A primer on healthcare reform

David Gulliver - posted 1 pm Wednesday, Sept. 9

You can expect President Obama to talk tonight about how reform will help Americans, how people will no longer be denied coverage because of pre-existing conditions, that workers who lose their jobs or want to change jobs won’t lose their healthcare and risk their families’ futures.

Those arguments may play well with a public panicked by scare talk of bureaucrat-run care killing Grandma. But the real reason is that inefficient healthcare spending is bankrupting the government and strangling the national economy.

That was the message that Uwe Reinhardt, a Princeton economics professor and probably the nation’s leading expert on healthcare finance, told in brilliant -- and, believe it or not, hysterically funny -- style at the Association for Health Care Journalists national conference in April.

His talk touched on all healthcare costs at every level of the economy. At the most personal, the household, he noted that in 2001, the average annual medical cost for a family of four -- including employers’ and employees health insurance premiums, and out-of-pocket costs -- was $8,414.

In 2008, it was $15,600, nearly twice as much. In true economist fashion, Reinhardt ties it to a term called the wage base. The bottom line is that every dollar your employer has to spend on health premiums is a dollar it can’t give you in raises, or in hiring another employee to reduce your workload.

So why are those costs rising? You could start by looking at Miami and San Francisco.

Reinhardt pointed to research from faculty at Dartmouth College’s medical school. They examined Medicare spending in dozens of different markets across the country from 1992 through 2006.

In Miami, Medicare spent about $16,351 per recipient in 2006. In San Francisco, it spent $8,331 -- about half the cost. And recall that these are all Medicare patients, ages 65 and older, who should in general have similar health profiles.

Even small percentage and dollar differences add up. The Dartmouth researchers found three markets -- San Francisco, Boston and East Long Island -- started at about the same level of per-person spending in 1992.

But their spending increased at different rates -- 2.4 percent in San Francisco, 3 percent in Boston and 4 percent in East Long Island.

By 2006, per recipient spending in East Long Island was $2,500 more a year than in San Francisco -- an additional $1 billion in spending from just that one region, the authors note.

And other regions saw even greater increases. In Miami, Medicare spending rose 5 percent a year. You can’t attribute that to Florida’s older population: Just a few miles up I-95 in another retirement haven, Fort Lauderdale, spending increased only 3.2 percent a year, and per recipient spending was $9,816 -- just 60 percent of Miami’s spending.

The researchers found no evidence that the extra spending translated in better care, outcomes or longevity. They noted that all regions of the country have the same access to new technology, and use the same fee-for-service system, and that many high-cost regions, like Miami, also had a high level of managed care.

Instead, they said, it seemed that the increased spending stemmed from doctors’ choices.

Another study by a different group of Dartmouth researchers found that doctors in high-cost areas were much more likely to refer patients to sub-specialists for conditions that were unlikely to warrant that level of care. They were three times as likely to admit patients directly to an intensive-care unit and almost a third less likely to discuss palliative care.

They implied that though their findings were about Medicare spending, physicians’ choices extend that trend into costs paid through private insurers. And that’s what Dr. Atul Gawande found in one of the highest-cost areas in the country, as reported in his recent story in The New Yorker. (If you want to read an easy-to-understand piece on healthcare reform, this is it.)

So how do we save that money? There are the usual targets -- fraud and abuse of government plans -- but that is just a small fraction of healthcare spending.

The Dartmouth researchers estimate that Medicare spending could be reduced 30 percent without hurting patients, if it it were linked to evidence-based medicine.

That’s one of the terms that has been tied to scare tactics about government bureaucrats making your healthcare choices. But David Leonhardt, a writer and analyst for the The New York Times, explained it well in an article on what he calls the “prostate cancer test.”

He notes that there are five main courses of treatment for the disease, ranging from “watchful waiting,” or doing nothing unless tests show the cancer is worsening, to removing the prostate surgically, to proton radiation therapy.

Each step is more expensive than the last -- a few thousand dollars for watchful waiting, to $23,000 for surgery, to $100,000 or more the proton beam -- but research has shown none to to be more effective than the others in keeping patients alive.

