Consumer Power Report

# 86 -- July 11, 2007

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-- CHCC Members in the News

-- SCHIP Reauthorization

-- Bob Moffit Replies on Mandates

If you haven't already, I urge you to take a look at the health care section of the State Policy Network Blog. -- http://blog.spn.org/ -- This includes some of the most concise and zippy commentary on health care issues I've ever seen. The only thing missing is regular feedback and dialogue from readers. Subscribers to Consumer Power Report include some of the most well-informed (and opinionated) people in health care. The SPN Blog would benefit tremendously from your active participation and comments.

-- Greg Scandlen

CHCC Members in the News

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On Regina Herzlinger's New Book..
Pacific Research Institute's Sally Pipes has been everywhere lately commenting on Michael Moore's Ode to Canada. Sally is a native Canadian and well-experienced with its health care system, so she is eminently qualified to comment. But I've decided to keep this issue a "Sicko-Free Zone," so I will offer instead a review of Regina Herzlinger's book she wrote for the New York Post. She calls the book "impressive and accessible, (and) offers insights that could lead to real progress." Ms. Pipes recaps many of the charges in the book and calls it a "toxic ecology" that is "supported by academics and corporate HR professionals - all of whom tend to favor top-down approaches, mistrust markets, and view the individual consumer as foolish and wrong-headed." She also applauds Herzlinger's alternative vision, but says this vision does not need mandatory coverage to succeed.

SOURCE: New York Post

On Medical Homes.
I have been asked to comment for Forbes on a couple of recent studies. One was sponsored by the Commonwealth Fund and found that patients with a "medical home" do much better than those without one, especially in managing chronic conditions. The author concluded that, "We should promote this concept for all kinds of providers." I couldn't agree more. It didn't make it into the article, but the study's description of a "medical home" nearly perfectly describes a concierge medicine practice. What a different world we would live in if every patient could access a physician who could provide that level of care.

SOURCE: Forbes Magazine

On Rx Cost-Sharing.
I was also asked to comment on a study of prescription drug cost sharing by some Rand researchers. The study agreed that increased cost-sharing lowers total Rx spending, but the authors aren't so sure this is a good thing. Patients may be missing out on the benefits of those medications. I simply pointed out that not all cost-sharing is the same. Tiered co-payments, for instance, amount to a fine imposed by the third-party payer for using the drug. It conveys absolutely no information to the patient. A co-insurance program is much better because it helps the patient understand the underlying costs of various drugs and empowers the consumer to make her own decision about the best value. That gets the patient "invested" (literally) in her own treatment program and leads to better understanding and compliance.

SOURCE: Forbes Magazine

SCHIP Reauthorization

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SCHIP reauthorization is heating up in Congress this summer. CHCC Board chair Stormy Johnson, MD and I were asked to comment on it by ABC News. As far as I know these comments have not been used on any broadcast, but you might be interested in what we said.

From Stormy --

To ABC News, Let there be no doubt. The Democrats see the inclusion of all children in government-funded insurance as the next step to a single payer system. Whereas it is sometimes hard to discern what the Democrats advocate, such is not the case with government provided health insurance. They have been very clear in their ultimate goal.

When they were unable to move the country to a single payer type system back in the Truman era, they made the fundamental decision to get there in an incremental fashion.

It took them until the mid sixties to accomplish the first major step, moving the elderly and the poor into government coverage. They later expanded coverage for disadvantaged women and their children before focusing in on coverage for as many children as they could get away with. The move now is to markedly expand that group. They are also trying to move Medicare eligibility down to age 50.

As you start to add it up, elderly, poor, women, children, those between ages 50 and 65, you end up with only those males between 18 and 50 who are not covered.

Folks like the American Medical Association are put in a difficult spot. The AMA wants everyone to have insurance and has policy that explains how to get there without resorting to single payer, but the AMA does not want existing assistance to disappear, at least until such time as every child (and everyone else) is covered.

Both Medicaid and Medicare are disasters as currently designed. Medicare is bankrupt. Enlarging that model is the ultimate folly. On the other hand moving to a defined contribution system like the Federal Employee Health Benefit Plan, a proven success, makes sense.

