The Eisenthal Report

How to Control Healthcare Costs

In an op-ed piece in this morning's Boston Globe, two chief executives of Massachusetts health insurance plans offer their thoughts on controlling healthcare costs.

In fact, James Roosevelt, Jr., President and CEO of Tufts Health Plan, and Charles D. Baker, President and CEO of Harvard Pilgrim Health Care, do not offer much of substance in this piece. They do, however, vigorously advocate for more transparency in healthcare operations: specifically, public hearings on cost drivers and public reporting of healthcare revenues and expenses.

These are good proposals. The public should become more aware of what is driving the dramatic increases in healthcare costs - and specifically, the extent to which these are driven by provider compensation, patient utilization, capital costs, and external costs (such as those passed on by pharmaceutical companies).

Roosevelt and Baker do present one stunning statistic. Between 2002 and 2006, healthcare spending in Massachusetts increased from $46.5 billion to $62.1 billion. As Roosevelt and Baker note, this is a significant increase - 33 percent in four years. What is also striking - but not really surprising - is that healthcare spending is a large and growing part of the Massachusetts economy. In 2002, healthcare spending was 16 percent of this state economy; by last year, it was more than 18 percent.

Many public policy discussions in recent years have focused on healthcare. Much of the discussion during the recent special election in the Massachusetts Fifth Congressional District centered on healthcare. Roosevelt and Baker's piece is welcome because it will help maintain focus on the issue - both at high levels of government and broadly among the public.

SCHIP: A Pox on All Branches

Last Tuesday, President Bush vetoed H.R. 976, which would significantly expand the State Children's Health Insurance Program (SCHIP - pronounced "es-chip").

This veto, one of the few of Bush's entire Presidency, sparked wide-ranging outrage and ridicule, including from The Daily Show with Jon Stewart.

For this observer, none of the participants in this issue - not the President, not Congress, not the media - have acquitted themselves in a responsible manner.

SCHIP is a federally funded, but state administered health insurance program for children that was created in 1997. Up to now, it has provided benefits for children in families with incomes up to 200 percent of the federal poverty level. According to the Congressional Budget Office, SCHIP has reduced the number of children living without health insurance. Between 1996 and 2005, the percentage of families with incomes between 100 and 200 percent of the federal poverty level who were uninsured fell from 22.6 to 16.9 percent.

The SCHIP expansion, as passed by Congress, would increase funding by $35 billion over five years. (President Bush's FY08 budget proposed a $4.8 billion increase over five years.) It would also allow states to make families with incomes up to 300 percent of the federal poverty level eligible for benefits under the program. This increase would be funded by an increase in federal cigarette taxes - the increase in revenue being required under Congressional PAYGO rules, which require any increase in spending to be matched by an increase in revenue.

In a paper released about a month ago, The Concord Coalition pointed out a number of problems with the proposed SCHIP expansion. According to the Coalition, the SCHIP expansion complies with PAYGO rules, but only in a technical sense. In order to comply with PAYGO, appropriations for the expansion are to be dramatically reduced in FY 2012. However, a special appropriation to be made that year - one that will not be counted toward PAYGO compliance - will make up for the reduction in regular financing. In other words, when all costs are included, the SCHIP expansion will cost more than the new revenues being allocated.

Another longer-term fiscal issue with the SCHIP expansion is the revenue source being used to offset it. Cigarette taxes are a diminishing revenue source over the long term. Over a period longer than the five years provided for in the proposed expansion, cigarette tax rates would need to be periodically increased in order to match the increase in spending just to maintain services at stable levels. At a certain point, the ability of cigarette taxes to support SCHIP would diminish significantly. While using cigarette taxes to fund childrens' health programs sounds great, it doesn't work over the long-term.

The Concord Coalition also points out that the SCHIP expansion is not accompanied by any means of cost control. Given the size of increases in health care costs that affect all sectors of the economy, it is not reasonable to support an expanded program simply with a tax increase, as the congressional SCHIP expansion does.

Finally, the expansion of the program targets families that may have less need for the benefits. The need for such a program for families making less than 200 percent of federal poverty level is well-established - and in this sense, the program has been a success. The degree to which families making between 200 and 300 percent of federal poverty level do not have available health care coverage is not clear. According to the Concord Coalition, "some evidence exists that some parents who otherwise would have enrolled their children in private plans are switching coverage to SCHIP."