Leonhardt notes that in fee-for-service medicine, where doctors and hospitals make money based on the procedure ordered, not the outcome, the most expensive procedures are becoming the most popular.

“The country is paying at least several billion more dollars for prostate treatment than is medically justified — and the bill is rising rapidly,” he said.

So why does it matter? “You may never see this bill, but you’re paying it,” he continues, channeling Reinhardt’s argument. “It has raised your health insurance premiums and left your employer with less money to give you a decent raise.”

So what does one person overpaying for prostate cancer, or Medicare overspending in Miami, mean for everyone else?

Again, in true economist fashion, Reinhardt took it out to the national level.

Right now, health care spending is about 16.5 percent of the gross domestic product. In another words, almost $17 of every $100 spent in the United States is spent on health care.

He notes that over the past four decades, health care spending has risen on average 4.4 percent. And that curve has been fairly smooth -- in other words, it’s not skewed by a recent spike in prices.

Meanwhile, the nation’s gross domestic product has risen on average about 2 percent.

Put them together, Reinhardt says, and you reach one conclusion: “Health care will sooner or later force us to make do with less of everything else.”

How much less? His graphs extend the four-decade trend another few decades. By 2025, health care will account for $2.50 out of every $10 spent, and by 2050, it would be about $4 of every $10.

One argument against reform is that the country can’t afford it. But Simon Johnson, a leading economist at the Massachusetts Institute of Technology, points to that trend and says we can’t afford not to overhaul healthcare, even at his estimate of $100 billion a year.

First, he notes, the money doesn’t disappear: It goes to insurance companies, then to doctors and hospitals and their employees, and in return, people get health care. The cost is less than 1 percent of GDP and less than the amount of the Bush tax cuts, and most of the cost is offset through fees on drug companies, insurers, device manufacturers and others.

The deficit, he says, is an argument to actually go ahead with healthcare reform. As with a corporation, it makes sense to take on debt if it is going to finance a major long-term improvement. And right now the bigger threat is the one that Reinhardt points out: Medicare and Medicaid will create even bigger, budget-wrecking deficits in the near future.

“Put another way,” he wrote, “if you are for fiscal discipline, you should be for health-care reform. If our government cannot produce some kind of reform, that will only reinforce the perception that our political system is incapable of resolving our largest, most difficult problem -- and that is what will make investors think twice about investing in America.”

So what’s going to happen now?

Forget about all the charges and accusations about “death panels” and “grandma killers” and bureaucratic review boards and all the fine print in the Senate bill. After tonight, those provision almost certainly will be gone. A compromise bill, from Finance Chairman Max Baucus or elsewhere, will emerge and it will contain the following provisions:

-- A requirement that all Americans have health insurance, with a subsidy to all those up to triple the poverty threshold. It satisfies the moral standard that everyone have access to care. It also makes insurers happy, because it gives them millions of new customers. It also makes doctors and hospitals happy -- especially emergency room doctors and ER on-call physicians -- because they’ll no longer be stuck with billions of dollars of unpaid bills. (Reinhardt estimates about it will cost about $120 billion a year if the currently uninsured get care like the insured; the Baucus bill comes out to $88 million, presumably with less coverage.)

-- Regulation of the insurance industry, prohibiting companies from barring people with pre-existing conditions or canceling their policies if they become ill. That will make liberal activists happy, and insurance companies will accept it in exchange for dropping the proposed Medicare-for-all plan, known as the “public option.”

-- Overhaul of Medicare and Medicaid, particularly in how the programs pay for procedures and in how they compensate doctors -- a key to winning support, and political cover, from the conservative American Medical Association.

-- Some sort of “trigger provision” that would launch a public option insurance plan if this effort fails to enroll 95 percent of the people in each state. It would be one more carrot-or-stick for the insurance industry to get people enrolled, and likely would be several years away.

President Obama will speak tonight about the moral reasons for improving access to healthcare. But as experts have made clear, there are equally compelling reasons tied to efficiency and fiscal soundness, and any solution needs to address those concerns as well.

As Leonhardt wrote: “The current health care system is hard-wired to be bloated and inefficient. Doesn’t that seem like a problem that a once-in-a-generation effort to reform health care should address?”