Best regards,
Stormy

I took a different tack - that SCHIP has failed to do what it promised, so should not be expanded --

To ABC News,

Under the current program with current eligibility standards some very large number of eligible children are not enrolled. It is hard to pin down precise numbers but the Kaiser Family Foundation estimates that 70% of uninsured children are already eligible for either Medicaid or SCHIP. The American Academy of Pediatrics said that 4.1 million uninsured children are already eligible for Medicaid and 2.2 million for SCHIP (out of a total number of 9 million uninsured). A recent article in the Houston Chronicle says one-half of Texas' 1.4 million uninsured children "could be in these programs but aren't." The Wilmington (NC) Star says 177,000 uninsured kids in North Carolina already qualify but haven't enrolled (only 87,000 are uninsured but not qualified).

Note that Texas and North Carolina continue to define eligibility in traditional terms -- 200% of poverty -- and they apparently have allocated funds to enroll those children. They (or the parents) simply haven't enrolled. We can speculate on why that might be, but this is not the time to expand eligibility and dilute available resources. Instead, we should be trying to promote the existing program or revise it so that families will be more likely to enroll.

Meanwhile the numbers of uninsured children have been increasing since 2005. An article in the Washington Post from September, 2006, says the number increased by 361,000 over the previous year. So the problem is getting worse, not better. That implies the program is not working very well. Has SCHIP covered some kids? Absolutely! Has it fulfilled its promise to cover all kids up to 200% of poverty? Absolutely not!

Let's make sure the program is working before we throw more money into it.

Greg Scandlen

Heritage on SCHIP.
The Heritage Foundation issued a nice analysis in the form of a WebMemo by Nicola Moore and J.D. Foster. The paper discusses the original purpose of SCHIP and explains that some states have already expanded it "far beyond its original scope." Not surprisingly, these states overextended their budgets and started demanding federal bailouts. Current proposals in Congress to raise eligibility to 400% of poverty would extend to program to all people with median incomes in 42 states and crowd-out existing private coverage.

SOURCE: Heritage Foundation.

Robert Novak on SCHIP.
And Robert Novak weighs-in, calling the program "immensely popular," to the point that Sen Jay Rockefeller wants to triple the spending from $25 billion to $75 billion over five years. He and other Senate Democrats would pay for it through the magic of cigarette taxes and if that isn't enough, they would take it out of Medicare. Mr. Novak points out that 14 states have expanded the program to include adults, with Minnesota spending 92% of its SCHIP funds on non-children. Republican Senators Orrin Hatch (R-UT) and Chuck Grassley (R-IA) object only to the size of the expansion. They would merely double it to $55 billion, instead of tripling it to $75 billion (how's that for fiscal restraint?)

SOURCE: Houston Chronicle.

Kimberly Strassel on SCHIP.
In the Wall Street Journal, Kimberly Strassel reports that many Republicans aren't satisfied with the "leadership" of Mssrs Hatch and Grassley and are meeting behind closed-doors to hammer out "a broad new GOP health-care vision, a free-market reform to replace today's faltering employer-based system." Leading the effort are Senators Tom Coburn (R-OK) and Jim DeMint (R-SC) and Representatives, Paul Ryan (R-WI) and Jim McCrery (R-LA) with input from HHS Secretary Mike Leavitt and Al Hubbard from the National Economic Council. It appears they will be pushing for some combination of tax deductibility and tax credits. But, reports Ms. Strassel, "Most Republicans don't understand health care, so don't want to talk about it" and insurers and Rx companies are more "focused on short-term profits and PR images."

SOURCE: Wall Street Journal.

Bob Moffit Replies on Mandates

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Greg:

Thanks for the opportunity to respond on the issue of the individual mandate.

As you are well aware, we are all operating under an individual mandate right now: the federal mandate on taxpayers to pay the ever larger medical bills of those who don't or can't, especially those getting non-urgent care in hospital emergency rooms. Taxpayers are also required to subsidize hospitals with uninsured patients. The result of the existing mandate: tens of billions of dollars of costs shifted to the taxpayer. One choice of course is to lock the emergency room doors or deny care to those who can't pay for their care, and so end today's mandate on the rest of us. If that is your preference you should lead a national effort to repeal federal laws requiring such emergency room care. I'm not super-confident that you will be successful.