Even if children whose families make between 200 and 300 percent of federal poverty level ought to receive benefits under SCHIP, the expanded program must be funded in a responsible and stable manner over the long term. Budget deficits and long-term obligations in Social Security and Medicare already challenge the long-term economic health of this country. The children being served now by SCHIP will potentially face in their middle age economic stagnation brought about by choices being made now.

Congress is certainly not the only party to blame for this. While President Bush is narrowly correct on the fiscal questions surrounding the SCHIP expansion, his tax cuts and his open-ended commitment to military operations in Iraq dwarf any fiscal effect produced by SCHIP. Without the tax cuts and our Iraq operations, it might be possible to consider a fiscally sound method of funding SCHIP at the levels proposed by Congressional Democrats.

UPDATE: This afternoon, I crossposted this piece at Blue Mass. Group; there was quite a discussion. I'm more convinced of the need for the program expansion, but I still find the conduct of the President, Congress, and the media (including Jon Stewart) to be irresponsible and less than completely honest. While it may be naive on my part to expect more responsible and honest behavior from our government and the media, it is important that someone begin to hold these power centers in our society to higher standards - higher standards than currently allow an important issue like this to be obscured, misdirected, or simply the object of a joke.

Fifth Congressional District Forum on Health Care

This morning, the five candidates for the Democratic nomination in the special election for the Massachusetts Fifth Congressional District gathered at the Hudson Portuguese Club in Hudson, Massachusetts, to discuss health care policy.

The candidates attending were Lowell City Councillor Eileen Donoghue, State Rep. Jamie Eldridge (D - Acton), State Rep. Barry Finegold (D - Andover), State Rep. James Miceli (D - Wilmington), and Niki Tsongas, the Dean of External Affairs at Middlesex Community College - and the widow of former Senator Paul Tsongas.

This forum was sponsored by the Middlesex and Worcester Democratic Coalition and BlogLeft Massachusetts, a loose coalition of bloggers of which this observer is a part. Other BlogLeft bloggers, including Charley from Blue Mass. Group, Ryan of Ryan's Take, sco from .08 Acres and a Donkey, and Lynne from Left in Lowell liveblogged the event. (This observer did not liveblog the event because my equipment was otherwise in use.)

The forum was moderated by Dolores Mitchell, the long-time Director of the Massachusetts Group Insurance Commission. Ms. Mitchell framed the issues by reviewing the health care positions of the Democratic Presidential candidates, including former Senator John Edwards and Senator Barack Obama, who would build upon the current system of privately provided health insurance, former Senator Mike Gravel, who favors universal health care vouchers, and Congressman Dennis Kucinich, who favors a single publicly funded health care system in this country.

The Fifth District candidates' positions covered a similar range to the Presidential candidates. Donoghue, Finegold, Miceli, and Tsongas favor mixed plans with public and private elements, although Donoghue said that if a publicly funded single payer health plan could be implemented practically and quickly, she would favor it. Eldridge came out emphatically in favor of single payer publicly funded coverage - as proposed in H.R. 676 (The Expanded and Improved Medicare for All Act), which was introduced in Congress in 2005 by Michigan Congressman John Conyers.

Donoghue and Tsongas expressed specific concerns about an approach like H.R. 676 - particularly that this legislation creates a long lead time to full implementation - 15 years. Both Donoghue and Tsongas expressed the view that the needs of uninsured and underinsured Americans need to be met now. Eldridge feels that this approach is the only way that will guarantee that health care will treated as a public good. He feels that profits have no place in the health care sector. Finegold argued in favor of his proposal to ban television advertising of prescription drugs as a way to reduce costs. (This is an idea that TER discussed favorably more than two years ago.) Miceli expressed his view that maintaining a "public-private partnership" is important.

The candidates identified what they see as the big problems with health care. For Miceli, it is portability of coverage. For Eldridge, the lack of portability and the private profits under the current system are problems that would be addressed by national health coverage. Tsongas sees the cost of care as a key problem. Finegold focused on prescription drug costs. Donoghue focused on the fact that people are uninsured and underinsured and need coverage quickly.

The candidates were in agreement on a number of issues. They felt that FDA fast-tracking of drugs is problematic. They do not feel that enough is being done to prepare for avian flu. They all oppose President Bush's policies on stem cell research.

Four of the five candidates favor abortion rights. Miceli described himself as "the pro-life candidate." Three of the candidates - Tsongas, Finegold, and Eldridge - favor the legalization of medical marijuana, although Tsongas emphasized the need to assure proper control of its use. All of the candidates except Finegold favor importing drugs from Canada. Finegold feels that measures need to be taken that will reduce the prices that Americans pay for drugs without resorting to importation. These measures include banning television advertising.

