machine politics result in a great many "safe" seats, where a representative or a Senator has more to fear from rivals in his own party than from his opposition in the other party; this year, things seem to be changing in our area. Pennsylvania is somehow in the vanguard of a major national shift in party politics, although it is unclear whether a third party is about to emerge, or whether the nature of the two party system is about to change in some other way.

For his part, Joe Sestak (formerly D. Representative from Delaware County) had won the Democratic senatorial nomination against the wishes of the party leaders, who had previously promised the nomination to incumbent Senator Specter in reward for Specter's switching from the Republican to Democratic party. For Vice-Admiral Sestak, USN (Ret.) it naturally stings a little that he won the nomination without leadership support, but still came reasonably close to winning the general election without much enthusiasm within his party. He clearly believes he would have beaten Toomey if the party leaders had supported him. It rather looks as though the Democratic party leadership would rather lose the election to the Republicans than lose control of nominations, which are their real source of power. Controlling nominations is largely a process of persuading unwelcome contenders to drop out of the contest. Sestak is, therefore, making a large number of thank-you visits after the election, and clearly has his ears open for signs of what the wandering electorate might think of his future candidacy.

America clearly prefers a two-party system to both the dictatorial tendencies of a one-party system, as well as to European multi-party arrangements, such as run-offs or coalitions. A two-party system blunts the edges of extreme partisanship, eventually moving toward moderate candidates in the middle, in order to win a winner-take-all election. Therefore, our winner-take-all rules are the enforcement mechanism for a two-party system. Our deals and bargains are made in advance of the election, where the public can express an opinion. In multi-party systems, the deals are made after the election where the public can't see what's going on, and such arrangements are historically unstable, sometimes resulting in a victory by a minority fringe with violently unpopular policies. In our system, a new third-party mainly serves as a mechanism for breaking up one of the major parties, to reformulate it as a two-party system with different composition. Proportional representation is defended by European politicians as something which promotes "fairness". Unfortunately, it's pretty hard to find anything in politics anywhere which is sincerely devoted to fairness.

Going far back in history one of the great theorists of legislative politics was the Roman Senator Pliny the Younger, who wrote books in Latin about how to manipulate a voting system. For him, parties were only temporary working arrangements about individual issues, a situation where he recommended: "insincere voting" as a method for winning a vote even if you lacked a majority in favor of it. Over the centuries, other forms of party coalitions have emerged in nations attempting to make democracy workable. Indeed, a "republic" itself can be seen as a mechanism devised for retaining popular control in an electorate grown too large for the chaos and unworkability of pure town hall democracy. A republic is a democracy which has been somewhat modified to make it workable. Our founding fathers knew this from personal experience, and never really considered pure democracy even in the Eighteenth century.

Senator Specter

The two main actors in shaping the American Republic were George Washington and James Madison. Madison was young, scholarly and largely unknown; Washington was old, famous, and insecure about his lack of academic political education. Both of them knew very well that if Washington really wanted something he was going to have it; what mainly restrained him was fear of looking foolish. But he hated partisanship and conniving, partly as a result of having been the victim of General Mifflin and the Conway Cabal. Washington hated political parties and anything resembling them; Madison was young and uncertain, and briefly surrendered the point. It took about two years of real-life governing for Madison to conclude that political parties were absolutely essential to getting something accomplished. In this, he experienced for the first time those unwelcome "pressures from the home state", with Thomas Jefferson determined to thwart Alexander Hamilton, and Patrick Henry thundering and denouncing any hesitation in going for the jugular vein of opponents. Madison was deeply concerned with making his new nation success and eventually joined Jefferson in the Virginia policy of opposing banks, cities and manufacturing. When Washington saw that Madison was committed to this course, he never spoke to him again. For Washington, honesty was always the best policy, and personal honor is never regained once it is lost. The compromise of 1790 was particularly vexing to their relationship, when Washington's honor and personal finances were used as bargaining chips for moving the nation's capital opposite Mount Vernon on the Potomac River, in return for placating Hamilton and Robert Morris with the assumption of state revolutionary war debts.