The other choice is to dig ourselves out of the current situation by replacing an unfair mandate on taxpayers with a reasonable requirement of individual responsibility for those whom the wider society has decided to help. That's why a work we supported a work requirement in return for welfare - a mandate as you might term it. And it is why many of those who now criticize us on health have sought to replace a portion of government-paid Social Security benefits with an individual mandate for persons to deposit a portion of their payroll taxes in a personal retirement account. But such mandatory enrollment in private accounts would be necessary, say CATO analysts, for example, because otherwise folks might "game" the system. Indeed, folks without private savings could end up as wards of the state. But somehow that pristine logic doesn't, for some reason, apply with equal force to health care financing.

On the health insurance "connector" issue, thank you for pointing out that the main reason for such a mechanism is to enable persons to secure favorable tax treatment for personally owned and portable health policies. Please note, however, that Heritage has never argued for limiting either the number or kind of health plans that could compete for consumers' dollars, as your commentary suggests. The exact opposite is true, and should be plainly evident to anyone even slightly acquainted with Heritage papers on the subject.

Sincerely,

Bob Moffit
Director, Center for Health Policy Studies
Heritage Foundation

Consumer Power Report

# 85 -- June 27, 2007

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-- Hey, Michael, we can do movies, too!

-- The Great Divide

-- Missouri -- The Show Us State

-- Reader Response

Hey, Michael, we can do movies, too!

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Update from Logan Clements Michael Moore's SICKO now has a direct competitor. The movie trailer for SICK AND SICKER was just released.

SICK AND SICKER is a tragic comedy about what happens when the government takes control of the medical system. The movie deals with serious issues and interviews some of the top public policy experts in the health care field. In order for the film to be influential the producer added just enough entertaining sequences so as to make it a commercially viable movie. Please don't let this put you off. Think of it as a sugar-coated vitamin. The wisdom of free market public policy experts is coated with just enough entertainment value so that, hopefully, millions of Americans will want to see it.

I extend my apologies to all of you who are saying "why didn't they interview me, I'm a major player in the health care debate." We were under severe time limitations and severe budget limitations and could only scratch the surface. However, a recent donation has made it possible for us to do one last round of interviews before we finalize the movie. Don't get mad-get interviewed! If we left you out and you'd like to get across important points please contact Logan at the e-mail address below. Last chance. Use the subject line: "GET ME IN YOUR MOVIE" and send an e-mail to... Logan@freestarmovie.com

Reporters!
Logan Darrow Clements, the producer of SICK AND SICKER, is available for radio and television interviews. Please use the e-mail address -- Interview@freestarmovie.com

Booking managers and reporters please put in your subject line "INTERVIEW: (name of your show/ publication)." In the body of your e-mail please include your: 1. show/publication name, 2. audience size/circulation, 3. website for show, 4. desired interview date/time, 5. your name/phone/e-mail

To see the trailer, go to: YouTube.

Stuart Browning, too.
And let's don't forget Stuart Browning of On The Fence Films who has now teamed up with CHCC members David Gratzer and David Hogberg to create a web site - www.freemarketcure.com -- featuring Stuart's short clips, a Blog, and a lot of op-eds describing the issues in more depth. The clips include "Uninsured in America," "The Lemon," "Two Women," and "Brain Surgery."

To see the latest clips from Stuart Browning, go to: Free Market Cure.

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The Great Divide

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There is a big debate going on right now within "conservative" circles between those who think people should be forced to buy health insurance coverage and those who think that freedom includes the liberty to reject such offerings if they don't find value there. The latest example is a point-counterpoint between CAHI's Executive Director Merrill Matthews and the Heritage Foundation's Bob Moffit. I know and respect both gentlemen so it distresses me that the old "divide and conquer" strategy is working so well.

I won't go into the substance of the point-counterpoint here. But this is a long-standing dispute between Heritage and the rest of the free market community. In September of 1992 when I was running CAHI, I wrote to Stuart Butler, Heritage's Vice President of Domestic and Economic Affairs, objecting to a paper Heritage had released that supported individual mandates under the guise of "consumer choice." In July of 1993 Cato President Ed Crane wrote a similar letter to Mr. Butler. And in June of 1994 NCPA President John Goodman wrote to Heritage President Ed Feulner objecting to Stuart Butler's support of community rating and guaranteed issue. More recently, Mr. Butler served on the events committee of the National Academy of Social Insurance, an organization that encourages and celebrates the growth of public programs such as Social Security, Medicare, and Medicaid.