The candidates came across as well-informed on these issues. This observer feels that the voters of the Fifth Congressional District are well-served by this field of candidates.

Health Care Forum: Massachusetts Fifth Congressional District Candidates

One week from today, Saturday, June 2, The M&W (Middlesex & Worcester) Democrats and BlogLeft Massachusetts - a loose coalition of bloggers of which this observer is a part - will be sponsoring a forum on health care for the candidates for the Democratic nomination in the special election for the Massachusetts Fifth Congressional District. The forum will be from 10:00 am to noon at the Hudson Portuguese Club, which is at 13 Port Street, in Hudson, Massachusetts. There is more information on the forum here and here.

Avian Flu Threat

The Wall Street Journal has reported this afternoon that two teams of scientists have claimed to have recreated the influenza virus that killed as many as 50 million people in 1918 and 1919. According to the Journal, "the findings suggest that the threat of an avian-flu pandemic might be greater than previously thought."

As has been noted in these pages previously, experts and officials have been warning for some time about the danger of an influenza pandemic.

Health Care Recycling

A number of Massachusetts bloggers have participated in a health care blogswarm this week. Because we are running out of time this week, TER's contribution will be a recycling of some older comments on health care issues. These include a post on an article in the June edition of Washington Monthly by Ezekiel Emanuel and Victor Fuchs called Solved!; this article discusses the benefits of universal health care vouchers. Another post was on a report by the National Coalition for Health Care in May that makes an argument that a universal, publicly financed national health insurance system would be the most economically efficient approach to health care going forward. Still another post, which excited a lot of comment at the time, was about comments by Timothy Murphy, who is now state Secretary of Human Services, that measures to improve collection rates of deductibles and co-payments would be appropriate. The last post that I will mention was one from April in which I examined some of the factors driving health care costs.

Health Care Blogswarm

This week, several of the "progressive" Massachusetts bloggers are participating in a blogswarm about health care. The blogswarm is timed to coincide with signature gathering for a ballot initiative on the Massachusetts Quality Affordable Health Care Act. Participants include .08 Acres, Blue Mass. Group, Left in Lowell, Walk in Brain, Frederick Clarkson, and Cape Cod Works (apologies to any I've left out). I plan to comment also before the week is out.

Universal Health Care Vouchers

The June 2005 edition of Washington Monthly is out. In this edition is a piece called Solved! by Ezekiel Emanuel and Victor R. Fuchs. Emanuel and Fuchs advocate the implementation of Universal Health Care Vouchers (UHVs) to fix this nation's health-care system. They argue that UHVs would expand coverage to all Americans, reduce costs, and be politically viable to implement and manage.

How would it work? According to Emanuel and Fuchs,

Every household in America will receive a voucher entitling its members to enroll in a private health plan of their choice. All plans will be required by law to guarantee the basic features of what most Americans now receive from their insurers: doctors' visits, hospitalization, pharmaceuticals, and catastrophic coverage. These insurance policies will not cover everything. Viagra and cosmetic surgery will not be included, but Americans will still be able to purchase them and any other service or care with their own money.

The actual provision of health care would not change for most people.

The greatest change will not be found not in the doctor's office, but in the workplace. Employer-based insurance, with all its inefficiencies and inequities will disappear. Workers will have the freedom to switch jobs, try self-employment, or drop down to part-time work without losing health coverage. Not only will “job lock” disappear, but so will “wedlock” when men and women stay in marriages they would rather be out of because of health-insurance needs. Employers will also be free to hire workers without considering how much they may add to the health-insurance bill.

Emanuel and Fuchs propose that the system be financed with a Value Added Tax (VAT), or essentially a sales tax. They argue that the VAT would be "efficient, easy to administer, (would) spread the tax burden broadly, and encourage savings." They feel that political objections to the VAT from both left and right can be overcome. Objections regarding regressivity can be overcome by excluding essential items, such as food and utilities, from the base. Objections regarding any higher taxes can be overcome by pointing to polls indicating that "many Americans are willing to accept higher taxes in exchange for guaranteed health care."

UHVs would be administered by a Federal Health Board (FHB), similar to the Federal Reserve Board. The FHB, like the FRB, would be insulated from politics. It would also reduce bureaucracy because it would be taking on many administrative tasks now handled by state agencies and insurance companies.