Henry Clay 1811

Legislative partisan politics took a violent turn in 1811 when 34-year old Henry Clay was elected to his first term as a member of the House of Representatives. The Senate was less prestigious than the House in those days, and Clay had spent his time as a senator studying the landscape of the House before he made his big move upward. Up until that moment, the role of Speaker was that of mediator and administrator of the rules, partisanship was considered a shameful thing in a Speaker. Young Clay was elected Speaker on the first day of the first session after he moved to the House as a member. Seniority was brushed aside, and this newcomer took over. It takes only a moment's reflection to surmise that a lot of politics had taken place before the House convened. Not only that, but Clay immediately added the power of the Speaker to appoint committee chairmen, to the invisible powers of majority leader. The office of majority leader had not yet been created, but it was not long in emerging that anyone who could assemble enough votes for Speaker was also able to make highly partisan choices for Committee Chairs. Eventually, the seniority system was imposed in part as a reaction to perceived abuses of Speaker power. It is worth a digression to reflect on the role of any seniority system, which as it is clearly seen in labor-management industrial relations, serves to deprive management of promotion power, usually substituting seniority for selection by merit. In the case of the Speaker, the seniority system catapults the power of the Speaker over that of every member of his caucus. To rise in a seniority system for committee chairmen, a member must first be appointed to a desirable committee -- by the Speaker, or by his instructed favorites on the appointment committee. It puts in the hands of the Speaker or his agents the power to humiliate a member by ignoring his seniority; the other members know immediately what that means. To understand the power of this threat, reflect on Woodrow Wilson's famous observation that "Congress in committee, is Congress at work."

Soon after Henry Clay made his dramatic moves, Martin van Buren extended the idea of partisan party politics to the actual election of Congressmen. Much of the hoopla and deceptiveness of subsequent campaigns was invented by Andrew Jackson's vice president. And that included their own deal, in which van Buren worked for Jackson's election in return for a promise that he would be the successor, President. After that came the election of 1848, in which William Henry Harrison was elected as a man born in a log cabin. When, in fact, he had been born in one of the largest mansions in Virginia. That had been approximately George Washington's residence description, too, but it is hard to see Old Stone Face lowering himself to accept any office unless it was offered unanimously.

Compare that with the campaign financing episode which created the urban political machine. The Philadelphia traction king Wm. L. Elkins was narrowly concerned with building streetcar lines along with his business associate P.A.B. Widener; Widener had been a city politician before he got into street cars. One or the other of these two approached the Mayor of Philadelphia with the complaint that it interfered with building streetcar lines to have to bribe every bartender on every street corner. So he made a proposal. It wasn't the money that bothered him, because he could just raise trolley fares to cover it, it was the protracted delays. So, how would it be if the trolley company just delivered a big lump-sum bribe to the mayor? That would give enormous political power to the party boss through the power to distribute or withhold the boodle to party workers. And it would save the trolley company lots of time, while not costing any more than the "retail graft" system. Since then, just about every urban political machine in the country has been largely financed through the macing of utilities.

The downward trend of serial modifications to the Philadelphia Constitution of 1787, should be clear enough without further illustration. If the Tea Parties aren't mad about it, they should be. More likely, however, they are mainly mad about the modern pinnacle of sly tinkerings, plainly displayed on TV during the enactment of the Obama Health Bill. The point was repeated for emphasis in the Dodd-Frank financial bill, in case it is ever claimed to have been accidental. In both cases, 2000 page bills were prepared out of sight and thrust before the Congress with orders to enact them in four hours. If that's a representative government, perhaps we ought to go back to having a King.