For a while in the 1990s the groups got together under the auspices of "the Consensus Group," organized by Grace-Marie Turner. They decided to identify what united them and work on those issues. The tax treatment of health insurance was the one issue all could agree on -- specifically to supplement the tax exclusion of employer-sponsored health insurance with a tax credit for individually-purchased coverage. This has been a hallmark of the Bush Administration's health agenda as well, but it got nowhere in a Republican Congress and has even less chance now that the Democrats are in control.

So, Heritage is back to supporting mandatory coverage along with a Massachusetts style "Connector" that does indeed extend favorable tax treatment to individually-owned coverage but only for a limited number of state-approved policies. Heritage is not supporting these measures reluctantly. They are actively sending Ed Haislemaier (another friend of mine) around the country to persuade state legislatures to enact similar measures.

They argue it is a matter of "personal responsibility" and if someone is willing to put up a $10,000 bond they should be allowed to opt out of the mandate. There are a lot of problems with this argument. First, it is unlikely to be adopted anywhere so it just amounts to rhetorical window dressing. Second, people are already "personally responsible" for paying the bills they incur. We don't need a new law for that.

More importantly, the argument completely misses the reality that the states have made a hash of the insurance market with excessive regulation and mandates. Coverage would be far more affordable if the states simply repealed the misguided regulations enacted over the past 20 years. People don't buy coverage today because the available coverage sucks. Their refusal to purchase should be seen as an important signal to legislators and the insurance industry that they have gone off-track. Forcing people to buy something they don't value solves nothing.

Finally, mandating insurance coverage ignores the fact that it is precisely third-party payment (both public and private) that has created almost all of the problems in health care. We need to reduce the role of third-party payers, not enhance it by mandating everyone be covered by third-party payers for virtually everything.

Sources: Merrill Matthew's View. Bob Moffit's View.

National Review
We can't leave this topic without citing a recent editorial in the National Review. It is boldly headlined "Against Universal Coverage," and proclaims that once government has fixed the onerous regulations that have made coverage so unaffordable, it should let people make their own decisions about whether to purchase. "Leave them alone," it says, "it's a free country."

SOURCE: National Review.

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Missouri -- The Show Us State

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The folks in Missouri have decided to take a different approach from mandates and The Connector of Massachusetts. Some of us have had numerous discussions with people involved in getting the new law (HB 818) passed, especially the tireless Beverly Gossage who is as good a spokesperson as anyone could want. Missouri's approach is so good and such a model for other states that it should change its motto from "The Show Me State" to "The Show Us (How to do it) State."

Essentially, they changed state law to enable small employers to set up Section 125 plans, funded by both employers and employees, and allow workers to buy individual coverage with those tax-free funds. Most states currently consider that any coverage partially funded by employers is automatically "group" coverage and therefore subject to minimum contribution requirements, minimum participation levels, rating restrictions, mandated benefits, guarantee issue laws, and a host of other expensive regulations.

This new law allows an employer to simply make a contribution to the premium costs of a worker's own individual plan. The worker may select any plan available in the non-group market. It is completely portable and "owned" by the employee. There is no "Connector" dictating what the market may offer. There is no mandate requiring workers to purchase coverage (but if they don't they will forfeit a significant benefit of their job).

Employers benefit because they are freed of the burden of selecting one plan that pleases all the workers, and they may contribute whatever they can afford to the cost of coverage. They have no responsibility to even know what sort of coverage the worker is buying. All they have to do is establish the 125 program and pay their contribution into it.

Ms. Gossage reports that carriers are already making premium and underwriting concessions to attract this new population of active workers who are also well-subsidized and financially stable. She adds that Missouri also is making HSAs available to state employees for the first time and the insurance department will make information available about this new opportunity.

Jason Hannasch of the Show Me Institute had an op-ed in St. Louis Today in which he praised HB 818 and cited his own experience as a small employer in trying to get coverage for his employees. He says, "Until a few days ago, Missouri's health insurance laws were relics of the 1940s, biased towards big businesses with one-size-fits-all health plans." But now, each employee wil be able to choose the plan that is best for their own family.