Emanuel and Fuchs feel that the politics of UHVs work well. Insurers could support the concept because they remain in place with the addition of 45 million currently uninsured Americans added as paying customers. Doctors and other health care providers would support the reduction in costs from administration and charity care. Business and other organizations would support the reductions in annual cost increases.

The authors feel that their solution is "an answer with a chance of succeeding."

See this previous post.

National Coalition on Health Care Report

John McDonough of Health Care for All has mentioned a new report issued by the National Coalition on Health Care. This report, prepared by Professor Kenneth E. Thorpe of Emory University, discusses four possible approaches to the reform of our national health care system. These four are (1) mandating employer coverage for workers, (2) expanding existing public health programs, (3) creating a new public health program modeled after the Federal Employees Health Benefits Program, and (4) establishing a universal, publicly financed health care system.

According to Thorpe, any of these approaches would yield significant savings in health care spending over the current system. Over the next ten years, Thorpe projects that the current system would cost our economy $21.7 trillion (present value @ 5%). The first three approaches are each projected to save approximately $200 billion (PV @ 5%). Interestingly, the fourth approach, universal publicly financed health care coverage would save more than $800 billion (again PV @ 5%). Both employers and subscribers would save under any of these plans.

In the current environment, it would seem that even achieving a serious debate about universal health coverage would face long odds. However, policymakers should think long and hard about that $800 billion - almost 7 percent of our current GDP.

(Note: the PV calculations above are mine - based on streams of payments projected by Professor Thorpe.)

See this subsequent post.

Romney and Health Care

I have not had access to a computer since late last week, but I have been thinking about recent comments by Tim Murphy, a senior advisor to Governor Mitt Romney. Murphy has proposed that hospitals and other health care providers in Massachusetts be more aggressive in collecting deductibles and copayments from patients who do not pay. Murphy's comments have been criticized in a number of quarters, including Health Care For All, Blue Mass. Group, and Left in Lowell.

I have a somewhat different take from Murphy's critics. First, I think that Tim Murphy is one of the most thoughtful policymakers in the Romney administration. I don't know that he is advocating draconian collection measures, such as liens on cars and homes. Certainly, any sensible policymaker would see these steps as last resorts. I would think that Murphy would be looking toward hospitals and other health care providers to more actively take other types of collection measures, such as arranging payment plans with patients who have fallen behind on their payments of deductibles and copays. Currently, it can be difficult and costly for health care providers to engage with such patients even to get them "to the table." I know of health care providers who sometimes forego collection measures on even large bills because of the time and expense. One provider I know also said that in his experience it is usually people who can afford to pay that successfully avoid paying. Perhaps Murphy is thinking of ways in which the state government might enact changes that will facilitate stronger collections without putting people on the street.

Pursuing the strongest possible collection rates from patients without resorting unnecessarily to draconian measures is both a matter of equity and financial stability. To the extent that hospitals and other health care providers do not collect their debts, these costs are passed on to the rest of us. To the extent that this is not a matter of an inability to pay - in many cases, it is not - it is an unfair burden for the rest of us to carry the "deadbeats." Also, uncollected debts are contributing to the accelerating cost of health care. Bringing health care costs under control requires financially sensible measures, such as collecting outstanding bills.

I can point to another sector where financial stress forced organizations to improve collection rates - with some initial concerns similar to those expressed by my fellow bloggers and others. Before the passage of Proposition 2 1/2, cities and towns were not necessarily under pressure to collect the bulk of the property taxes owed to them. After the enactment of Proposition 2 1/2, cities and towns came under intense pressure to collect every dime owed to them. Tax collectors and treasurers increasingly used the legal means available to them to induce taxpayers to make them pay their back taxes. There were fears that many people, including the elderly, would be "thrown into the street." In response to such fears, collectors and treasurers generally worked out payment plans with taxpayers who could not afford large cash payments. The approach that many tax collectors and treasurers have taken on tax collections have enabled cities and towns to better weather the fiscal stresses of the past few years.

In conclusion, I would say that John McDonough of Health Care For All did raise good points in his letter to the Boston Globe. Collection measures do need to take ability to pay into account. Employers do need to be part of the solution on health care costs. In counterpoint to John, though, I would say that while it is true that health care is not a luxury, neither is housing. No one disputes that renters and homeowners need to pay rent, mortgages, and taxes - we should be able to arrive at a point in which the same is said about health care costs. Part of the process we now going through on health care is debating how we might make the system both fairer and more financially sensible.