Obamacare's Constitutionality

President Barack Obama

Any idea of a smoothly orchestrated introduction of the new law was jarringly interrupted by the U. S. Supreme Court, which granted a hearing to a complaint by 26 State Attorney Generals, that the ACA Act was unconstitutional. It was big news that the whole Affordable Care Act might be set aside without selling a single policy of insurance. The timing (before the Act had actually been implemented) served to guarantee that the constitutional issue, and only that issue, would be discussed at this Supreme Court hearing. By implication, there might be more than one episode to these hearings.

While many could have declaimed for an hour without notes, about difficult issues perceived in the Obama health plan, questioning its constitutionality had scarcely entered most minds. Then of a sudden, near the end of March 2012, a case testing the constitutionality of mandatory health insurance was granted certiorari and very promptly argued for three full days before the U.S. Supreme Court. Twenty-six state attorneys general brought that case, so it was not trivial. In jest, one Justice quipped he would rather throw out the whole case than being forced to spend a year just reading 2500 pages of it. But Justices are practiced in the art of quickly getting to the heart of a matter; it soon boiled down to one issue: was it constitutional for Congress to force the whole nation to purchase health insurance? Is there no limit in the Constitution about what the federal government can force all citizens to do, even though the federal government itself is severely limited in scope? Even though the Tenth Amendment states that anything not specifically granted to the federal becomes the province of the states? Would a people who fought an armed revolution for eight years over a 2-cent tax on tea, now consent to a much larger requirement which it was not constitutionally authorized to impose? Most people finally wrapped their heads around some formulation of this non-medical concept to a point where they vaguely understood what the Judges were arguing about. This was beginning to look like a topic where We The People made a covenant with our elected leaders, and reserve the sole right to change it.

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

Tenth Amendment

The Constitution describes a Federal system in which, a few enumerated powers are granted to the national government but every other power is reserved to the state legislatures. The Constitution had to be ratified by the states to go into effect, and the states had such strong reservations about the surrender of more than a handful of powers that they would not ratify the document unless the concept of enumeration was restated by the Tenth Amendment. If states could not be persuaded of the need for a particular power to be national, they might refuse to ratify a document which enabled permanent quarrels about the issue. That wariness explains why The Bill of Rights goes to the extra trouble of declaring certain powers are forbidden to any level of government.

Separation of powers further explains why Mr. Romney's mandatory health insurance plan might be legal for the Massachusetts legislature but prohibited to Congress. After Chief Justice Roberts got through with it, whether that truly remains the case will now depend on whether it is described as a tax, a penalty, a cost, or whatever, and only if the U.S. Supreme Court later agrees that was a proper definition. Because -- to be considered a tax it must be too small to be considered coercion. The law itself apparently does not underline this distinction in a way the Justices felt they could approve. Indeed, while Mr. Obama in his speeches firmly declared it was not a tax, later White House "officials" declared it might be. There was agreement the Federal government could tax, but no acknowledgment that taxes might have any purpose other than revenue.

Under circumstances widely visible on television, however, it was clear that the House of Representatives had been offered no opportunity to comment on this and many other points in this legislation. To a layman, that fact itself seems as clear a violation of constitutional intent as almost any other issue, since the Constitution indicates no idea was ever contemplated that any President might construct laws, nor like the courts, interpret their meaning. The first three Presidents repeatedly raised the question of whether they had the authority to do certain things we now take for granted. And Thomas Jefferson was similarly boxed in by a clever Chief Justice, who said, in effect, Agree to This Decision, or be Prepared to Get a Worse One. The Constitution says it is the function of the Executive branch to enforce the law, "faithfully". Presumably, all of the thousands of regulations issued by the Executive Branch under this law must meet the same test.