SOURCE: St. Louis Today.

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Reader Response

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From CHCC Board Member, Bob Hamilton, MD
The actions of the Illinois State Medical Society (ISMS), in regard to retail medical clinics, deserve further evaluation. The article in the Chicago Tribune, and particularly the remarks by Dr. Milstein, ascribe anticompetitive motives for the resolution passed by the ISMS and the subsequent action of the Society. The resolution passed by the House of Delegates states that ISMS opposes the creation of retail store-based clinics in the state and directs our AMA delegation to carry the resolution to the AMA 2007 annual meeting in June. The reasons given are that retail clinics offer convenient access to non-physician diagnosis and treatment of minor medical conditions, without supervision by an onsite physician, often in close proximity to pharmacies owned by the major retailers, at the expense of any continuity of care by a physician.

ISMS application of this policy is reflected in strong support for HB1885, which charges that these clinics meet the same safety standards required by the state for hospitals, surgery centers, and physician offices; would require regulation of retail clinic marketing tactics; and would require increased physician supervision. These are patient safety issues, and ISMS would be remiss if it did not seek to address these issues. ISMS works actively to support many other patient safety issues, which could be misinterpreted as anticompetitive. Some of these in 2007 are not allowing nurse midwives to use post-partum oxytocin and methegrine to control post partum hemorrhage; preventing advance practice nurses from practicing independently without physician collaboration and having unlimited authorization to prescribe Schedule II narcotics; preventing chiropractors from doing school physicals and employment physicals on teachers; and many others.

ISMS President Rodney Osborn, a Peoria anesthesiologist, makes the point that HB1885 would require appropriate communication between retail clinics and physicians, timely physician-referral of patients with more serious illnesses, and patient consultation and medical care follow-up. These are reasonable suggestions that, paradoxically, might well help to ensure the success of retail clinics by improving the patient safety of the services they offer.

In regard to Dr. Milstein's charges of "anti-turf protection", "holy garb of quality", and "current care stinks", I can only say that if he will grant that organized medicine is motivated by patient safety welfare, I will not accuse him of being an opportunistic medical mercenary, whose only motivation is to exploit a weakness in our current medical system in order to seek potentially huge profits. It is unfortunate that, in today's often cynical society, the responsible activities by the experts in any field are often misconstrued as self-serving.

Robert F. Hamilton, M.D., F.A.C.S.
Godfrey, IL

(For more about the dispute between retail clinic and organized medicine, see a recent summary by ABC News.)

From Len Nichols, New America Foundation.
Hey Greg, I would ask you not to characterize New America as "left leaning." (we prefer post-partisan, but I'm happy with Centrist, which, since I piss off both Left and Right daily, I think is more accurate).

It is true we want to cover all Americans, and that leads us to INDIVIDUAL mandates (not employer) and reorganized insurance markets. But I and we have always emphasized private insurance markets as the vehicle for coverage, and delivery system reform - based largely on information and new incentives, both supply and demand side -- as the key to the long run sustainability of a reformed health care system. That may seem Left to some, but if you consider that Romney, Schwarzenegger, Tommy Thompson, Bob Bennett, along with Ron Wyden, John Edwards, and soon to be Hillary Clinton I am pretty sure, not to mention the ERISA Industry Committee, the Federation of American Hospitals (Chip Kahn's group) etc, are also where we are, I think it is more fair to characterize our health care work as centrist than Left-leaning.

But more importantly, perhaps you could just mention that in the first critique of our work on the "hidden tax," Cogan et al (including Kessler) argued that there was no MediCal underpayment, and that was a big reason they think we overestimated the hidden tax/cost shift to private payers, because we assumed that MediCal (Medicaid in CA) disproportionate share (DSH) moneys went to partially make up for large MediCal underpayments and thus was NOT available to pay for care given to uninsured. The Cogan piece asserted that the MediCal underpayment was zero, so all DSH was available for the uninsured. Now the 2nd Kessler paper argues that the MediCal underpayment leads to a 10% cost-shift to private insurers, but the uninsured leads to only 1%. You kinda can't have it both ways.