	A primer on healthcare reform David Gulliver - posted 1 pm Wednesday, Sept. 9 You can expect President Obama to talk tonight about how reform will help Americans, how people will no longer be denied coverage because of pre-existing conditions, that workers who lose their jobs or want to change jobs won’t lose their healthcare and risk their families’ futures. Those arguments may play well with a public panicked by scare talk of bureaucrat-run care killing Grandma. But the real reason is that inefficient healthcare spending is bankrupting the government and strangling the national economy. That was the message that Uwe Reinhardt, a Princeton economics professor and probably the nation’s leading expert on healthcare finance, told in brilliant -- and, believe it or not, hysterically funny -- style at the Association for Health Care Journalists national conference in April. His talk touched on all healthcare costs at every level of the economy. At the most personal, the household, he noted that in 2001, the average annual medical cost for a family of four -- including employers’ and employees health insurance premiums, and out-of-pocket costs -- was $8,414. In 2008, it was $15,600, nearly twice as much. In true economist fashion, Reinhardt ties it to a term called the wage base. The bottom line is that every dollar your employer has to spend on health premiums is a dollar it can’t give you in raises, or in hiring another employee to reduce your workload. So why are those costs rising? You could start by looking at Miami and San Francisco. Reinhardt pointed to research from faculty at Dartmouth College’s medical school. They examined Medicare spending in dozens of different markets across the country from 1992 through 2006. In Miami, Medicare spent about $16,351 per recipient in 2006. In San Francisco, it spent $8,331 -- about half the cost. And recall that these are all Medicare patients, ages 65 and older, who should in general have similar health profiles. Even small percentage and dollar differences add up. The Dartmouth researchers found three markets -- San Francisco, Boston and East Long Island -- started at about the same level of per-person spending in 1992. But their spending increased at different rates -- 2.4 percent in San Francisco, 3 percent in Boston and 4 percent in East Long Island. By 2006, per recipient spending in East Long Island was $2,500 more a year than in San Francisco -- an additional $1 billion in spending from just that one region, the authors note. And other regions saw even greater increases. In Miami, Medicare spending rose 5 percent a year. You can’t attribute that to Florida’s older population: Just a few miles up I-95 in another retirement haven, Fort Lauderdale, spending increased only 3.2 percent a year, and per recipient spending was $9,816 -- just 60 percent of Miami’s spending. The researchers found no evidence that the extra spending translated in better care, outcomes or longevity. They noted that all regions of the country have the same access to new technology, and use the same fee-for-service system, and that many high-cost regions, like Miami, also had a high level of managed care. Instead, they said, it seemed that the increased spending stemmed from doctors’ choices. Another study by a different group of Dartmouth researchers found that doctors in high-cost areas were much more likely to refer patients to sub-specialists for conditions that were unlikely to warrant that level of care. They were three times as likely to admit patients directly to an intensive-care unit and almost a third less likely to discuss palliative care. They implied that though their findings were about Medicare spending, physicians’ choices extend that trend into costs paid through private insurers. And that’s what Dr. Atul Gawande found in one of the highest-cost areas in the country, as reported in his recent story in The New Yorker. (If you want to read an easy-to-understand piece on healthcare reform, this is it.) So how do we save that money? There are the usual targets -- fraud and abuse of government plans -- but that is just a small fraction of healthcare spending. The Dartmouth researchers estimate that Medicare spending could be reduced 30 percent without hurting patients, if it it were linked to evidence-based medicine. That’s one of the terms that has been tied to scare tactics about government bureaucrats making your healthcare choices. But David Leonhardt, a writer and analyst for the The New York Times, explained it well in an article on what he calls the “prostate cancer test.” He notes that there are five main courses of treatment for the disease, ranging from “watchful waiting,” or doing nothing unless tests show the cancer is worsening, to removing the prostate surgically, to proton radiation therapy. Each step is more expensive than the last -- a few thousand dollars for watchful waiting, to $23,000 for surgery, to $100,000 or more the proton beam -- but research has shown none to to be more effective than the others in keeping patients alive. Leonhardt notes that in fee-for-service medicine, where doctors and hospitals make money based on