Given that the Justices now hold it constitutional for the federal Congress to mandate universal health insurance, based on some authority within taxation, the immediate next issue is paying for it. Millions of citizens, usually young and healthy but sometimes for religious reasons, do not want to buy health insurance and would be forced to do so by this law because the only available alternative is to pay a revenue tax. The purpose of including them is to overcharge people who will predictably under-use community-rated insurance, and thus enable the surplus to reduce costs for those who do want to buy health insurance. (Here, the Court had the pleasure of reducing an unusually opaque law to an unusually succinct summary.) To avoid the charge of a "taking", the Administration must either surrender on the universal mandatory point or else surrender the level premiums of community rating. The lawyers for the complaining attorneys general laid great stress on this particular issue in their arguments, and it occasioned much of the discussion from the bench. However, until the law is in action there is as yet no cause for damages.

Here it will depend on whether you call it a permissible activity for Massachusetts or for the Federal government. The Constitutional point seems to be that it is a legitimate Federal power to tax for the "general welfare", so it now becomes essential to know if the taxes for noncompliance in Obamacare are really a penalty. The Justices seemed to be questioning whether the whole scheme would collapse with the forced subsidy eliminated, and because of that be deemed to have been a "general welfare purpose" adequate to meet the constitutional requirement of a permissible enumerated purpose. Lawyers can generally find such a defined purpose in the words of the Constitution, even if they have to dip into the penumbras and emanations of the words. So the question might just devolve into whether a majority of the Justices wish to declare the penumbra to be within the enumerated powers of Congress. To all of this, the lawyers for the attorneys' general reply that such an enumerated power is impossible because there is no limit to what could be done by this method. Congress would then be allowed to mandate that everyone eat broccoli for dinner, or buy a General Motors car in order to pay for the deficits of rescuing that company from bankruptcy. Almost anything could be mandated by establishing a penalty called a tax; including a mandate that everyone buys a product in order to pay for the deficits of mandating it, illustrates there exists at least one circularity of enumerating something like a power of Congress. According to this reasoning, mandated health insurance cannot, therefore, be an enumerated power of Congress, either now or at any time in the future. The sort of speculative law outlined in this paragraph is exactly the sort of thing the Supreme Court dislikes and shows the utility of denying access to the courts to anyone who cannot claim "standing", defined as a claim of actual injury from a law.

The Justices undoubtedly had to weigh the fact that the American public has a strong distaste for this sort of convoluted reasoning, which sounds like a convention of Jesuit priests having fun. On many other occasions, however, the public has accepted the judgment of people it hired to understand this sort of thing; that's called respect for the law. Eighty years ago in the Roosevelt court-packing case, there was the same sort of collision between the Court and the President, and the Court knuckled under even though the public supported the Court. In both cases, the Court seemed to be yielding to the President, with the unspoken compromise that the President would not pursue his earlier course with quite so much vigor. Since the really central 1937 question of overturning the Interstate Commerce clause ("Commerce among the several states") was left unaddressed, the velvet glove might yet contain an iron fist.

Roberts the Second

President George W. Bush nominated John Roberts to be Chief Justice of the U.S. Supreme Court in 2005. Since then, the Chief's administrative changes to the court and the whole court system have been slow but methodical. To the extent the Chief Justice has control of the matter, Roberts has been taking steps which make the Court into a more thoughtful branch of the Federal Government, ultimately making it more powerful. His first step was to reduce the number of cases considered each year, constraining them to conflicts between lower jurisdictions, unless otherwise mandated. This year, the number of cases heard is about eighty, or only half of the previous numbers. The policy lets unconflicting Appellate judgments stand. A second court must disagree with the first one, for the Supreme Court to enter the case.

The so-called Obamacare case, (NFIB v. Sebelius), meets this conflict-between-jurisdictions standard, but is notable for other innovations. The case was nationally broadcast as a live slide show. It heard arguments lasting three days instead of the usual single hour, and of course, it broke new substantive ground in a case of national interest. The decisions will now get more press attention; but this relatively rapid evolution toward a national debating contest, through modified Court procedure, is more important than it looks. It would be saying too much to claim the whole nation now fully understands its Constitution of enumerated powers, but surely the citizens who have only recently learned something about it must number in the millions. Before this case, many law school graduates might have had difficulty describing the design of the federalized system in a plausible dinner-table conversation. It's not yet clear where John Roberts is going, but he is surely trying to bring the public along with him.