The most persuasive evidence, in my view, is what Chambers of Commerce from Salt Lake to Denver to Indianapolis believe: the cost-shift to private insurance from the uninsured is high and rising. Look at Mitch Daniels' (Republican Governor of Indiana, former Bush OMB Director) white paper on his health reform package -- he cites the hidden tax argument made by Thorpe right up front. And all of these states (a) have fewer uninsured as a percentage than California; and (b) have less Medicaid underpayment than California does.

In my view, the Chamber in California, which is funding the Cogan and Kessler critique of the concept of the hidden tax, is against the business tax in all reform plans out there: I understand that, I don't like the business tax either, and would strongly prefer to finance access to health insurance in smarter ways. But I'm not elected in CA, the people who propose business taxes are. What I don't understand is why they picked the reality that hospitals overcharge private patients to make up for payment shortfalls -- from Medicaid and the uninsured alike -- why that argument is the one they attack analytically.

I am happy to debate this in public, anywhere, anytime, and I freely admit all these numbers are estimates. What I don't think is supported by the evidence is their argument that the cost-shift to private payers is trivial; if it's trivial in California, it is vanishingly small elsewhere in the country, and no one else seems to believe that, no one else seems to accept the implications of the Cogan/Kessler conclusion, save opponents of reform who mostly just repeat their claims to try and discredit market based solutions to cover us all.

To see Len's direct response to Cogan's Critique, go to New America Foundation.

NOTE: The ideas presented in this newsletter represent the views of the authors. They do not necessarily reflect the policies and positions of Consumers for Health Care Choices, its members, or its Board of Directors

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Consumer Power Report

# 84 -- June 14, 2007

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-- HSAs in the Big Media

-- Health Ownership Index

-- Free Rider Cost Shift?

I attended Jim Pendleton's memorial on Sunday in Bryn Athyn, Pennsylvania. Jim was a life-long member of this close-knit community, attending college there, serving as health director of the town, and raising five children. Some 500 people attended what they referred to as a "resurrection ceremony" following services in the breathtaking Bryn Athyn Cathedral.

The family asked me to say a few things about Jim's activities in the policy sphere and I was honored to do so. I said that I first started communicating with Jim about 15 years ago when I was working on getting Medical Savings Accounts enacted. Since then, Jim organized a chapter of the Association of American Physicians and Surgeons (AAPS) in Pennsylvania, served as president of AAPS for a year, encouraged me to start this organization, was a Founding member and a Director on our Board, and authored an important paper on bringing market dynamics to the high-cost side of health care. I said his concept will be forever known as "The Pendleton Plan" and is being taken seriously by people in the insurance business around the country. As an example, I read a bit of the kind words Steve Bassett had sent along.

Several people told me afterwards they had no idea of these activities. He was a modest man and, as a psychiatrist, always kept his professional work confidential. That is probably true of most of us. We assume that our policy work will be boring to our family members. We don't want to bend their ears with it. But is that really fair to them? They just might "get it" much better than we give them credit for. Maybe they would like to be more involved in what we are doing. After all, they are health care consumers, too.

Speaking of family involvement, I am taking next week off to spend some time with my grandson, Dylan. Our big adventure will be taking him on the train to New York City and going to the Museum of Natural History. He's wanted to see it ever since the movie, "Night at the Museum" came out.

-- Greg Scandlen

HSAs in the Big Media

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Wall Street Journal
A number of stories in the mainstream media have been commenting on HSAs lately. We'll start with a very negative article in the Wall Street Journal by Vanessa Furhmans. Once the WSJ weighs in against consumer driven health, it vindicates the position of everyone who prefers all things health to be controlled by the elites - either the government or the health care establishment.

Ms. Fuhrmans' article is essentially a warmed-over version of Jon Gabel's attack we reported on in CPR #59. It regurgitates all of the same arguments, including that "only" 19% of workers choose an HSA when given a choice, and that 40% in HSAs had no choice of plan. As before, we need to point out that the 40% number is much higher than the percentage of people in HMOs and PPOs who have no choice of plans, and that 19% is astonishingly high for a program that has only been around a couple of years. But Ms. Furhmans didn't bother to talk to us or to anyone else who has a more positive point of view.