the procedure ordered, not the outcome, the most expensive procedures are becoming the most popular. “The country is paying at least several billion more dollars for prostate treatment than is medically justified — and the bill is rising rapidly,” he said. So why does it matter? “You may never see this bill, but you’re paying it,” he continues, channeling Reinhardt’s argument. “It has raised your health insurance premiums and left your employer with less money to give you a decent raise.” So what does one person overpaying for prostate cancer, or Medicare overspending in Miami, mean for everyone else? Again, in true economist fashion, Reinhardt took it out to the national level. Right now, health care spending is about 16.5 percent of the gross domestic product. In another words, almost $17 of every $100 spent in the United States is spent on health care. He notes that over the past four decades, health care spending has risen on average 4.4 percent. And that curve has been fairly smooth -- in other words, it’s not skewed by a recent spike in prices. Meanwhile, the nation’s gross domestic product has risen on average about 2 percent. Put them together, Reinhardt says, and you reach one conclusion: “Health care will sooner or later force us to make do with less of everything else.” How much less? His graphs extend the four-decade trend another few decades. By 2025, health care will account for $2.50 out of every $10 spent, and by 2050, it would be about $4 of every $10. One argument against reform is that the country can’t afford it. But Simon Johnson, a leading economist at the Massachusetts Institute of Technology, points to that trend and says we can’t afford not to overhaul healthcare, even at his estimate of $100 billion a year. First, he notes, the money doesn’t disappear: It goes to insurance companies, then to doctors and hospitals and their employees, and in return, people get health care. The cost is less than 1 percent of GDP and less than the amount of the Bush tax cuts, and most of the cost is offset through fees on drug companies, insurers, device manufacturers and others. The deficit, he says, is an argument to actually go ahead with healthcare reform. As with a corporation, it makes sense to take on debt if it is going to finance a major long-term improvement. And right now the bigger threat is the one that Reinhardt points out: Medicare and Medicaid will create even bigger, budget-wrecking deficits in the near future. “Put another way,” he wrote, “if you are for fiscal discipline, you should be for health-care reform. If our government cannot produce some kind of reform, that will only reinforce the perception that our political system is incapable of resolving our largest, most difficult problem -- and that is what will make investors think twice about investing in America.” So what’s going to happen now? Forget about all the charges and accusations about “death panels” and “grandma killers” and bureaucratic review boards and all the fine print in the Senate bill. After tonight, those provision almost certainly will be gone. A compromise bill, from Finance Chairman Max Baucus or elsewhere, will emerge and it will contain the following provisions: -- A requirement that all Americans have health insurance, with a subsidy to all those up to triple the poverty threshold. It satisfies the moral standard that everyone have access to care. It also makes insurers happy, because it gives them millions of new customers. It also makes doctors and hospitals happy -- especially emergency room doctors and ER on-call physicians -- because they’ll no longer be stuck with billions of dollars of unpaid bills. (Reinhardt estimates about it will cost about $120 billion a year if the currently uninsured get care like the insured; the Baucus bill comes out to $88 million, presumably with less coverage.) -- Regulation of the insurance industry, prohibiting companies from barring people with pre-existing conditions or canceling their policies if they become ill. That will make liberal activists happy, and insurance companies will accept it in exchange for dropping the proposed Medicare-for-all plan, known as the “public option.” -- Overhaul of Medicare and Medicaid, particularly in how the programs pay for procedures and in how they compensate doctors -- a key to winning support, and political cover, from the conservative American Medical Association. -- Some sort of “trigger provision” that would launch a public option insurance plan if this effort fails to enroll 95 percent of the people in each state. It would be one more carrot-or-stick for the insurance industry to get people enrolled, and likely would be several years away. President Obama will speak tonight about the moral reasons for improving access to healthcare. But as experts have made clear, there are equally compelling reasons tied to efficiency and fiscal soundness, and any solution needs to address those concerns as well. As Leonhardt wrote: “The current health care system is hard-wired to be bloated and inefficient. Doesn’t that seem like a problem that a once-in-a-generation effort to reform health care should address?”