During the semi-televised arguments, I was at first impressed with the rapid-fire exchanges between Justices and litigators about the operation of health insurance. Some people are born with high-speed brains and high-speed speech apparatus; no doubt, such people are sought after to represent others in court. But after practicing Medicine for sixty years and writing books about health insurance, I recognized that several rapid-fire responses by the attorneys were confident but off-target. Frankly, if you only have a few minutes but many points to make, and have to say them before someone interrupts, you would almost have to be a circus freak to manage. This is quite unnecessary, no matter how entertaining it may be to other lawyers. There seems no reason why the questions cannot be submitted in writing, sometimes employing experts on the specific points, and allowing enough time without interruption to devise a thoughtful answer. At present, it seems to matter more what the litigating attorney will agree to, than what is the fact. The outcome of cutting a litigant off after he says, "Yes, your honor, but.." is now only to establish whether both sides agree on a point; just why they agree or disagree is not even sought, let alone disregarded. It would seem useful to know Justice Thomas' reasons for abstaining from questions during oral arguments, for a different sort of example. So, it is easy to imagine that John Roberts has some thoughtful goals in modifying Supreme Court traditions, and equally understandable if jurists of this distinction become irritated by suggestions from the peanut gallery. It is thus fitting that we all hold back and first watch where the varsity means to take us. But allowing the public to express an opinion, is not the same as lobbying for it.

The Obamacare Act was about 2600 pages long, and two years after the President signed the bill, more than half of the necessary regulations remain to be written. The Law is "not severable", which is to say individual pieces of it cannot be attacked in court, without potentially upsetting decisions made on other portions. As a consequence, both the good and bad parts could endure for a long time to come. Or, the whole thing could suddenly sink from sight, relatively quickly. If the Justices can tolerate it, this legislation with many "moving parts" could be in the courts for a long time to come. So, Justices will then find the rule Roberts has made, of only accepting conflicts between the jurisdictions, protects their time and patience. But in doing so it will shift most final judgments into the hands of the lower, appellate courts. The legal profession will like this quite a lot. It will be like the gratifying situation said to prevail when a commanding General decides to retire -- everybody down the line could get promoted one notch.

By artfully selecting cases to argue, there were here four points open to the decision. Only two of them eventually had bearing on the final outcome of this case, but the whole issue is not necessarily concluded. The first decision got the most attention, deciding that the penalty for not having health insurance could be read as just a tax, and therefore was legal for Congress to use as a Constitutional basis for making health insurance mandatory, as Roberts declared the "Commerce clause" was not. The distinguishing feature of a Congressional exaction which is "just a tax" appears to be whether it exceeds the expenditure intended; if it exceeds the expenditure it would presumably be punitive. Nothing had seemed more important to the Founding Fathers than to expand the ability of the national government to impose taxes to service war debts. To truncate this wish of George Washington and Robert Morris into a short-cut, "Congress has the right to tax", or conversely to expand its confining language into "Congress has the right to tax in order to make private health insurance compulsory" just points up that the only real purpose of taxes in Washington's day was to wage war, and that the purpose of allowable taxes probably would have been defined if other purposes had been foreseen. Someone could usefully point out that what the Constitution really means is that Congress has the right to tax for "defense and the general welfare", and challenge anyone to argue otherwise. One sees the clever hand of Gouverneur Morris fuzzing up that argument; are we to ignore the fungibility of money and ask whether Congress may spend money on the general welfare only if it is general? How about earmarks, for example, are they all for the general welfare?