I responded with the following letter to the editor. We'll see if it is published.

I hope Venessa Fuhrmans didn't spend too much money on her pallbearer outfit for the funeral of Health Savings Accounts. They are a long way from dead. In fact, enrollment has tripled in the past two years and her observation that "only" 19% of employees choose "the new fangled plans" is actually an amazingly strong response for a product that is so new and so different from what people are used to.

Are employees skeptical? Of course. But employees are always skeptical of benefits changes from their employers. In fact, according to J.D. Powers, employers are the least trusted of all the possible sources of health information. That is part of the reason excellent communications are vital to a successful roll-out of these plans. It is also part of the reason that workers like having more control over their own money.

And it is true that employees are frustrated that there is not better information available about costs, quality, and treatment alternatives, but this is actually a good thing. At last there is a demand for information and a hunger to become better informed about health care. The lack of consumer desire to become informed is something the public policy crowd has been bemoaning for decades. Now that the demand is out there, there is gold rush going on to develop the services to meet that demand.

The adoption rate of HSAs and other forms of consumer driven health care is in fact sizzling. This is the fastest adoption of any benefits innovation of my lifetime. Faster than HMOs, IRAs, 401-Ks.

This particular glass may not yet be half full, but the faucet is on and working just fine.

SOURCE: Wall Street Journal.

Washington Post #1
The Washington Post has been a little more balanced. An article in Sunday's Business section by Susan Straight is headlined, "Of Sickness and of Wealth - Health Savings Accounts make sense if you're physically and fiscally fit." It's not a bad article, but she uses one anecdote to suggest HSAs aren't that great for high-spenders. The story involves a couple in Massachusetts whose traditional premiums went from $910/month to $1,300/month when the husband turned 60. Buying an HSA policy lowered the premium to $950/month and they put $5,400 into the HSA. But now they were paying 100% of their drug costs and her asthma medication costs $600/month, so the savings were quickly depleted.

The anecdote raises more questions than it answers. First, Massachusetts is a warped market for any kind of insurance, but especially individual. Second, the article doesn't say how much their deductible was, but at $7,200/year for one medication alone they must have been pretty close to getting to 100% coverage. Third, it doesn't sound like their insurance carrier was providing much of a premium concession for that kind of deductible. You have to wonder if that was the only/best offering they could find. Finally, the wife had no idea how much her meds were costing under her old co-pay program. I would hope she would have started looking for other treatment options once she realized the costs, but the article doesn't mention any of that. It is true that these programs add pressure to people with chronic conditions, but that is where system-wide savings are possible. The healthy don't consume enough to make a difference, and the very high users are too sick to be effective consumers. It is in this mid-range of spending where people are able to make the behavioral changes to lower costs and also spend enough to make a difference.

SOURCE: Washington Post.

Washington Post #2
Another article in the Post discusses a recent Kaiser Family Foundation study about maternity spending with a high deductible plan. The article is by Christopher Lee, who is one of the best health reporters in the country. But he is reporting on a highly prejudiced "study" by a couple of activists who have proven if you carefully pick out selected scenarios you can arrive at any conclusion you want. I don't have time to read the whole 50-page report, but based only on the Executive Summary, they made no accounting for premium savings or for likely employer HSA contributions or for the tax savings on OOP spending, they based hypothetical expenditures on the experience of women in Maryland's high risk pool, and when it suited them they spread the experience over two years in order to double up on the deductible. They also assumed identical behaviors for people in HSA programs and people in first dollar coverage situations. Given what he has to work with, Mr. Lee's article is pretty balanced.

SOURCES: Kaiser Family Foundation. See also Washington Post.

Health Ownership Index

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Part of the reason I don't have time to read the 50-page Kaiser Family Foundation report is because I am reading a 50-page report by CHCC member John Graham at the Pacific Research Institute. I wish I knew what magic it is that gets reporters to pay attention to left-leaning reports but not to free market reports. This is a state-by-state ranking of "Health Ownership" and is groundbreaking material. I've never seen anything quite like it.