However, to turn a blind eye toward interesting issues is apparently a price that must be paid for obtaining the right for the Chief Justice to write the majority opinion, which eventually slips in some language (in legal language, an obiter dictum) to the effect that , of course, you couldn't use the Commerce Clause to do that. Getting Justice Ruth Ginsburg to sign that will eventually sound like the box John Marshall constructed in Marbury v. Madison. If that obiter dictum is as heat-resistant as the opinions of the first Justice Roberts in Franklin Roosevelt's court-packing effort, then the Commerce Clause is likely to be off-limits for a long time. Of course, if Chief Justice Roberts had joined the other four conservatives he would still have been able to write the majority opinion, but in the opposite direction. Except of course for that inevitable political accusation: There you go again, you 5-4 conservatives.

The second decision, in this case, is the sleeper. Congressional managers in charge of writing the bill had finally decided they had no way to cover 40 million uninsured people, except by diverting fifteen million of them into what is acknowledged to be the absolutely worst part of the American medical system, the state Medicaid programs. And because many States Rights advocates were in charge of state Governor's offices, the Congressional bill-writers added what is now a fairly familiar prod to cooperation. That is, if a state refuses to take the extra Medicaid patients, it will lose all federal funds for existing clients of state Medicaid. This sort of coercive provision has become so standard in highway bills and other federal programs operating at the state level, that it was largely unnoticed in the 48 hours the Congress was given to examine 2600 pages of legislative provisions. This, however, is blackmail, said John Roberts, quite unallowable under the defined separation of powers of the Constitution, between the state and federal levels of government. Furthermore, if some state decides to accept the penalty, it could close the existing program for the poor and accept the subsidy for the middle class, thus enhancing their revenues and reducing their obligations to the poor. Congress must now devise new strategies for suggesting federal programs to the states, and probably will do so. But the financial blackmail strategy now has a permanent black eye, with a skeptical public eye on the alert for it. The ironic conclusion of all this comes from the Congressional Budget Office, which predicts we will end up with 30 million uninsured persons, anyway.

What's awkward about this was immediately pointed out by attorney Richard Epstein: it ignores the century-old precedent set by Chief Justice Taft. Writing about a Child Labor law, Taft created a Supreme Court precedent that the Constitutional taxing power of the national government may not be used to implement what cannot be implemented directly. We can now see an example within the borders of a single case, where the Constitutional taxing power provision is used to indicate an otherwise impermissible Obamacare, and a few pages later its use is forbidden in the case of Medicaid in order to accomplish a forbidden coercion. Locating the two issues in the same case decision helps make the distinction between using the taxing power for revenue, and using it to coerce obedience; the distinction grows as the magnitude of the tax grows, particularly after it exceeds the intended government expenditure. What is not emphasized is the basis for Chief Justice Roberts reversing the precedent set by Chief Justice Taft on the same topic a century earlier. He did it with the Obiter dictum, and yet he didn't exactly do it. The four liberal Justices who co-signed the decision are not in a position to dispute it, while the four conservative Justices may not wish to. In either direction, however, the vote of the current Chief Justice appears to be both decisive and subtle.

It remains to be seen whether the 'tax, not commerce' strategy was clever. If the tax approach proves to be durable, it presumably extends to a wide range of legislation since Roosevelt's New Deal. Already, its awkward features have emerged in renaming portions of Obamacare into Chapter 48 of Subtitle D of the Internal Revenue Code of 1986 (!). Any law student who tries to look that up is going to have a frustrating time. But on the other hand, sometimes you win by losing. If it should somehow not be a tax, it has already been excluded from the Commerce Clause, so it has no hook left in the Constitution on which to hang it. There's something in this whole wrangle which resembles the position of Germany and Japan after the Second World War. In spite of losing that war, those two nations seem to have prospered better than England and Russia, who lost their empires but are said to have won the war .

Legal Re-Definitions of Biological Facts (?)

Obstetrics. In this segment we examine the pros and cons of what we have already proposed, the donation of obstetrical costs, whether by the government or by compelling relatives to do it, and whether to every child or only in hardship cases. As a conservative, I sympathize with the conservative response of the "slippery slope" rejoinder, but even if the idea is rejected for such understandable concerns, I believe discussion of it is warranted. We seem to have forgotten what an important obstacle to healthcare financing is presented by this comparatively minor expense, coming at such a vulnerable moment. In one sense, there's no hope of waiting it out; obstetrical costs will be awkward, forever. The approach I favor is to donate the cost at birth to an HSA, wait ninety years, and see it reduced 500-fold. The main problem is keeping its custodians honest.

No matter how prosperous our country becomes, the birth of children always occurs at a time of marginal finances for the parents, zero finances for the baby, and considerable cost for the event. The cost impact will always present the alternatives to not having more children afterward. Thus the decision to have children is left in the hands of a couple whose goals may vary from those of Society. Furthermore, although the cost may appall the parents, it isn't great enough to justify alternative methods of obstetrical delivery. The amount of hospital internal cost-shifting -- and malpractice claims -- is so great that stripped away, the true cost no longer justifies a shift to less-trained providers or to home births. These are make-shifts, which ultimately prove not to save money. Do the procedure the best way you know, and find a different way to pay for it in the long run.

If economists are correct, our only choice is which parties must share the cost of "eating the loss". Economists also tell us adding new population is the main way to increase the growth of our economy. If both are the case, then the real dispute lies between immigration and increasing our birthrate. Arguments could be made in either direction, except our politics now place both contending groups in the same political party. Intervening in the argument often amounts to taking the choice away from the people directly at odds, thus decreasing the likelihood of a satisfying outcome.

In my mind, that last concern might justify procrastination in most major social distortions except this one. No more than a fifth or even a tenth of the rest of the world has reached our level of prosperity, but they are trying. China and India have applied drastic methods to reduce their overpopulation, and with luck will succeed. Therefore, while the supply of potential immigrants remains immense, it is foreseeably self-correcting. While the impoverished segment of the population shows scant sign of recognizing it, their economic future lies in continuing to outnumber them until the supply of immigrants has a chance to decline.

The Battlefield. It starts with birth, where a hospital can't refuse to deliver an uninsured baby when the mother goes into labor because the baby won't wait. When the bad debts from this source begin to be a problem, the distraught administrator has little option but to close the whole obstetrical unit. "We don't deliver babies" may be an effective way of stopping obstetrical bad debts, but it generates problems for even families who have insurance. Long before the hospital is driven to this resort, you can be sure the obstetricians have been delivering free care. Afterward, they can't do even that. A lot of people suffer indignities and worse from this situation, especially when the government offers scant reimbursement. And yet, within a few years, almost all of those children had some kind of job, making it possible for them to pay old debts. A few even became basketball stars or concert singers, but by that time the hospitals don't even keep records for debt collection. In retrospect, many of those debts were at least partially collectible, but in fact, hardly any were collected. Eventually, the Maternal Care Act was passed, eventually forming the basis for Medicaid. Surely, that was a far more expensive way to address the problem -- and an unsatisfactory one-- than to make a hundred-dollar donation, once, and wait for income to accumulate.

Social Change After Childhood. I caution we may not be ready for more, for some time. Without a firm commitment to stop at that point, attempting to equalize gender costs will be much slower if it works at all. There is a limit to what society is willing to change, especially if it takes decades to show results, and particularly after similar attempts have been unrewarded in the past. I recognize we have a recreational drug problem, an employment unfairness, and a host of marriage disturbances. But the volume of a complaint is insufficient reason to court failure by overreaching.

How Does New Jersey State Aid Affect School Districts?

The Sunday, April 11, 2010 Philadelphia Inquirer contained an eighteen-page statistical summary of the schools within the eight-county area around Philadelphia. The New Jersey school districts, but not the Pennsylvania ones, report per-pupil spending right next to the proportion contributed by a state government. If you know something about the sociology of New Jersey, you form some conclusions about state school aid which probably apply to all states, while confessing they only provably apply to New Jersey. Let's therefore say, it only provably applies to New Jersey that you spend more on schools if you are spending someone else's money.