It begins with the question posed by Glenn Hubbard in the Forward, "Who owns your health care?" and says that the answer to this simple question is far more ambiguous than it should be. In fact, "we often lack the basic freedom to make our own decisions" about a wide range of issues in health care. The paper develops 24 variables in four categories - government health care, private health insurance, medical torts, and provider regulatory burden. And then it ranks each state on each variable. The top five states are Utah, Nebraska, Delaware, North Dakota, and Alabama. The bottom five are New York, Vermont, New Jersey, North Carolina, and Maine. Yes, there are some surprising results here and it is well worth the time to look through the results to see why. You may disagree with some of it, and the index may well be refined over time. But for now this is a huge amount of work and a terrific contribution to the literature. You might think the media would be intrigued.

SOURCE: Pacific Research Institute.

Free Rider Cost Shift?

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One of the arguments in favor of mandatory insurance coverage is the "free rider" argument - the uninsured consume health care services and those costs are passed on to people who pay for insurance. This is certainly true, but what is the effect? How much does such free care actually cost people with private coverage?

In developing his proposal California's Governor Schwarzenegger relied on an estimate by the left-leaning New America Foundation that such "cost shifting" added something in the range of 6% to 11% to the cost of premiums. Jon Cogan and researchers at the Hoover Institute at Stanford University reviewed that estimate and concluded the true number is more like 2.8%, assuming all of the costs of such care are picked up by private insurers. They further argue it is probably less than that because some of the costs are absorbed by doctors, hospitals, and other players in health care, as witnessed by the argument that "uncompensated care costs are bankrupting hospitals." If uncompensated care were fully covered by private payers it would have no financial effect on hospitals.

Now comes Daniel Kessler of Stanford University who says the effect is even lower than Cogan estimates. In a paper he developed for the California Foundation for Commerce and Education, Mr. Kessler says the cost of providing care to the uninsured has a trivial effect on private premiums in California - adding 1.4%. The real cost shift, he says, is from Medicare and MediCal. These programs pay substantially less than the cost of caring for their patients, resulting in a 10.8% increase in private insurance premiums.

I won't go into the econometrics involved in his analysis (largely because I don't understand them), but the paper seems to be very thorough and well-reasoned. He takes the time to walk through the existing literature and explain why they developed different estimates and why he thinks his approach is more accurate. He also acknowledges areas of uncertainty. For instance, how should "Disproportionate Share" (DSH) payments to hospitals from the federal government be allocated? It depends on whether they are intended to compensate hospitals for Medicaid (MediCal in California) shortfalls or to compensate hospitals for services rendered to the uninsured? He calculates it both ways.

Interestingly, none of these studies deal with how "uncompensated care" is defined. Is it the cost of the care provided? Or is it the revenue not collected? There is a vast difference between these numbers.

The San Francisco Chronicle published a story about Mr. Kessler's study. Staff writer Victoria Colliver interviewed a couple of critics for their reactions. Peter Harbage, one of the authors of the New America estimates, said it "is very out of the mainstream." And Ken Thorpe of Emery University called it "startling" and questioned the author's motivations (the state Chamber of Commerce funded the study). Interesting reactions, since neither actually had anything to say about the methodology or assumptions in the study. Mr. Harbage's "mainstream" apparently consists of exactly one study of which he was the author. And Mr. Thorpe's invitation to consider motives could rebound on him, since he is a long-standing advisor to Democratic politicians.

Sacramento Bee columnist Dan Walters also weighs-in on the controversy. He notes the dispute about the magnitude of the "hidden tax" and says, "it would be foolhardy to base far reaching policies with multi-billion dollar consequences on (the New America Foundation) assertions without engaging in truly independent fact-finding -- or we may wind up with one of those expensive, unworkable monstrosities that politicians sometimes foist upon us. Remember energy deregulation?"

SOURCES:
Kessler's Paper.
Hoover Institution.
New America Foundation,
San Francisco Chronicle.
Sacramento Bee.

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State Reports

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The Grand Poobahs of Massachusetts.
It must be fun to be a Grand Poobah of health insurance in Massachusetts. Here you sit on your Grand Poobah cushion while the peasants come before you to plead their cases. One begs you to limit copays for visits and drugs because they add up pretty quickly. A doctor asks you to disallow deductibles of $2,000 because it provides "inadequate coverage." Yet a business owner says that is the only kind of coverage they can afford. A self-employed artist requests that you consider net income, not g