In the welter of numbers supplied by this statistical report, it seems useful to focus on the strip of school districts along Haddon Avenue, starting from the place where the retreating British soldiers once ferried from Philadelphia to Camden (in 1778, of course.) Haddon Avenue extends directly East until it strikes King's Highway, where the British then turned North to scuttle toward the safety of their navy at New Brunswick. We are thus talking about the school districts of Camden, Collingswood, Haddon Township, Haddonfield and Cherry Hill, with Haddon Heights and Pemberton thrown in because of special features they illustrate.

Pemberton Township in Burlington County spends the largest amount of per-pupil school money in South Jersey, $18,970. It jumps right out at you that 82% of that money is contributed to the school district by the state government. Starting back at the Delaware River, 99% nonwhite Camden gets 88% of its school money from the state and has the second-highest spending of $16,131 per pupil. Moving along the path of the British soldiers, the next town after Camden on Haddon Avenue in Collingswood, spending $14,262. Next comes Haddon Township, spending $13,243. It thus seems to prove that the further you get from the Delaware River, the less you spend on education, because next in order comes Haddonfield, with spending of $12,273. But not quite, because Cherry Hill increases a little to $12, 914. The percentage of state funds follows a parallel sequence from Collingswood to Haddonfield (36%, 31%, 6%) and then rises slightly to 11% in Cherry Hill. For comparison, nearby Haddon Heights spends $13,449, of which 10% derives from a state government. And just in case you think there is a racial implication, nearby Gloucester City is 84% white, and gets 82% of the $16,046 it spends on schools, from the rest of the state by way of state contributions. However, these numbers also allow you to calculate how much the local districts spent of their own money. It turns out it is just the reverse. The more state aid a district gets, the less it spends, itself. The more state aid it gets, the more it spends, period.

The conclusion seems to emerge that an education assistance program designed to achieve equality, actually stimulates appreciably more spending in poor districts than in prosperous ones; at least so far, poor educational quality in poor districts is acknowledged to remain poor. There are some people who might say these statistics suggest a racial correlation, but some others could say the correlation is with distance from Philadelphia, while others would associate factors undisplayed in the statistics. Because there are more non-teachers than teachers employed by the schools, it is not certain that extra money going to schools will improve the teaching. Nevertheless, what is not demonstrated at all is a tendency for better education to be found where school money is most liberally applied. At least, it is safe to say that anyone who claims the quality of education parallels these spending patterns in New Jersey, would be laughed at.

Robin Hood

Of course, it is true that prevailing opinions about the local quality of education are as biased as the opinions about the local football teams, or the differing quality of tomato pies. That's partly because the prevailing opinion of the school system has a strong effect on local real estate values, one of the main concerns of real estate agents. My neighborhood in Haddonfield is very close and sociable, so it's been confided that three empty-nest neighbors have sold their Haddonfield houses and moved to Haddon Heights to save money on taxes. When people make decisions like that, they generally know what they are doing. Available data, however, can be misleading to others because total school spending including subsidies does not reflect local property taxes, while local spending does. Empty-nesters are also very likely downsizing to less expensive homes, where of course the taxes seem lower and are also moving to districts which have fewer children per house. Where that isn't the case in the school districts from which they flee, subsidies are extracted from state income and sales taxes, which move from district to district, right along with empty-nesters who move. For those with children attending public schools, emphasis in these considerations is somewhat different.

The voters have no idea how "equal" became "more" money for education. A fair conjecture would be that the poorer districts kept pressing the legislature for more as a matter of "fairness", leaving the more prosperous districts to shout "outrage", but less effectively. By voting down a majority of local school budgets both groups are shouting, all right, although it would be more effective to shout at their representatives in Trenton. Especially in a census year, when gerrymandering is on every agenda.